In late January and early February, Belden (www.belden.com) announced the intention to acquire two companies in separate deals whose value total more than $450 million. The company characterizes the acquisitions as significant steps toward its strategic objectives.
On January 30, the company announced it had entered into an agreement to purchase Hirschmann Automation and Control GmbH (HAC; www.hirschmann-ac.com) from European private-equity investor HgCapital for a cash price of approximately $260 million. Hirschmann is a supplier of Industrial Ethernet solutions and industrial connectivity that generated $250 million in revenues last year.
“The acquisition of Hirschmann is a major achievement in our pursuit to expand our business in desirable end-markets, beyond cable, to signal transmission solutions,” says John Stroup, Belden’s president and chief executive officer. “In addition to having a broad portfolio of connectors for the industrial market, Hirschmann is the undisputed leader in the application of industrial Ethernet solutions.”
The company expected a mid-March close date for the acquisition. In a conference call on February 16, Stroup stated the Hirschmann acquisition came after a bidding process that included several suitors.
According to plan
Also in that conference call, Stroup stated that Belden developed its strategic plan after an assessment of the threats and opportunities ahead of it. While assessing its own situation, Stroup said, Belden made three primary observations. First, its business was concentrated in North America and Europe, and underrepresented in emerging markets including China and India. Second, the majority of the company’s business comes from copper cables, while every vertical market it serves has developed increasing interest in fiber-optic and wireless technologies. And third, the company wanted to shift its business toward solutions as opposed to component strategy.
The Hirschmann acquisition addresses Belden’s third observation, as Hirschmann is a systems-solution provider to the Industrial Ethernet marketplace. Stroup says it also helps address the second observation about serving vertical markets through fiber-optic and wireless technology. Hirschmann has three divisions: Industrial Ethernet, Industrial Connectors, and Electronic Control Systems. The Industrial Ethernet division, or “INet” as Belden refers to it, produces rail- and rack-mounted Industrial Ethernet switches and related equipment, including wireless access points. Industrial Connectors, or “ICon,” provides industrial connectors for sensors and actuators. And Electronic Control Systems (ECS) produces load moment indicators-safety devices used on cranes and other load-bearing equipment to prevent it from tipping over.
As part of its announcement, Belden stated, “HAC’s product range is highly complementary to Belden’s industrial cable product line. In a factory, many of the devices connected by Belden cable are the kinds of products made by Hirschmann. HAC’s industrial Ethernet expertise together with Belden’s signal transmission expertise will deliver to our customers global networking solutions for the most demanding environments.”
Belden added that the acquisition fits into its strategic plan by expanding its overall connectivity portfolio, improving market access, providing solutions for its existing industrial customers, improving the company’s position in emerging markets, and opening opportunities in wireless and fiber optics in the industrial space.
According to Stroup, Belden’s first priority with Hirschmann is to achieve revenue growth outside Europe. He said that while the company’s products are market leaders in Europe, and well-known and respected outside the continent, they have not benefited from sales support outside Europe. They’ll now have that sales support, he says.
“We are uniquely positioned because we’ve been on the factory floor and in the enterprise from a cable point of view,” he said in the February 16 conference call. “Bringing on Hirschmann, we now have connectivity as well as switches.” Stroup also stated that the go-to-market challenge will be real for this product line. “Customers are increasingly interested in solutions,” as opposed to components, he stated. “The modes getting to market through channel partners are somewhat bifurcated. Some are good with cable; others are good with automation. But we have already had some encouraging conversations with channel partners on both sides. We think we’ve got the method and path to get there, but it will require energy and thoughtfulness.”
Entering Asia
Eight days after the Hirschmann deal was made public, Belden announced it is acquiring LTK Wiring Co. Ltd. (ltkcable.com), which the company described as one of the largest manufacturers of electronic cable for the China market. Its 2006 revenues were $220 million. The deal, which the parties expect to close in early April, is an all-cash transaction for approximately $195 million.
“This acquisition propels us toward one of our stated objectives, expanding our presence in faster-growing emerging markets,” Stroup stated. “It adds another prestigious brand to our portfolio and better positions us to compete effectively in China.” He called the method by which the companies courted each other “nearly an ideal acquisition process.”
He added that LTK Wiring is a supplier to companies manufacturing consumer electronics, telecommunications equipment, white goods, automobiles, and other OEM products in China. Users of Sony’s PlayStation3 and Nintendo’s Wii video-game systems have made use of LTK products, as the company is a supplier for both of those entertainment systems.
“With LTK’s manufacturing expertise and capacity, we are now positioned to better serve Belden’s Asia customers in networking, broadcasting, and industrial infrastructure,” says Stroup. LTK has three manufacturing plants in China- Huizhou, Shanghai, and Dalian-which combined employ approximately 2,000.
Long-range view
Sizing up the acquisition’s fit with its corporate strategy, Belden says it places the company in emerging markets thanks to LTK’s sales offices in Japan, Taiwan, Korea, Singapore, and Thailand in addition to China. It also will help Belden meet demands of its regional customers in Asia, thanks to the three manufacturing plants in China. Belden also says the acquisition puts it into a leading position in consumer-electronics, a new market for the company. And LTK wiring has greater depth of experience working directly with OEMs than Belden had previously.
Stroup says he does not see LTK’s China manufacturing facilities as likely sources for products that will be sold to North American or European customers. “Freight and logistics generally offset cost advantages” of manufacturing in China, he notes, adding that a plant opening in Mexico this year will serve the North American market, and production facilities within Europe will continue to serve the European market.
As to whether the acquisitions should be considered an “offensive” or “defensive” move, Stroup characterizes it as offensive. “We’re not seeing significant cannibalization of our copper products by wireless or fiber. We’re acknowledging that in many applications and in many markets, a blend of these technologies is a superior path for the customer. We want to be better than anyone else at supplying that. We are a company that comes from copper, but we are increasingly becoming a company that is blind to the medium and really focused on giving the customers what they need.”
He said the back-to-back announcements were coincidental, explaining that Belden will only enter into strategic deals that meet certain financial criteria. So, while his preference would be to not have a long stretch of time before the company’s next acquisition announcement, that may, in fact, be the case.Short runs…
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