Mergers prepare companies for global arena, software evolution

Anybody out there notmerging? Reasons for the latest flareup of merger mania are as plentiful as the actual deals, but studying these conglomerations reveals a few overarching motivations.Global competitive strength, one-stop-shopping for customers, wider and deeper distribution, better software development ability, economies of scale and worldwide partnering and problem-solving abiliti...

01/01/1999


Anybody out there not merging? Reasons for the latest flareup of merger mania are as plentiful as the actual deals, but studying these conglomerations reveals a few overarching motivations.

Global competitive strength, one-stop-shopping for customers, wider and deeper distribution, better software development ability, economies of scale and worldwide partnering and problem-solving abilities are among primary benefits.

"The biggest companies have been globalizing for years, but this trend is coming to a head and culminating now," says Andy Chatha, president of Automation Research Corp. (Dedham, Mass.). "This isn't happening only in control and automation. Companies in every industry are merging to compete globally. I think in every industry, we're eventually going to have six or less major players worldwide, though new niches will continue to emerge too."

Donna Takeda, Merrill Lynch's vp of global securities research and its economics group, says the current group of control and automation mergers began when Honeywell bought Measurex in 1997. "It's been nonstop ever since," she says. "I think many mergers are at least partially the result of the technological shift from electromechnical devices to software. Mergers occur because it's hard for many companies to keep up and independently devote limited in-house resources to new technologies. Companies that used to bring out products at their own pace are more often turning to alliances, joint ventures, and mergers."

The most recent crop includes: GE Fanuc Automation's (Charlottesville, Va.) purchase of Total Control Products (Melrose Park, Ill.) for $100 million, Tyco International Ltd.'s (Hamilton, Bermuda) offer to buy AMP Inc. (Harrisburg, Pa.) for $11.3 billion, and Siebe plc's (Windsor, Berkshire, U.K.) planned acquisition of BTR Group plc (London, U.K.) for $12.6 billion. This follows ABB's (Zurich, Switzerland) recently approved effort to buy Elsag Bailey Process Automation, N.V. (The Netherlands) for $2.1 billion, Rockwell Automation's (Milwaukee, Wis.) purchase of Anorad (Hauppauge, N.Y.), and Woodhead Industries' (Deerfield, Ill.) acquisition of SST (Waterloo, Ontario, Canada). Earlier 1998 mergers and acquisitions included Danaher (Washington, D.C.) buying Fluke (Everett, Wa.), Siebe's purchasing Wonderware (Irvine, Calif.) and Action Instruments (San Diego, Calif.).

Changing perspectives

As companies realize the world stage is becoming the primary commercial arena, traditional competitive relationships are evolving and creating new strategies and priorities. "For instance, Rockwell Automation's (Milwaukee, Wis.) biggest competitor now might be thought of as Siemens (Munich, Germany) rather than a U.S.-based company," says Mr. Chatha. "Similarly, such a view may be one reason why GE Fanuc decided to buy Total Control, which could help it compete with both Rockwell and Siemens."

Mr. Chatha adds the Internet is changing minds and showing companies the urgency of becoming global competitors. "It makes people think they can't wait and that they must be global or they can't compete," he says. Emerging electronic-commerce sites, as well as increasing direct-distribution manufacturers, may also negatively affect traditional distribution channels and methods.

Mergers are also being pushed by customers' demands for partners that can help develop solutions and then provide one-stop-shopping for products. Fueled by users' desire for solutions, software firms are also moving from simply offering products to providing more customized solutions.

Seeking software talent

Because the shift to software has been so fast and far-reaching, Ms. Takeda says it's also been difficult for many control and automation firms to secure personnel with skills they need to solve customers' individual problems.

"The process industry, for example, is traditionally fragmented along product lines. This has worked against companies and made the shift even more challenging," says Ms. Takeda. "Many firms also don't have the critical mass they need to attract software talent. This is because 15-20 years ago, typical valve, pump, or other component manufacturers didn't have to think about how fieldbus issues might affect them. Even if they do have their own engineers, firms can no longer think only about flow rates. They must also be experts in communications, baud rates, and fieldbus standards."

These staffing needs have caused a further migration in talent to suppliers from their customers, says Ms. Takeda. "To develop the total solutions customers want, suppliers are hiring people from those same customers to design better applications for them," she says.

Indirect merger effects

Recent merger activities likely to exert a strong, if indirect, influence on parts of the control and automation field include: Exxon seeking to buy Mobil Oil, BP's plan to purchase Amoco, and Daimler Benz AG's merger with Chrysler Corp. earlier this year.

Though they might not affect the control field directly, these and other giant mergers could have an even more profound influence on controls and automation suppliers. For instance, if Exxon and Mobil complete their merger, they may standardize on far fewer suppliers than those now serving the two oil companies. These and other megamergers will likely force suppliers to fight for fewer contracts, each with far higher stakes than in the past. Short term, integration opportunities may increase, in efforts to make two or more platforms exchange information.



Four merger 'family tree' timelines

GE Fanuc:

buying Total Control Products (Nov. 1998),
which bought:
SensorPulse (Jan. 1998)
Deeco Systems (June 1998)

completes AFE Holdings purchase (Feb. 1998)

Tyco International Ltd.:

acquiring Entergy Security Corp. (Dec. 1998)

buying AMP Inc. (Nov. 1998)

purchases Sunbelt Plastics (Nov. 1998)

buys Graphic Control Corp. (Nov. 1998)

buys U.S. Surgical Corp. (Oct. 1998)

buys Sigma Circuits (June 1998)

buys Well Fargo Alarm (May 1998)

purchases Keystone International (Sept. 1997)

completes merger with ADT (July 1997)

Siebe plc:

buying BTR Group plc (Nov. 1998)

buys Eurotherm (June 1998), which bought:
Action Instruments (Feb. 1998)
APV (June 1997)

buys Simulation Sciences (April 1998)

purchases Wonderware (Feb. 1998)

acquires Triconex (Dec. 1994)

ABB:

purchasing Elsag Bailey (Nov. 1998), which bought:
Fischer & Porter (1994)

Source: Control Engineering



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