Amid reports that US manufacturing has expanded for the 29th month in a row, and growing hope for a lessening of fear (or at least fear-mongering) in the European debt crisis, and hope that the Chinese will have engineered a "soft landing" for their no-longer-growing at hothouse rates economy, the automation giants are beginning to spend some of the great big gobs of cash they've been squirreling away for that proverbial downpour. Apparently, they are beginning to think that we aren't going back into a recession, and they won't need that cash.
@Siemens announced today that they had acquired Canadian industrial networking vendor RuggedCom for a bunchaton of money...about 23 times EBITDA. In doing so, they outbid Belden, who had offered (and been rejected) about half as much. Analysts at Longbow Research released the following:
RuggedCom (Toronto: RCM) this morning agreed to be acquired by Siemens for C$440M, or C$33 per share, which represents a trailing EV/EBITDA multiple of more than 23x. Previously, RCM had unanimously rejected BDC’s bid to acquire the company for C$280M or C$22 per share, citing the financial inadequacy and opportunistic timing of the offer.
The proposed acquisition from SI should be final since the offer has the backing of RCM’s Board, and insiders control 16% of RCM shares. Consequently, we do not expect BDC to return with a higher offer, and we never received the impression BDC would have been willing to increase its already rich offer by another 50%.
For BDC, losing RCM is a mixed read. Over the long term, the deal would have been product and geographic complementary, and we have little doubt BDC would have been able to substantially improve RCM’s margin profile.
On the other hand, valuation was quite full (the C$22 offer valued RCM at ~14x trailing EBITDA) and we had modeled potential 2012 GAAP accretion of only a few pennies. Recall, BDC’s shares fell 2.5% the day the offer was announced.
Conclusion and Thesis: We expect BDC to walk away and continue its acquisition program. At BDC’s mid-December 2011 analyst day, management stressed BDC will have up to $1B in dry powder available through 2014 for M&A. BDC is targeting opportunities in emerging markets and complementary products and verticals, including further expansion into industrial and infrastructure networking and connectivity applications.
Why would Siemens blow money like that? Well, three things. First, it gives them a way to block Belden from acquiring another industrial networking company to complement Hirschmann, in North America. Second, it gives Siemens a North American high quality industrial networking distribution chain and manufacturing plant. Third, Siemens is so big that they can simply hide the performance of their acquisition if it doesn't go well. Companies have been known to do that. Danaher acquired a company called Kistler-Morse in the 1990s, saw (falsely) economies of scale in merging half of K-Ms product lines with Danaher/Hach's American Sigma product line, and when K-M failed to perform to Danaher expectations, hid their results for several years in Fluke's balance sheet. Eventually, they bought Venture Measurement, a struggling instrumentation vendor in South Carolina and merged what was left of K-M with VM
And also in today's news, @ABB announced the acquisition of Thomas and Betts, the large US manufacturer of "low voltage" electrical products. This is the largest acquisition ABB has made since buying Baldor in 2010.The analysts at the Wall Street Journal were worried that at 9.9 times EBITDA ABB had paid too much, but this gives ABB a strategic position in the North American market competing with Schneider (Square D) and Cooper (Crouse-Hinds).
Comparing the 9.9 EBITDA purchase of Thomas and Betts to the 23 times EBITDA purchase of Ruggedcom, it seems as though ABB may have gotten a good deal.
I would expect to see the music get louder as the acquisition polka gets going again.