BY PATRICK McLAUGHLIN
In late January and early February, Belden (www.belden.com) announced its intentions to acquire two companies in separate deals valued at a total of more than $450 million. The company characterized 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.”
While Belden does, in fact, manufacture copper- and fiber-based cable and connectors for end-to-end systems, the company is historically known as a producer of copper cable.
The company expected a mid-March close date for the Hirschmann acquisition. In a conference call on February 16, Stroup stated the acquisition came after a bidding process that included several suitors.
According to plan
Stroup also 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 fiberoptic and wireless technologies. And third, the company wanted to shift its business toward solutions as opposed to component strategy.
The Hirschmann acquisition is seen as addressing Belden’s third observation, since Hirschmann is a systems-solution provider to the Industrial Ethernet marketplace. Stroup says the deal also helps address the second observation about serving vertical markets through fiberoptic 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. Electronic Control Systems (ECS) produces load moment indicators-safety devices used on cranes and other load-bearing equipment to prevent them from tipping over.
As part of its announcement of the acquisition, 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 fiberoptics in the industrial space.
Meeting challenges
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 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 conference call. “Bringing on Hirschmann, we now have connectivity as well as switches.” He 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. Belden has been acquainted with LTK for over 10 years. We took plenty of time to get to know each other. We cultivated our relationship.”
He added that LTK Wiring is a supplier to companies manufacturing consumer electronics, telecommunications equipment, white goods, automobiles, and other OEM products in China.
“With LTK’s manufacturing expertise and capacity, we are now positioned to better serve Belden’s Asia customers in networking, broadcasting, and industrial infrastructure.” 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 believes it is now in the world’s emerging markets, thanks to LTK’s sales offices in Japan, Taiwan, Korea, Singapore, and Thailand (in addition to China). The three manufacturing plants in China will also help Belden meet demands of its regional customers in Asia.
Belden also said the acquisition puts it into a leading position in consumer-electronics, a new market for the company. LTK Wiring has greater depth of experience working directly with OEMs than Belden had previously.
Stroup said 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 noted, 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.
When asked whether the acquisitions should be considered an “offensive” or “defensive” move, Stroup characterized 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 of these two acquisitions was coincidental, explaining that Belden will only enter into strategic deals that meet certain financial criteria. So, while Stroup’s 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.
