VDC Research: Industrial Sensing, Networking & Control Market Blog

Recent Acquisition of Invensys Rail by Siemens, Is Invensys Operations Management Next on the Block?

Siemens recently announced its plans to acquire Invensys Rail for about $2.8 billion (~$1.7 billion Euro) and the deal is expected to close in Q2 2013 assuming it meets no regulatory obstacles.  In VDC's opininon this deal thereby opens up the possibility that Invensys may also spin off its Invensys Operations Management and Climate Controls businesses as a means of maximizing its value to shareholders, something that was at least speculated based on reading some articles in June and September of this year.

Apparently there were (are?) several interested parties in a possible acquisition of Invensys Operations Management (or perhaps Invensys overall) including Emerson, ABB and GE. An acquisition of IOM by anyone of these companies would definitely represent a major shake-up in the competitive landscape as it would bring in over $1.6 billion in revenues and a great deal of sizeable customer accounts and a pretty strong product portfolio including leading brand names such as Foxboro, Eurotherm, Wonderwre and Triconex, among others. The addition of such a product, solutions and services portfolio to anyone of these rumored acquirers would be a real competitive advantage.

I have written several blogs in the past regarding my analogous use of PAC Man to explain industry consolidation occuring in any number of different product and technology markets. If an acquisition of Invensys overall and/or Invensys Operations Management went down then that would represent a pretty sizeable example of PAC Man in action. You can learn more about several of the key markets in which Invenys and its rumored suitors compete by checking out VDC's Industrial Automation practice homepage.

B&B Electronics Catching PAC Man Fever, Acquires Conel and Quatech

After a hiatus from blogging I thought I would get back into the fray by writing a quick blog about B&B Electronic's recent acquisition of Conel, a Czech based supplier of wireless communications routers, gateways and devices that connect cellular networks to Ethernet, serial and other data networks.

The acquisition further expands B&B’s European footprint, as well as strengthens B&B’s position in the fast-growing wireless market by extending its reach into cellular communications networks.  In Q4 of 2011, B&B acquired Quatech, Inc., an industrial networking company with a complementary product line that included an industrial-grade embedded OEM wireless technology platform sold under the Airborne brand name.

“The Quatech and Conel acquisitions are consistent with our strategy of rapidly growing our market share and deepening our technology solutions,” explained Sean Harrigan, B&B’s president and CEO.  “As our industry continues to consolidate, we plan to remain aggressive in seeking out a wide range of opportunities that will strengthen our position, product breadth and the value we bring to our customers.”

I must admit that B&B Electronics was not on my radar screen of companies that I would have foreseen playing the role of PAC Man. In hindsight, B&B Electronic is a prime example of a company that was realizing that its prospects of longer term success as a small/mid-tier player where to either grow by acquisition or likely be gobbled up by another larger player seeking to reach its growth based MBOs.

In VDC's Wireless Industrial Networking Infrastructure Products market study I made the observation that, for the most part, companies looking to succeed in the longer term would have to decide on, and act on, a strategic course of action that basically boiled down to three options, 1) gain share through both organic and acquisitive growth, 2) remain a niche player serving segments which a strong beachhead exists, or 3) be prepared to be acquired by another company seeking to either fill a gap in their product/technology/service portfolio. In rare instances a supplier may eventually go out of business if they are not serving a defensible niche segment and/or are growing via acquisition.

Following a PAC Man strategy will likely play a very active role in shaping the competitive landscape in the industrial automation space for some time to come.

PAC Man Strikes Again in Level Measurement Markets - MSI Acquires Assets of Cosense

Just having completed the final PowerPoint slides, which includes commentary on M&A activity in the level market segments, in support of the first two of four reports in support of VDC's 2011 Process Level Measurement and Inventory Tank Gauging Market Intelligence program, Measurement Specialties Inc. (MSI) decides to acquires the assets of Cosense, Inc. The purchase price was $11.5 million and the transaction was closed on April 2, 2012.

Cosense is a designer and manufacturer of ultrasonic sensors and systems for highly reliable OEM Fluid measurement and control applications such as liquid level monitoring, air bubble detection, flow sensing, fill verification of liquids and solids for semiconductor, medical, aerospace, and industrial applications. MSI is covered in VDC's level research as a supplier of hydrostatic level measurement devices so the acquisition is a move designed to broaden MSI's reach into the sonic/ultrasonic market segment which represents a >$250 million opportunity worldwide.

Frank Guidone, MSI's CEO commented, "Cosense's ultrasonic sensors are an excellent addition to our current product portfolio and fit nicely within our Piezo product line. Cosense products are used for single-point, multi-point, and continuous liquid level measurement, along with entrained bubble detection. Their innovative solutions are very complementary to our existing product offering, particularly within the high-purity semiconductor, medical infusion pump, and commercial aerospace markets."

