Electrical manufacturers are spending billions of dollars on acquisitions to grab a share of the electrical industry's fastest-growing markets. Here's where the action is right now - and will be in the future.
Electrical Wholesaling has always prided itself on being the electrical wholesaling industry's publication of record for mergers and acquisitions. Much of our attention has been on those electrical distributors that have been acquired — hundreds of them in the past few decades, and according to our count, at least 240 in the last 10 years alone.
But manufacturers have been busy acquiring companies, too. Over the past few years, acquisitions of well-known electrical companies include: American Power Conversion (APC), West Kingston, R.I. (Schneider Electric, 2006); Baldor Electric, Fort Smith, Ark. (ABB Inc., 2010); Burndy, Manchester, N.H. (Hubbell Inc., 2010); Carlon, Cleveland (T&B, 2007); E-Mon, Langhorne, Pa. (Honeywell, 2010); the building wire division of Essex Electrical Products, Fort Wayne, Ind. (Southwire, 2005); Genlyte Group, Louisville, Ky. (Philips, 2007); and Tork Inc., White Plains, N.Y. (NSI Industries, 2006). Many of the biggest acquisitions are being made by the same electrical manufacturers, and very often in the same product categories, as you can see chart on the next page, “The Big Deals: The Largest Manufacturer Acquisitions in the Electrical Market 2005-2011.” As the electrical market emerges from the recession, Electrical Wholesaling's editors wanted to take a closer look at these acquisitions to see what impact they are having on the electrical market right now and how they may reshape the business in the future. Here are our picks for the product areas that will see the most acquisition activity down the road.
Ever-more efficient lighting
It probably comes as no surprise to anyone who has been splattered by all the green ink in industry trade publications that the lighting market is one of the most active arenas for acquisitions, particularly in the rapidly growing LED niche. In his blog, “The Buzz,” Ted Konnerth, owner, Egret Consulting, Mundelein, Ill., reported that at this year's Strategies in Light conference held in Santa Clara, Calif., the word was that sales for LEDs in commercial lighting applications would grow from $900 million in 2010 to $4.5 billion in 2015 — a 39-percent annual growth rate.
The Dutch parent company of Philips Lighting Co., Somerset, N.J., has spent well over a billion dollars to bolster its business in the LED market space by acquiring Lumileds, Palo Alto, Calif. (2005); and Color Kinetics, Boston (2007). In total, Philips spent at least $5 billion on eight lighting acquisitions in the past six years alone. Aside from its LED acquisitions, the company's $2.7 billion blockbuster deal in 2007 to purchase the Genlyte Group, Louisville, Ky., added a broad package of well-respected fixture lines, and solidified the company's intentions to be a one-stop supplier for the lighting market.
LEDs also figured prominently into the many acquisitions by Cooper Industries, Houston, for its Cooper Lighting division based in the Atlanta area, which manufactures lighting fixtures and lighting controls. Its LED-related acquisitions included Illumination Management Solutions, Irvine, Calif. (2009); Io Lighting, Vernon Hills, Ill. (2007); and Powerline Communications, South Burlington, Vt. (2007).
And when you are looking at acquisitions in the LED segment of the lighting market, you can't forget the deals completed over the past few years by Cree Inc., Durham, N.C., and Acuity Brands Inc., Atlanta. Last year, Acuity purchased LED fixture manufacturer Renaissance Lighting, Herndon, Va., and several manufacturers of lighting controls. Cree purchased LED Lighting Fixtures, COTCO Lumiant Devices, Hong Kong, and Intrinsic Semiconductor Corp., Dulles, Va.
Another development in the lighting market that you should track is the plan by Siemens AG to spin off its Osram subsidiary, which operates in the United States as Sylvania Lighting, Danvers, Mass. Earlier this month, a Reuters report said Siemens intends to offer a majority interest in Osram in an IPO this fall, but that it plans to remain an “anchor investor” in the company, largely because of the sales potential it sees in the LED market. The Reuters report also said analysts estimate the Osram IPO will be worth as much as 7 billion euros (approximately $10.3 billion).
Wrapped up in miles of wire and cable
Distributors, manufacturers and reps have been on a wild ride with copper pricing over the past few years. Adding to this turbulence has been a bevy of high profile-acquisitions that included at least 15 separate deals. The biggest of them all — in fact the largest acquisition affecting the electrical market over the past five years — was the 2006 deal where Freeport-McMoRan Copper & Gold, Phoenix, bought Phelps Dodge for $25.9 billion (yes, that's “billion” with a “b”), creating the world's largest copper producer.
The wire and cable industry has a long history of acquisitions, as wire giants buy other companies to either gain economies of scale or to build up select product niches. It's not at all uncommon for the largest wire and cable companies to do both. Witness the recent acquisition surge by Southwire Co., Carrollton, Ga., which since 2005 has made at least seven different acquisitions including the following: American Insulated Wire (AIW)/Leviton, Melville, N.Y.; the building wire business of Essex Electrical Products, Fort Wayne, Ind.; DeCorp., Hendersonville, Tenn.; Cable Tech Global, Mineral Wells, Texas; Maxis Corp., Phoenix (a tool manufacturer); and Tappan Wire & Cable, Tappan, N.Y.
