M&A Alert—January 31, 2012
Siemens Acquires RuggedCom
Transaction Size: $408mm
RuggedCom provides wired and wireless communications and networking solutions (including switches, routers, servers, multiservice platforms and network management) that accommodate harsh industrial environments including extreme temperature (-40°C to +85°C), water immersion and Zero-Packet-Loss immunity against high levels of electromagnetic interference. RuggedCom products are used in electric power (including smart grid environments and power distribution — electric power generates approximately 70% of its revenue), transportation (traffic / railway control management), industrial (refineries, manufacturing automation, oil and gas,) and military (defense systems). Customers include Areva, Alcoa, Chevron, GE, Siemens, Boeing, Lockheed Martin, L3 Communications, Cooper Power Systems, National Grid, City of Houston Transportation, Washington State Department of Transportation and the U.S. Navy. Competitors include GE, Moxa, Belden (via their GarrettCom and Hirschmann product lines), Silver Spring Networks and Ethernet Direct. Founded in 2001, RuggedCom has approximately 360 employees. RuggedCom is headquartered in Concord, Ontario, Canada.
Siemens provides a broad set of products and services to the industry, energy, healthcare, and infrastructure and government sectors worldwide. Solutions industry automation, plant system integration, power generator and transmitter, oil and gas extraction and technologies that enable efficient use of resources and productivity.
Siemens has a portfolio of industrial Ethernet networking components with an install base mainly in Europe. Siemens has a stated goal of acheiving 100 billion euros ($131 billion) in sales, partially via acquisitions. Sales in the fiscal year ended September 30 2011 were 73.5 billion euros. Anton S. Huber, CEO of the Siemens Industry Automation Division and Robert Hardt, President and CEO of Siemens Canada were executive sponsors of this transaction.
Siemens agreed to pay RuggedCom’s shareholders $33 per common share for a total transaction value of $408mm in cash. Belden made a $278mm hostile bid to acquire Ruggedcom in December 2011.
Purchase Price: $408mm
Enterprise Value (1): $369mm
Enterprise Value Multiples (2):
EV/2011 Revenue 3.4x
EV/2011 EBITDA 20.5x
EV/2011 Net Income 52.7x
One Day Prior 26%
One Week Prior 27%
One Month Prior 37%
(1) Includes net cash of $39mm
(2) Based on LTM Revenues of $108mm, LTM EBITDA of $18mm and LTM Net Income of $7mm.
Other recent comparable transactions within the industrial networking sector include Spectris’ acquisition of N-TRON for $51mm in October 2010, Belden’s acquisitions of GarrettComm for $57mm (1.4 times revenue in November 2010) and Hirschmann for $320mm (1.3 times revenue) January in 2007.
There has also been significant consolidation activity within the microwave wireless networking sector which typically serves similar industrial clients. These include DragonWave’s acquisition of Nokia Siemens’ microwave transport business for between $51mm – $161mm (.2x – .5x revenue) , Alvarion’s acquisition of Wavion for $30mm (1.9x revenue) and Vector Capital’s acquisition of Motorola’s Orthogon and Canopy businesses for approximately $90mm (.6x revenues).
RuggedCom’s largely North America client base provides a solid complement to Siemens’ concentration in Europe. Siemens had a previous relationship with RuggedCom and had recently announced a joint customer win.
Architect Partners’ Observations
On Decembe 19, 2011, Belden initiated a hostile bid for RuggedCom after friendly conversations broke down. Belden’s initial offer represented a 62% premium to RuggedCom’s stock price the day prior to the public announcement. Hostile takeover approaches are unusual within the technology sector and rarely successful. According to CapitalIQ, since 2000 there have been only 29 hostile offers within the technology sector and only 9 of those offers prevailed.
A portion of RuggedCom’s product offering was wireless networking equipment. As mentioned above, the microwave wireless networking market has already begun to experience consolidation, which we expect to continue.