MSI did not provide VDC with any advance details on the acquisition but its actions confirm VDC's belief that the market for process level measurement technologies is continuing to consolidate as companies face the omnipresent pressure to achieve their growth objectives through whatever means necessary. Acquisition of new products/technologies is one strategy employed by businesses across all product and/or technology markets across the world and the process level measurement market is no exception.

PAC Man Strikes Again in UPS/Surge Markets, ABB Acquires Thomas & Betts

After a long hiatus I have decided to get back on the blogging trail with albeit a belated blog about ABB's acquisition of T&Bat the end of January. I must admit that the bulk of the deal centers around T&Bs manufacturing of low-voltage and ultra low-voltage electrical products such as connectors, conduits and fittings as well as wiring management products for the construction, industrial and utilities markets. These are products complementary to the offering of ABB’s Low Voltage Products division, which includes products such as breakers and switches.

ABB previously acquired Newave back in December 2011 as a means of broadening its UPS offerings which one of my colleagues blogged about at the end of 2011 based on our Power Protection market intelligence. Of interest to this particular blog is T&Bs line of hard wired surge protection products and industrial UPS solutions and T&Bs  network of more than 6,000 distributor locations and wholesalers in North America which complements ABB's well established distribution channels in Europe and Asia.

Time and again VDC's research, which relies on feedback from extensive web and phone surveys, reveals that most customers are increasingly desiring to partner with suppliers that can provide a complete product portfolio but also best in class service and support. ABB instinctively realizes that in its corporate DNA and has completed a number of acquisitions in different markets in which VDC provides coverage, including process level measurement and HMI solutions.

Through its acquisition of T&B, ABB will be able to provide its customers a more complete selection of UPS and hard wire surge solutions with which to meet their needs and help them to move effectively compete in their respective markets. It also provides ABB a strong beach head from which to gain market share in the hard wired surge protection markets and the industrial UPS segments, both of which T&B has a solid footprint.

The overall market for power protection solutions is quite large but also fragmented on some levels, thus VDC anticipates seeing more PAC Man activity as suppliers continue to seek revenue growth not just through organic new product development initiatives.

Siemens Shakes Up Industrial Networking Market with RuggedCom Acquisition

Having just blogged last Thursday about the recent tactic by RuggedCom management’s to employ a ‘poison bill’ delay in order to search out more attractive suitors who might outbid Belden’s C$280 million (C$22/share) ‘hostile’ bid, little did I know that Siemens would act so quickly by agreeing to acquire RuggedCom for about C$382 million (C$33/share) on Monday.

The offer represents almost a 40% premium to Belden’s initial offer and certainly seemed a little rich to me. However since I did not have privy to RuggedCom’s real financials it is speculation on my part and I would give the folks at Siemens the benefit of the doubt that they can realize a decent ROI over the longer term. The real value of the acquisition is that it likely opens up the opportunity for Siemens to sell their larger portfolio of solutions to RuggedCom’s core markets of electric power (smart grid), transportation and military, markets for which over 90% of revenues are derived and for which Siemens lacks a strong presence.

Siemens was one of the potential suitors I blogged about back on 1/06/12 that may have been considered as an interested party in RuggedCom. However I must admit I did not view them as being on the top of my short list despite Siemens being one of the top 5 industry leaders in both the interconnect product and networking component segments comprising the industrial networking infrastructure products market.

In hindsight the acquisition does seem to fit with the rumors I am hearing during discussions with suppliers in the process level measurement markets who are constantly complaining about the tremendous amount advertising Siemens is spending to support products which these suppliers question are generating sufficient revenues to warrant such spending. Siemens’ Industry Automation Division had 2011 revenues well in excess of $8 billion and has traditionally lacked a really strong beachhead in the Americas and Asia-Pacific, at least in terms of its industrial networking presence.

Personally I see this acquisition creating a real horse race in the $3.7 billion industrial networking (wireline and wireless segment 2012 forecast) infrastructure markets with Cisco, Belden, now Siemens, Phoenix Contact, Moxa, Harting and Schneider Electric all battling it out in different product segments for control of a robustly (>20% CAGR) growing market. I do not expect Siemens to feel the near term need to realize as many "synergies" (i.e. layoffs) from the acquisition as Belden would have and believe that Siemens realizes that sometimes you have to spend money to make money.

2012 is already turning out to be an exciting year with my beloved New England Patriots battling the dreaded NY Giants for the Super Bowl this Sunday, the possibility of the nation electing a new President and the chance to see if my crystal ball on the dynamics impacting the industrial networking market will continue to be right on the mark.

Will RuggedCom's 'Poison Pill' Efforts End Up Costing More Jobs in the End?

