November 20, 2009
It was announced last week that GE had selected a buyer for its security business. United Technologies agreed to purchase GE Security for $1.82 billion, where it will be integrated with UTC’s Fire and Security business. The sale, approved by both boards, represents a multiple of 1.5 times GE Security’s revenues, which are expected to reach approximately $1.2 billion in 2009, and nine times EBITDA. According to President and CEO Louis Chenevert, the acquisition will be neutral to earnings in 2010 and accretive in 2011 and beyond, after restructuring and integration will enable UTC to take advantage of synergies.
With this acquisition, UTC continues its strong push in the security and life safety industry and greatly expands the company’s geographic footprint. UTC has traditionally had a strong presence in Europe, having previously acquired Chubb, Marioff and the Firex Safety Division of Invensys. The takeover of GE Security gives UTC a much stronger presence in the North American marketplace. In addition, when combined with the previously mentioned acquisitions, and Lenel, Carrier and Otis, this transaction continues UTC’s push to become a “one-stop-shop” supplier of building automation equipment.
We think this transaction is positive for the M&A environment in security and life safety. While GE had significantly backed off its rate of acquisitions after the Edwards Systems Technology transaction, UTC has continued to be an aggressive buyer. Furthermore, the announcement of the agreement to purchase GE Security signals bullishness on the part of UTC executives, who expect to see growth and profitability in this segment positively impacting financial performance in the near future. Although they will undoubtedly take some time to integrate the GE business, we believe UTC will nevertheless continue to make selective acquisitions to fill in strategic niches in the security and life safety industry.
As a final note, this story may may not end with the closing of the GE Security purchase. There is some speculation that UTC may seek to divest certain portions of the acquisition such as the video surveillance piece.
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Posted by Peter Yu ptyu@gtadvisors.com
September 25, 2009
Some quick thoughts that have come out of our visit to the ASIS 2009 expo this week:
- Relatively light traffic on the exhibition floor, especially before 1 pm on Monday and on Wednesday.
- Several executives mentioned that U.S. Government money was finally starting to flow in the second half of this year.
- We heard rumors that GE Security may be split up in order to sell it.
- Schneider has completed its assimilation of TAC and has changed its name; the Pelco brand apparently still carries enough market value for Schneider that it is remaining distinct.
- SCM Microsystems, which acquired Hirsch Electronics at the end of last year, announced on Monday an agreement to acquire Bluehill ID an investing firm specializing in RFID technology. In the combination, SCM shareholders will own 60% of the surviving entity.
- Although many have said that video surveillance has had a rough time, several booths in that segment appeared quite busy at the show.
- Several companies, such as ShotSpotter, SEER Technology and AOptix, brought sophisticated technologies to bear on some age-old problems and seemed to be on the cusp of significant business. We’ll have to keep tabs on them to see how they live up to their initial promise.
In an interesting anecdote, K&G Spectrum, told us about a potential customer who wanted to track animals and was very concerned about any possible harmful effects of millimeter wave radiation. The executive who spoke to us mentioned that other customers wishing to detect humans never had such concerns.
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Posted by Peter Yu ptyu@gtadvisors.com
July 13, 2009
I watched the reaction – the way the stocks have behaved – of Finisar and JDSU with interest in the days since their press announcements last Thursday morning. Finisar’s shares advanced less than I would have guessed at the time of the announcement and JDSU’s more. That leads me to wonder what is different in how the markets see this transaction.
JDSU might be the easier to understand. First, I was underwhelmed from a JDSU perspective, because for nearly a decade the Finisar network tools business has struck me as having been long on growth potential and short on that coming to fruition. I’m sure a close look will prove me wrong, but this has never been an exciting source of growth for the company. So I concluded, why should I be excited about it for JDSU?
The answer that perhaps eluded me is that this is the first real acquisition of the Thomas Wachter era at JDSU and perhaps it is signaling to investors the new CEO, who came from the test side of the business, is going to push the company deeper in that higher margin and typically more profitable direction. I guess we’ll see.
My off the mark rationale on Finisar was the company had taken steps to eliminate the big issue that had overhung its shares for months; how to retire more than $100 million in convertible debt? By selling a non-core line of business and pursuing an exchange of cash and stock for the debt, it will largely put the issue behind them. Despite this, the stock barely moved on the news and the company garnered criticism in some corners for doing something out of necessity that seemed ill-timed.
