OPPORTUNITY IN DISTRIBUTION
In the early 1980s the U.S. market for industrial gases was dominated by a few major producers — the Linde division of Union Carbide (now Praxair), Air Liquide, Air Products and BOC. These companies accounted for 60 percent of sales, delivering mainly to major users via large bulk shipments or pipeline. Gases supplied in cylinders and small shipments through independent “mom-and-pop” distributors accounted for the remaining sales to hospitals, welding shops and other small-scale users.
Many of the independent distribution companies were founded after World War II by veterans who took advantage of the G.I. Bill to obtain small business loans. By the 1980s some were eager to cash out and retire. Spurred by $3.5 million in sales in its first year, U.S. Airgas was eager to oblige.
U.S. Airgas saw that the industry was entering a period of consolidation and kicked the acquisition machine into gear. Through a series of deals, the company purchased distributors in a variety of locations. There was little competition, since most small companies were not interested in expanding outside of their geographic region, and big producers confined their efforts to major metropolitan markets. So U.S. Airgas went after secondary markets served by independents, especially those with excellent growth potential and a high density of potential customers.
EARLY COMPANIES AND HUBS
fast as Airgas, guys who were direct competitors today can end up working side by side tomorrow.”
Richard Watson, Regional VP, Airgas Mid America
The acquisition of Oxalloy in January 1983 strengthened the Connecticut hub. In December 1983 came the purchase of Potomac Oxygen in Virginia, creating a second base of operations. In 1984 a Michigan hub came to life after Mid-Michigan Welding Supply, Valley Oxygen, and Wolverine Gas Products were all acquired within a three-month period. In 1985 acquisitions in Tennessee and Georgia formed two more hubs.
By becoming part of U.S. Airgas, companies achieved economies of scale, streamlined their operations and gained buying power. In return, U.S. Airgas got personnel with market knowledge, strategic relationships and loyal customers.
WERCO AND AIRGAS: 1986
By 1986, U.S. Airgas’ sales had grown to over $35 million. The company believed the opportunity existed to roll up the industrial gas distribution industry, but it lacked the necessary capital. An ingenious solution came through a merger with the Welders Engineering Research Company (Werco). McCausland’s relationship with Werco dated back to his days as a lawyer for Messer Griesheim, and he had played an important role in Werco’s own acquisition strategy over several years.
With annual sales of $68 million, Werco was a medium-sized manufacturer of welding supplies and related products used in the industrial gas industry. McCausland and Werco’s owners agreed to combine the two companies through a reverse merger in which Werco acquired U.S. Airgas, but U.S. Airgas ran the new company, now called Airgas, Inc.
When the dust settled, the newly formed Airgas was a $100-million company. Werco’s chief executive, C. D. L. Perkins — who had earlier been McCausland’s boss at Messer — became the first CEO of Airgas, and McCausland took over a year later.