As Belden and the rest of the world (or at least relevant interested parties including myself) await the Ontario's Securities Commission (OSC) decision, expected on February 6, 2012, on RuggedCom Board's Shareholder Rights Plan, I started to wonder if RuggedCom's management efforts to avoid a 'hostile takeover' may eventually cause more jobs to be lost should Belden's current offer of C$280 million be outbid by another suitor or by Belden itself during a heated bidding war.

Although I am no financial expert it appears that the move by RuggedCom's board is just a delay tactic that may be intended to provide it with more time to secure either a more favorable acquisition price or perhaps a more favorable suitor; one that will have less of a need to realize synergies (i.e. layoffs in the mind of RuggedCom management) as a result of an acquisition in the neighborhood of US $300 million or more. Belden, a focused industry leader, is more likely to rationalize (i.e. reduce headcount)  RuggedCom's operations in order to realize greater efficiencies than another firm such as Cisco, ABB or GE, among others, which, in my humble opinion, may be more inclined to rely more on RuggedCom's personnel and their specific expertise and market knowledge.

Although it may seem like paying a $300 million price tag is steep, equates to roughly 3X revenues, RuggedCom's growth has been pretty impressive; and those 55%+ plus gross margins certainly may help the financials of some of the other potential suitors. VDC's own industrial networking research reveals that the growth outlook in the smart grid segment, as well as the overall power generation market, is pretty robust at close to a 20% CAGR through 2015. Although RuggedCom's product portfolio is not able to serve the entire $3.1 billion wireline industrial networking infrastructure products markets, their offerings can serve over 40% and those markets served represent the fastest growing consuming segments.

My original hypothesis is that by trying to extract more value for its shareholders, which is business 101 and strongly encouraged, RuggedCom's management may eventually end up creating a situation in which the acquirer overpays and is forced to reduce (more) headcount in order to recoup their investment.

I wish Marzio Pozzuoli and his team all the best as they have done a great job of serving the needs of the industrial automation community and they and the shareholders should be well compensated for their successful efforts. I am eagerly waiting to learn which company will eventually acquire RuggedCom and how the entire process will play out.

Wondering When PAC Man Fever Will Strike Level Measurement & ITG Markets

For those that have been following my blogs over the last year or two you will be quite aware of my references to PAC Man to signify the impact previous mergers and acquisitions (M&A) had on markets such as industrial networking and data acquisition products.

After taking over the market intelligence activities in support of VDC’s ongoing 2011 Process Level Measurement and Inventory Tank Gauging Market Intelligence Program combined with just having completed eleven market studies covering data acquisition solutions, and having had several in-depth discussions with suppliers, it became quickly evident that ABB’s acquisition of K-TEK back in the summer of 2010 would likely not be an isolated event.

Most of the smaller to mid size suppliers I spoke with noted an increasing trend involving larger industry players such as Emerson, Endress + Hauser, Invensys and Honeywell deciding to move away from private labeling agreements. This trend does not favor some of these smaller players, since larger players are either developing a new product or technology in-house and/or considering acquiring a company that can help fill a gap in that supplier’s product or technology portfolio. Conversely it seems a few of the suppliers that are based in Europe or Asia-Pacific that to until now been supplying these larger (or even smaller) suppliers are starting to desire making inroads by marketing their products under their own brand.

It makes sound business sense, given that our research indicates that more level measurements customers are seeking out partnerships with suppliers that can not only provide “one-stop shopping” but also best in class and world-wide technical and application level support. Suppliers naturally have a vested interest to not create a situation in which a customer has to look somewhere else to meet their needs, since an overall market opportunity likely totaling over $2 billion in 2011 shipments is not chicken feed.

RuggedCom In Play, A Valuable Investment? Yes, But at What Price?

It looks like I have been too heads down in my activities involving research process level measurement & ITG as well as pressure and temperature instrumentation markets, and/or my automated information sources failed me, to notice the recent all-cash offer made by Belden to acquire RuggedCom.  It is nice to know that one of my crystal ball predictions made in a 12/10/10 blog may be coming true and RuggedCom's attractive performance, strong product portfolio and attractive customer base (i.e. smart grid and transportation) made them such an attractive opportunity that someone would have to acquire them. It looks like I was once again a little early in my prognostications as I would have wagered an acquisition to take place in 2011.

What struck me most by the news was not that Belden was one of the interested parties, although they told me that prior to GarrettCom acquisition they felt RuggedCom's price was too steep, but rather that they are agreeing to pay $280 million for the chance to bring RuggedCom into the fold of Belden's embrace.