I have to wonder where things come out a few months because frankly, unlike many companies, I think this is an instance of both companies doing the right thing and more companies should be as thoughtful about getting their business issues under control in this environment instead of treading water.
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Posted by Kevin C. Slocum, Managing Director, kslocum@gtadvisors.com
June 23, 2009
FLIR Systems Robust announced last week that it had acquired Salvador Imaging, maker of visible and low-light imaging systems, for $13 million in cash. The charge coupled detector (CCD) technology developed by Salvador features an electron multiplying effect which acts as a preamplifier to the detected signal, enabling low light operation. Salvador’s cameras are characterized by full-color, high resolution images.
Salvador’s founder, David Gardner, is something of a serial entrepreneur in the camera business. He founded Silicon Mountain Design, which he sold to Dalsa in 1999 for $11.5 million. Later, using seed money from Photon Dynamics (PD, now part of Orbotech), he founded Summit Imaging (sold to PD in 2003 for $1.7 million) and with $800,000 from PD, founded Salvador. In 2007 PD purchased Salvador for $19.5 million, which was then purchased back by Gardner last fall.
We see FLIR’s recent action as further evidence of the strong market for image-based sensing equipment. Although CCDs operate outside of the infrared (IR) spectrum, FLIR has stated that it often develops camera systems in the visible band, particularly for low-light applications.
Each segment of the electromagnetic spectrum has unique capabilities that make it useful to a comprehensive security surveillance system. The purchase of Salvador, to be re-named FLIR Advanced Imaging Systems, enhances FLIR’s ability to provide a greater portion of each multisensory system demanded by its government customers.
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Posted by Peter Yu ptyu@gtadvisors.com
June 4, 2009
M&A activity is slow, but not dead. Yesterday, Thomson Reuters had a blog post on their own data showing M&A volume at its lowest point in six years and down 40% Y/Y and transactions under $500 million, fell 48 percent.
It seems the same factors are being felt across many industries; indigestion from debt loaded capital structures, caution in the face of uncertain end-market demand and indecision about corporate strategy. Yet there are companies working towards structural moves; thus we are seeing three types of deals get done 1) fire sales of distressed assets 2) acquisitions to pull indispensable capabilities in-house and 3) low-risk mergers of equals or asset swaps. We view this as the starting point for increased M&A in optical components over the rest of the year.
Yesterday we saw one such move; Oclaro (the former Bookham + Avanex) agreed to swap its New Focus catalog business for Newport’s high power laser diode business plus some cash. In our mind this affects a positive structural change at Oclaro with little risk or cost. Oclaro’s gross margins will improve due to better loading of its compound semiconductor fabs and with the move Oclaro achieves greater marketing reach in commercial lasers.
Thus far in this quarter, there have been other examples such as:
April 3rd, Ingis ASA acquired Syntune, maker of tunable lasers for stock and assumption of debt.
April 14th, Photonera acquired Intexys Photonics, maker of terabit parallel optical modules.
Besides the financial barrier being lower for such deals, these are companies finding a way to keep moving forward, even if that means accepting stock instead of cash as a means to liquidity. We expect the pace of this sort of transaction will accelerate as the year grinds forward.
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Posted by Dennis Gallagher dgallagher@gtadvisors.com
April 27, 2009
Swine flu has taken over the headlines today, with scores of cases documented in the United States and more than 1,500 in Mexico, where over 100 victims have died. Reports from far-flung locations such as Canada, Spain and New Zealand of detected and suspected infections demonstrate how quickly infectious diseases can spread over vast distances in our increasingly global, jet-setting society.
Preventing an outbreak from becoming a full-blown pandemic is a primary duty of health ministers throughout the world and early detection is one of the key factors helping to control transmission of pathogens. Because increased body temperature is a strong indicator of infection, a fast and reliable thermal measurement system is useful in helping to identify candidates for quarantine. Singapore’s health ministry recently announced that it was using thermal scanners as a preliminary screen at Changi International airports to check passengers arriving from the U.S. Similar measures were being taken in other Asian countries including Japan, Indonesia and Thailand.
IR Thermography of Potentially Ill Travelers
During our sale of Janos Technology, we pointed out to potential acquirers that detection of feverish travelers was one strong potential application of IR imaging technology and recent news provides evidence supporting this assertion. We think the thousands of airports, ports of entry and border crossings worldwide represent a significant opportunity that has not gone unnoticed by companies like Fluke and FLIR. Fluke’s recent acquisition of Hawk IR International and Axsys’s announcement that it is considering a sale are indications that M&A activity remains strong in this sector.
