Industry pundits watching the global automation and controls sector believe a big deal is just around the corner. The trouble is, no-one is sure who is going to buy what. Most expect a series of big mergers to begin soon, triggered by the creation of one giant company, and leaving the rest of the market rushing to form alliances to keep up.
The players in the mix are the likes of ABB, Siemens, Emerson, Rockwell, Invensys, Honeywell, Schneider and so on – American and European players all trying to work out the best route to get more global reach, and an ideal mix of product groups.
Size-wise, they are remarkably similar. ABB and Siemens, the two big players, have annual sales of around $8bn within this specific automation market, but the rest turn over around half this figure. The betting is that Siemens will make the first move, with industry gossip ranging from Invensys to parts of Honeywell as targets. So the game plan in many boardrooms is now to work out who to target in subsequent mergers – assuming Siemens doesn’t get there first.
Andy Peters, vice-president of strategic consulting at US-based analyst ARC, believes the end game could be the creation of a handful of mega-companies in the automation and controls field, each with a strong presence in at least two continents, sales of at least $10bn, and a broad range of products and solutions. ‘We could end up with just three or four big gorillas playing in the global market,’ he says.
That would make sense. The global market for industrial automation in its broadest sense (which includes products and services right through from sensors and relays to enterprise software systems) is estimated to stand at around $100bn. Currently, even the biggest players are taking less than 10% of this total. With the constant drive among industrial companies to merge and consolidate, outsource and go global, the pressures to find economies of scale and global reach are intensifying.
Market analysts see Rockwell International’s move earlier this month to separate its Rockwell Collins avionics unit from its automation business (with the latter becoming the parent company) as a move that will add to its flexibility in the inevitable round of mergers. Collins turns over around $3.1bn, and has a higher return on sales than the bigger Rockwell Automation (with annual revenue of around $4.5m). But Collins’ existence as part of any ‘package’ up for discussion could have provided a stumbling block to merger talks with an automation partner.
Merger is likely to be the preferred route, as Rockwell has been cautious on borrowing, and, although there has been talk of a $2m war-chest for acquisitions, even this figure would not be enough to snap up any similar-sized rivals. And for tax reasons, Rockwell could find itself in the driving seat of talks, rather than as prey: for the next two years, the tax-free spin-off of Collins will mean that anyone trying to buy Rockwell Automation would face a complex and expensive tax bill. ‘It’s a poison pill, posing a hurdle to a buyer, and it could just ensure Rockwell’s continued independence,’ says Peters.
Speaking at Rockwell Auto mation’s annual trade fair for users and supplier partners in Philadelphia this month (two days before the spin-off announ cement), the company’s president Keith Nosbusch said acquisitions would play a part in boosting the company’s global reach. Currently only 35% of revenue comes from outside of the US. The target is 50% by 2004.
‘If I went and made a billion dollar acquisition in Europe I could be there tomorrow,’ he said.’But the problem with big acquisitions is you can’t always time them. We continue to evaluate more acquisitions every day. You can’t always pick the timing, but we’re very keen to grow our business through acquisition.’
Rockwell’s two-day Automation Fair had already drawn 10,000 visitors through the doors of the convention centre within two hours of opening – an indication of the market presence it enjoys in the US.
‘Right now we have a very good growth strategy and a good market position,’ Nosbusch said. ‘In this business, we think we have a great opportunity to be one of the consolidators.’