Southwire made headlines recently with the scale of some of these deals, particularly the purchases of AIW and Essex's building wire business, but Coleman Cable Inc., Waukegan, Ill., may not have attracted as much attention with a eclectic boatload of acquisitions featuring manufacturers of specialty wire and cable, portable cord and other retail wire and cable products, low-voltage cable, and industrial wire and cable. Last month, the company added to those deals with two smaller acquisitions in the industrial wire and cable segment of the market — First Capitol Wire & Cable and Continental Wire & Cable, both based in York, Pa. Over the past few years, the company spent at least $357 million for the acquisitions of Copperfield llc, Bremen, Ind.; Katy Industries, Arlington, Va.; Technology Research Corp., Clearwater, Fla.; and Woods Industries, Carmel, Ind.
The nuts-and bolts of data centers
As one of the few active segments of the commercial construction business, the data center market is attracting a steady stream of new players that want to get in on the action, and is seeing existing players build up their businesses in this niche. Intensifying their focus on data centers this year were Schneider Electric which purchased Lee Technology, Fairfax, Va.; Legrand SA, which bought Electrorack Products Co., Anaheim, Calif.; and GE Energy, Atlanta, which purchased Lineage Power, Plano, Texas, a provider of data center and telecommunications equipment. Two other big data center acquisitions during the past few years were Emerson Electric's purchase of Avocent Corp., Huntsville, Ala., and Eaton Corp.'s acquisition of Wright Line Holdings Inc., Worcester, Mass.
Look for more acquisition activity in the data center market. The commercial construction market has been an absolute train-wreck in recent years, but one area that has shown through as a beacon of hope has been data centers. Worldwide demand for data centers is expected to rise 12 percent this year, 14 percent in 2011, and 17 percent in 2012, according to Tier1 Research. Driving all of this construction is the trend toward cloud computing and the demand for storage of zillions of gigabytes of data for everything from inane Twitter tweets to Facebook posting and digital photos. In fact, while there were relatively few 2010 commercial construction projects valued at more than $100 million, at least three data centers hit that level, including a $180 million data center for Facebook in Prineville, Ore., and two $150 million data centers in California. To keep tabs on new data center projects in your local market area, check out www.datacenterknowledge.com, a terrific online resource for news and trends in this market segment.
A quiet giant in test instruments
Quick test: Who owns the best-known test equipment manufacturer in the United States, but is also a major player in dental equipment? If you said Danaher Corp., Washington, D.C., the owner of Fluke Corp., Everett, Wash., you would be correct. Through dozens of acquisitions over the past three decades, Danaher has grown into a $13.2 billion company with 48,000 employees in the test equipment, dental, environmental, motion, life sciences and product identification markets. In recent years, the company has built out its test equipment platform through acquisitions of Textronix, Beaverton, Ore.; Hawk IR International, North Yorkshire, United Kingdom; and Visual Networks Inc., Rockville, Md. As VDV and wireless systems get smarter and more complex, there's always a need for new test equipment to measure and document what's happening. Don't be surprised if Danaher adds to the high-end of its test equipment platform to keep pace in this rapidly evolving market segment.
Powering up in the motor market
Many mainstream electrical distributors don't watch motor acquisitions too closely, but they are missing out on an entertaining show. In the past five years, there's been more than $7.3 billion in motor acquisitions, including two multi-billion dollar deals involving the same company — Baldor Electric Co., Fort Smith, Ark., which bought Rockwell Automation's Reliance Electric motor business in 2006 for $2.25 billion. Five years later, ABB, Switzerland, bought Baldor for $4.2 billion. Also in the motor news have been two smaller acquisitions by the same company, Regal Beloit, Beloit, Wis., which bought A.O. Smith, Milwaukee, earlier this year, for $875 million and in 2008 acquired Dutchi Motors NV, a Dutch motor manufacturer, for $34 million. Regal also owns several other big names in the motor market — Leeson, Lincoln and Marathon.
The motor market will be an interesting product segment to watch down the road, as there will continue to be a big push for energy-efficient motors from NEMA's Premium Motor program, federal efficiency standards, utility-rebate programs, and the overall interest in green electrical products. Don't be surprised if more companies want to get in on the action in a market segment that doesn't always get its fair share of attention in the electrical wholesaling industry, but will offer plenty of real-world sales opportunities down the road.
Going All-American in tools
When you look at the 100-plus acquisitions of electrical manufacturers over the past five or six years, several acquisitions by the same company stand out as both a proud, patriotic statement and a savvy marketing strategy. Over the past two years, Ideal Industries, Sycamore, Ill., purchased three U.S.-based manufacturers of hand tools — Pratt Read, Shelton, Conn.; S&K Hand Tools, Chicago; and Western Forge, Colorado Springs, Colo. The company intends to keep the manufacturing of these product lines in the United States.