I am not privy to how many other serious potential suitors really are pouring over the company's books, although I am checking my traps as this blog is being written, and therefore I have no real hard basis for recommending that Belden hold the line (i.e. not raise) on their cash offer despite RuggedCom's management's recent efforts to persuade shareholders to reject the offer made on December 19, 2011.

In my personal opinion I can say that RuggedCom might make an attractive acquisition to a number of potential companies including Cisco, Rockwell Automation, ABB, Invensys, Emerson and perhaps even Siemens. There are other tangential players in related markets that may benefit from both RuggedCom's product portfolio and customer base so as to better leverage their own complimentary products and gain access into new markets. I cannot list those companies in this blog as I may be privy to information that is not publicly available and I do not want to betray confidences.

The trick in any of these types of acquisitions play is to buy the company without getting into a protracted and heated bidding war, especially if the other potential suitors may have deeper pockets or a greater strategic objective to pull the trigger.

All I can do is wish Belden the best in their attempts to acquire an attractive company in RuggedCom and hope that if they are successful that they can effectively manage the integration so as to ensure the greatest value to the customer and the marketplaces in which they operate; since after all without that, this entire financial exercise will prove to be an unwise investment.

Should another company(s) express serious interest in acquiring RuggedCom then Belden's management better get to know the lyrics to Kenny Rogers song "know when to hold them and know when to fold them" pretty well so that they are aware of what they may gain versus what they may lose, and at what price.

It will be fun to see how this entire process plays out regardless.

Security vs. Efficiency? I Could Not Have Said it Better Myself

Recently I read an excellent article in Automation.com written by Eric Byres, CTO and VP of Engineering at Byres Security, Inc. which was acquired by Belden earlier this year, which discussed the ongoing dilemma between industrial automation companies' concern over security (and for good reason in most cases) versus the need and desire to connect the factory floor/plant operations to the rest of the enterprise so as to maximize ROA and to improve corporate competitiveness.

I am a firm proponent in encouraging companies to invest, wisely of course, in products and technologies that will enable greater productivity, increased operational visibility, greater agility and increased profitability. Traditionally industrial automation operations have operated as walled off silos from other parts of an organization and have not been connected into the larger corporate enterprise; historically this was done in many cases for good reason as the potential impact of a security breach or communications error may have had dire consequences for the company itself as well as perhaps the surrounding public.

What I really liked about this article was it touched on several different markets such as industrial networking - both wireline and wireless, functional safety and data acquisition, as after all one needs to acquire data before it can be actionable and tied into the enterprise, on which VDC has been covering for decades and it imparted a sound rationale for achieving both greater security and operational efficiency.

I strongly encourage anyone interested in, or concerned over, security and efficiency as it relates to industrial automation operations to read this article and think about how it may relate to your own organizational and/or operational issues and how you may put some of the information imparted to good use.

Happy New Year wishes to you and yours

 

EtherNet/IP Leads the Way in Industrial Automation Connectivity

I hate giving any attribution to ARC Advisory Group, a well respected and worthy competitor of VDC's Industrial Automation Group (legend has it that founder Andy Chatha worked at VDC in 1985), but I must concur with their recent findings that EtherNet/IP usage is growing and that it is likely the leader of Industrial Ethernet application layer network protocols in the industrial automation space.

Based on VDC's recently published Global Wireline Industrial Networking Products market intelligence, the largest share by far and away of the ~$2.6 billion in wireline networking product (i.e. connectors, cables & cordsets, device servers, gateways, routers, switches, etc.) shipments by type of network were shipped with standard Ethernet (TCP/IP, etc.).

However among networking products shipped with industrial Ethernet application layer network protocols by type, EtherNet/IP edged out ProfiNet on the worldwide basis. However ProfiNet dominated usage among networking products shipped in EMEA and, not surprisingly, EtherNet/IP dominated usage in the Americas. EtherNet/IP networking product usage edged out ProfiNet in the Asia-Pacific region based on extensive discussions with 55 of the leading wireline networking product suppliers.

I am not going to discuss or debate the technical aspects of each industrial Ethernet application layer network protocol in this blog and which one provides greater performance over another, rather I am going to simply state that our end user data collected from over 600 respondents did not provide any information that would not support our supply-side findings. Perception is reality and it appears that Rockwell Automation's dominance in providing industrial automation solutions in the Americas slightly outweighs Siemens' similar dominance in EMEA on a global scale. Both companies offer high quality and industry setting standard products and solutions. Both companies are clients of VDC Research Group, I almost wish the data showed a dead even tie, and I am pretty confident that both companies are clients of ARC.

To show that I am completely unbiased, our data shows that Cisco is the industry leader in wireline networking products followed by Belden in 2nd, Harting in 3rd place with Siemens close on their heels in 4th and Phoenix Contact rounds out the top 5 in worldwide shipments.