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Posted by Peter Yu ptyu@gtadvisors.com
April 22, 2009
Fluke Corporation announced today that it had acquired Hawk IR International, a UK company specializing in the manufacture and sale of a number of IR safety products including windows, cameras and glasses. This acquisition is the second by Fluke in the past few quarters and underscores its commitment to thermal imaging technologies. We think the addition of Hawk IR moves Fluke further along the path to being the preeminent supplier of IR imaging systems that are as ubiquitous is its iconic multi-meter.
At the end of last summer, we represented Janos Technology, a leading supplier of IR optics and subsystems, in its sale to Fluke. At that time, we noted significant interest from a number of acquirers for IR technologies. Janos’ potential synergies with existing portfolio businesses and strong fit with strategic direction enabled Fluke to find greater value than competing acquirers and ultimately win the prize. Fluke’s purchase of Hawk IR helps to confirm our belief that companies continue to look for acquisitions that fit their larger strategic plans, even in a challenging economic environment. Forward-looking companies are not just hunkering down, but are busy positioning themselves during this downturn so that they will experience stronger growth when the economy eventually recovers.
1 Comment | Technologies, Transaction News | Tagged: Imaging, IR Cameras, Optical Components, Security | Permalink
Posted by Peter Yu ptyu@gtadvisors.com
April 2, 2009
In a sort of addendum to the post below on the dearth of venture-backed IPOs, this morning a news article discussed the prospect for an IPO from Rosetta Stone, the ubiquitous language learning system. This is not the type of IPO I am typically attracted to despite its stellar near-term growth prospects primarily because I have no sense of where market saturation hits. But clearly, it has a great number of positive attributes for an IPO including a consumer focus, great name recognition and easily understood business model.
Companies we care about in our practice rarely have any of those positives, but in my mind are often more attractive because despite ups and downs in the businesses, they typically represent more open-ended opportunities. Trees do not grow to the sky, but it is easy to imagine a company like Opnext growing to a multi-billion dollar business based on migration to the use of tranceivers in all communication systems and leading the growth in modules for 40G adoption.
But the Rosetta Stone IPO, if successful, could be instructive as to both the psyche of the capital markets and a benchmark of what it takes to get public in the current (mid-2009) environment. A few figures I picked off from the company’s S1 are:
- - Revenue ttm: $209.4 million
- - Revenue growth rate past 4 years: 62.9% CAGR
- - EBITDA ttm: $35.9 million (17%)
- - EBITDA growth rate past 4 years: 68.5% CAGR
Clearly, the financial metrics outshine most peers, and this is perhaps what gives them the confidence to march forward in a difficult market. It is worth watching how successful this IPO is; if the total amount needs to be reduced, or if the pricing drops below the current range of $15-$17.
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Posted by Dennis Gallagher dgallagher@gtadvisors.com
April 2, 2009
Qwest is apparently in the throws of hunting for bidders for its long haul network; something akin to the unbuckling of services from the network that we discussed earlier this week, but short of what we would consider ideal.
Some of the accounts we have seen of Qwest’s attempt talk about the difficulties they are having finding bidders. In the current environment that’s not much of a surprise. If the split we talk about is truly going to happen and work, a single carrier, like Qwest, will need to split into two or three companies similar to the Verizon example we used in my post. With that said, I hope they pull it off because it is a step in the right direction.
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Posted by Kevin C. Slocum, Managing Director, kslocum@gtadvisors.com
April 2, 2009
Yesterday, Kevin Slocum offered some perspective on how we view the IPO market, in summary, it is better for us all if the IPO market recovers and the most likely scenario for the markets is that over time, this too will recover. Near term though, the IPO market is not just playing possum. Thomson Reuters and the National Venture Capital Association published their summary of M&A and IPO markets updated for the first quarter of 2009 and it was not pretty with no venture backed IPOs in the last two quarters.
IPO by Quarter for VC Backed Companies
The M&A numbers were not impressive either, with only 13 transactions with value disclosed, down from 40 in the prior year’s first quarter. Here too, the trend since the middle of 2008 has been only down.
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Posted by Dennis Gallagher dgallagher@gtadvisors.com