Big numbers in uninterruptible power supplies (UPS)
While sales of UPS equipment doesn't always add up to big dollars to most mainstream electrical distributors, the sales of UPS manufacturers hit the industry's M&A charts in a big way over the past few years. Most recently, Emerson Electric, St. Louis, won a bidding war against ABB last year for Chloride Group, London, United Kingdom, with a bid of $1.2 billion. The other mega-deal in this market space was the 2006 deal where Schneider Electric purchased APC for $6.1 billion.
The brains behind the smart grid
If you want a dollars-and-cents indication that electrical manufacturers believe the utility smart grid is for real, look no further than the dollar value of the acquisitions of manufacturers or suppliers of the complex software and supporting electrical and electronic products that will control the smart grid. It's been one of the most active acquisition arenas over the past few years. Key acquisitions in this niche include the purchases by ABB of Ventyx, Atlanta, and software manufacturers Insert Key Solutions, Chadds Ford, Pa., and Obvient Strategies Inc., Alpharetta, Ga. GE Energy, Atlanta, made some key purchases, too, with its acquisitions of Converteam, France; Remote Energy Monitoring Ltd., United Kingdom; Kelman Ltd., Northern Ireland; and software vendors Opal Software, Australia; and SNC-Lavalin's Energy Control Systems, Canada. Another acquisition of note in this niche was Belden Inc.'s acquisition of GarrettCom, Fremont, Calif.
These companies are all after a market that Lux Research says will grow from $12.8 billion this year to more than $30 billion over the next decade. The consulting firm says global giants like ABB, GE Energy, Siemens and Schneider and electric utilities will spend more than $20 billion by 2020 on smart-grid technologies.
Down the road
Global manufacturers based outside the United States — ABB, Schneider SA and Royal Philips Electronics — made four of the 10 largest acquisitions in the electrical market over the past few years. Expect these companies along with Siemens SA, Legrand, and mega-manufacturers from the Pacific Rim with lighting interests, like Sharp and Toshiba, to be some of the most active players in the acquisition game over the next few years and compete with U.S.-based firms in the sidebar on page 22 entitled “The Big Guns in Manufacturer Acquisitions.” As the global economy improves, funding becomes more available for acquisitions, and spending increases in the smart grid, lighting, renewables and other green technologies, you can expect plenty of new deals. Fasten your seatbelts.
The Big Deals: Largest Manufacturer Acquisitions in the Electrical Market 2005-2011
The 15 acquisitions listed here were the largest made over the past five years in the electrical market for which an acquisition price was publicly available. In total, these acquisitions totaled more than $50 billion (Source: Electrical Marketing newsletter).
|Rank||Company||Acquirer||Year||Acquisition Price||Product Market|
|1||Phelps Dodge, Doral, Fla.||Freeport-McMoRan Copper & Gold, Phoenix||2006||$25.9 billion||Wire and Cable|
|2||American Power Conversion (APC), West Kingston, R.I.||Schneider Electric SA||2006||$6.1 billion||UPS|
|3||Baldor Electric Inc., Fort Smith, Ark.||ABB, Switzerland||2010||$4.2 billion||Motors|
|4||Textronix, Beaverton, Ore.||Danaher Corp., Washington, D.C. (Fluke Corp.)||2007||$2.85 billion||Test equipment|
|5||Genlyte Group, Louisville, Ky.||Royal Philips Electronics NV, Amsterdam, Netherlands (Philips Lighting)||2007||$2.7 billion||Lighting|
|6||Reliance Electric/ Rockwell Automation||Baldor Electric, Fort Smith, Ark.||2006||$2.25 billion||Motors|
|7||Moeller Group, Bonn, Germany||Eaton Corp., Cleveland||2008||$2.23 billion||Industrial controls|
|8||Chloride Group, London, United Kingdom||Emerson Electric, St. Louis, Mo.||2010||$1.2 billion||UPS|
|9||Ventyx, Atlanta||ABB, Switzerland||2010||$1 billion||Utility power systems|
|10||Lumileds, Palo Alto, Calif.||Royal Philips Electronics NV, Amsterdam, Netherlands (Philips Lighting)||2005||$950 million||Lighting|
|11||Superior Essex, Atlanta||LS Cable, South Korea||2008||$900 million||Wire & cable|
|12||Partners in Lighting, Belgium||Royal Philips Electronics NV, Amsterdam, Netherlands (Philips Lighting)||2006||$704 million||Lighting|
|13||Color Kinetics, Boston||Royal Philips Electronics NV, Amsterdam, Netherlands (Philips Lighting)||2007||$688 million||Lighting|
|14||Lineage Power, Plano, Texas||GE Energy, Atlanta||2011||$520 million||Power conversion products|
|15||Carlon/Lamson & Sessions, Cleveland, Ohio||Thomas & Betts, Memphis, Tenn.||2007||$450 million||PVC products|
The Big Guns in Manufacturers' Acquisitions
Over the past five years, these companies made the most acquisitions:
- Eaton Corp.
- Coleman Cable
- Cooper Industries
- Danaher Corp.
- Hubbell Inc.
- Ideal Industries Inc.
- Royal Philips Electronics
- Schneider Electric
- Southwire Inc.
- Thomas & Betts