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Published in Manufacturing
Herman Miller President and CEO Andi Owen. Herman Miller President and CEO Andi Owen. COURTESY PHOTO

Blockbuster deal comes amid short-term furniture industry upheaval, long-term optimism

BY Sunday, April 25, 2021 06:25pm

Gilbert Rhode’s vision from nearly a century ago fits today’s changing furniture design landscape as Herman Miller Inc. proposes to buy competitor Knoll Inc.

In the 1930s, Rhode — the father of modern furniture design — urged Herman Miller founder D.J. De Pree to pursue a new furniture design style that would take off in the post-World War II era. The company would go on to deliver some of the most iconic furniture designs of the 20th century for the home and office. Rhode said at the time: “You’re not making furniture anymore; you’re making a way of living.”

In touting the proposed $1.8 billion cash-and-stock deal to acquire Knoll, Herman Miller President and CEO Andi Owen said Rhode’s vision from generations ago applies to today’s rapidly changing times for the office furniture industry. 

Owen and Knoll Chairman and CEO Andrew Cogan positioned the proposed acquisition as combining two design-driven furniture makers with rich legacies that are working to navigate profound changes that the COVID-19 pandemic has accelerated. Specifically, they referenced offering furnishings that accommodate far more people working from home, and a greater reliance on e-commerce.

“With all of the trends that have been re-shaping our lives — distributed work, a greater focus on the home, digital disruption — this really seemed like the perfect fit at the right time, and in a time when the world is changing so much,” Owen told brokerage analysts last week in a conference call to discuss the deal. “The changes we’ve faced over the past year have set in motion powerful trends that are shaping our world and our lives. The rise of distributed work models, a greater focus on the home, digital acceleration, the rise of direct-to-consumer business models, and a focus on sustainability and social good. Bringing Herman Miller and Knoll together, we will catalyze the home and office sectors at a time unprecedented disruption.”

Creating a powerhouse

The need for furniture makers to steer more toward accommodating home offices is reflected in recent polling. In a Harris Poll this month conducted for Oklahoma-based Express Employment Professionals, 35 percent of respondents said remote work “will become the new normal.”

As the entire industry adjusts to that dynamic, uniting two players with deep design legacies and product portfolios creates a design powerhouse that can appeal even more to architects and designers planning a renovation or new spaces, said Tara McCrackin, president of Ferris State University’s Kendall College of Art and Design in Grand Rapids.

Architects and designers and their clients who use different manufacturers on large-scale projects for seating, storage and workstations could source a wider breadth of products from a single manufacturer, she said.

“I think it makes them a powerhouse. Not that either company was not a major player, but coming together just makes that impact stronger,” said McCrackin, a workplace designer and a past president of the International Interior Design Association’s Michigan chapter.

“We were already seeing a shift toward very blurred edges on residential, commercial and hospitality, and all of these classic pieces fit all of those markets,” she said. “It’s bringing all of the iconic lineup under one umbrella, and I think it’s kind of amazing.”

Zeeland-based Herman Miller (Nasdaq: MLHR) and East Greenville, Pa.-based Knoll (NYSE: KNL) together have 19 brands, a presence across more than 100 countries, a global dealer network with 64 showrooms, more than 50 physical retail locations, and global multi-channel e-commerce networks.

The two companies combined would have $3.6 billion in revenue and $552 million in adjusted pro-forma earnings before interest, taxes, depreciation, and amortization (EBITDA), based on their most recent fiscal year results.

The acquisition would create a new industry sales leader. By comparison, Grand Rapids-based office furniture industry leader Steelcase Inc. (NYSE: SCS) last month reported $2.59 billion in revenue for the 2021 fiscal year that ended Feb. 28. The revenue was a 30-percent reduction from the prior fiscal year that resulted from the COVID-19 pandemic’s effects on the industry.

Pandemic driving change

The changes accelerated by the pandemic present both immediate challenges and long-term opportunities for the industry, Steelcase CEO James Keane told MiBiz.

“I think there is a new era taking shape in our industry around work, workers and workplaces. Everything is changing and it creates terrific opportunities for Steelcase and for our industry,” said Keane, who this month announced plans to retire in October. “I think Herman Miller’s investment in Knoll wouldn’t happen if they didn’t also have an optimistic viewpoint about the future of work and all the places where people work — offices, homes and everywhere else. I think of it as reaffirming my confidence that this is a really exciting time in the industry.”

The deal comes as the office furniture industry has been mired in falling sales in the wake of the pandemic.

Knoll’s 2020 sales declined 13.4 percent to $1.23 billion. Herman Miller in March reported an 11.3-percent decline in sales for the third quarter of its 2021 fiscal year, to $590.5 million. Sales for the North American contract furniture market dove 35 percent while orders declined 38 percent.

On the upside, retail sales that Herman Miller has placed a strategic focus on the last two years grew 63 percent compared to the prior year, while orders accelerated 81 percent.

By coming together, Herman Miller and Knoll can better adjust to the new reality, Owen said.

“We believe this union will shape the future of our industry as a whole, and we’re excited to explore all the ways in which Herman Miller, together with Knoll, will be well-positioned to drive long-term growth and excellence across the business,” Owen said.

The deal should close by the end of the third quarter, pending shareholder and regulatory approvals. Owen will serve as president and CEO of the merged company. Cogan will depart Knoll after 30 years with the company.

Under terms of the merger, Knoll shareholders would get $11 in cash and 0.32 shares of Herman Miller common stock for each of their shares. Herman Miller also will buy outstanding shares of Knoll’s preferred stock from investor Investindustrial VII L.P. for $253 million in cash, or $25.06 per share. Investindustrial VII L.P. agreed to vote its shares in favor of the deal.

Herman Miller intends to finance the deal with cash on hand and new debt. The company has secured a $1.75 billion commitment for senior debt from Goldman Sachs. Executives expect the acquisition to generate $100 million in cost savings within two years.

Read 2170 times Last modified on Sunday, 25 April 2021 18:25
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