Summary
- Columbus McKinnon shareholders started the day with the unexpected news that CEO Mark Morelli is resigning to become the CEO of Fortive's NewCo spinoff.
- Morelli leaves Columbus McKinnon much better than he found it, but parts of his Blueprint for Growth are likely on pause (particularly M&A) until a new CEO is identified.
- CEOs want to be independent, but CMCO's board would do well to find a new CEO who intends to manage and develop the business along similar lines.
- Even with a 100bp risk premium added to my discount rate, CMCO shares look undervalued on this sell-off, but a full recovery may wait for the new CEO.
Success is, on the whole, a good thing. Even so, it can create its own set of problems, and Columbus McKinnon (CMCO) shareholders are seeing that today (December 11), as the shares are selling off on the surprising announcement of the CEO’s resignation to take the top spot at Fortive’s (FTV) NewCo spinoff.
I believe the loss of Mark Morelli is a significant one, as he oversaw a transformational restructuring process (Blueprint for Growth) that has seen Columbus McKinnon slim down and focus on growth opportunities in material handling, and automation in particular. Although I think Morelli leaves the company much better than he found it, the process of finding a new CEO could well put the transformational process on “pause” and there are always uncertainties when new leadership is brought into a successful situation.
I’m cautiously optimistic that Columbus McKinnon will navigate this transition well – I believe the board has clearly seen the benefits of the strategy Morelli espoused and implemented, and I would expect the board to find a new CEO who will run the company along broadly similar lines. I’m boosting my discount rate by a point to account for the added risk, but the shares are still worth considering.
Farewell, And Well Done
Columbus McKinnon and Fortive announced Wednesday morning that CEO Mark Morelli had resigned his position as CEO of Columbus McKinnon to take the CEO position at Fortive’s NewCo spinoff. Columbus McKinnon’s Chairman will take the CEO role on an interim basis, but the company will initiate a CEO search process.
As someone who has been very impressed with what Morelli accomplished at Columbus McKinnon over approximately the last three years, I’m sorry to see him go. Morelli has led the company out of some unattractive businesses and instituted the Blueprint for Growth – a multiyear strategic plan that has focused on lean manufacturing, supply chain optimization, portfolio and customer optimization, and a new focus on growth through product and market development, with a particular focus on automation.
This program has already led to higher gross margins (by about four to five points) and operating margins (by about two points), as well as more dynamism in the product portfolio. And while it’s early to make this claim, I believe the cost, manufacturing, and product optimization steps have made Columbus less vulnerable during cyclical down-cycles.
I believe Fortive NewCo is getting a very good CEO, and given the sheer difference in scale between the two businesses (Fortive NewCo will be about 3.5x larger than Columbus McKinnon), I can’t begrudge Morelli’s desire to take on a new, even larger challenge.
I’d also note that this may not necessarily be horrible for Columbus McKinnon over the long term. I have little doubt that NewCo will look to continue the Fortive tradition of M&A, and with NewCo’s greater leeway to focus on, and invest in, industrial technologies (versus Fortive’s pivot towards healthcare, sensing, industrial IoT, and software), it wouldn’t shock me if Fortive NewCo made a bid for Columbus McKinnon.
