Catalyst Corporate Finance Industrial Electronics M&A Report - Sensors Report

Industrial Electronics - Sensors
M&A update

Winter 2011

M&A activity will Corporates look for global scale as
increase as firms
drive for scale
application range for sensors widens
Sensors are now core components
in almost all technology products.
Their application is extremely
broad, with end markets ranging
from automotive and aerospace
to industrial safety and consumer
electronics.

Whilst the general economic
outlook for 2012 is expected to “There are few industrial
remain challenging, we forecast
demand for sensors will grow
sectors with so many serial
strongly driven by the development acquirers - their strategies are
of smaller, more reliable and well defined and pipelines of
increasingly sophisticated sensors deals are increasing”
and the need for safer, cleaner
Mark Humphries, Partner
and more efficient applications.

The key observations from flow - the most measured parameters)
Divestments in lower our research: serving a range of end markets.
The acquired businesses have
margin cyclical markets generally had extensive overseas
In the last three years, international
not yet complete corporates have used M&A to exit less distribution operations.
attractive businesses with highly cyclical
Major sensor manufacturers have used
end markets and chosen to enter
M&A to evolve their offerings to address
markets with higher growth and
end product markets which consume
margins. We believe this process has
either higher volumes of sensors or
further to go.
higher value components and
The US and UK has led M&A in sensor sub-systems.
Corporates and sensor systems accounting for over
Catalyst Corporate Finance LLP 2011

Larger trade players are aggressively
70% of all deals completed by
aggressively targeting corporates or private equity investors.
targeting China. Whilst the typical
sensor content in a Chinese car is
sales in China Building scale is seen as critical.
typically 50% less than North America
Trade acquirers have purchased UK and Western Europe, it is rapidly
businesses with complementary core expanding and represents an excellent
sensor technologies (especially growth opportunity.
temperature, pressure, level and

Industrial Electronics - Sensors M&A update

Figure 1: Supply chain for sensors and instrumentation

Components Sub-systems Instruments End markets
Sensors Wireless Networks Analytical Defence/Security
Physical Pharmaceuticals &
Radioactivity Autonomous Systems Scientific Biotechnology
& Robotics
Electromagnetic radiation Test & Measurement Aerospace
Pressure Vacuum Space
Auditory Metrology
Scientific (inc
Electrostatic Cryogenics Research Facilities)
Magnetic Process
Imaging Oil & Gas
Vibration Control Healthcare
Deformation/Stress Displays Mining
Position
Distributed Computing Life Science
Temperature
Built Environment
Electronic
Power Systems Environmental
Photonic
Chemical Automotive
Biological Semiconductor
Optics Arts & Heritage
Industrial
Global Sensor Value of Food
Market End Products
>$50 billion >$1.500 billion

Source: Catalyst Corporate Finance, Knowledge Transfer Network

The UK operates Industry Trends based companies has been in scaling
operations to address opportunities
outside their traditional end markets
globally but remains The UK remains one of the world’s and capitalising on the demand in
a largely fragmented leading producers of high performance new niches and geographies.
sensors. The industry is concentrated
niche market on high-end production and design Research and development budgets
rather than high volume manufacturing. run at typically 6% of sales. Without
scale, it is often difficult for UK
There are around 23 major sensor types businesses to justify the investment in
used around the world. These are R&D and they risk not making the step
incorporated into a range of sub-systems changes in technology that are now
and instruments and applied in an often needed to compete. Companies
increasing number of end markets who can apply proprietary technology in
(see Figure 1). a range of market niches can justify the
investment more effectively.
Sales growth and profitability levels of
sensor companies tend to be higher when Domestic sales often make up less
they have capacity to supply complete than 20% of UK companies’ revenues
sensor sub-systems. The markets for and exports are driven by sales to US
sensor sub-systems are typically seven and European clients and increasing
times the value of the sensor components. demand from Asia. Investments by UK

sensor companies in the emerging
There are also a number of other important
economies have tended to initially
factors contributing to success:
involve establishing regional sales and
The industry is fragmented and made support teams. Acquisitions are being
up of many small companies focused sought to establish local production to
on niches. A key challenge for many UK match local consumption.


A characteristic of many successful on evolving designs alongside clients
businesses in the sector is that they will needs and delivering high levels Export led sales
supply the same customers for many of reliability.
years. Building those relationships relies
key to growth

Key growth factors expected to grow to $27 billion by 2016
($18 billion in 2011). A good example We expect image
of this is US based Omnivision, a major
The rate of development of any specific producer of high precision
and wireless sensors
sensor market is determined by a range semiconductor image sensors to grow quickly
of factors. The key issues influencing (shipping 680 million CMOS image
new market strategies, R&D investment sensors last year).
budgets and M&A strategies include:
Unlike the developed world, where
The whole of the sensor market is many sensor markets are now mature,
growing steadily with image sensors, the emerging markets (especially China)
chemical / biosensors and position are experiencing much greater demand
sensors being the fastest growing for sensors within consumer products
niches (see Figure 2). In addition, as and vehicles. Consumption will continue
wireless adoption rates pick up and to grow as the middle class in these
standards harmonise, wireless sensors economies expands.
are expected to become one of the
fastest growing segments at an annual UK manufacturers have an impressive
compound growth rate of over 45%. track record in developing so-called
enabling technologies, which help to
The increased use of smart phones and maintain performance advantages.
tablets has resulted in a rapid expansion As chip level integration and wireless
in image sensors. This market is

Figure 2: Global Sensor Market
30,000

25,000

20,000
$ Millions

15,000

10,000

5,000

0
2009 2010 2011 2016

Image, flow and level sensors Biosensor and chemical sensors
Pressure and temperature sensors Position and load/torque sensors Miscellaneous sensors

Source: BCC Research


connectivity advances, British companies like Sensata, which supply
UK manufacturers have businesses will need to exploit their high volumes of sensors into consumer
expertise in MEMS / NEMS, photonics, products, have relocated over 90% of
an impressive record radar and RF as well as systems their manufacturing to low cost
in developing enabling integration and informatics. countries (Mexico, China and Latin
America) over the last 10 years.
technologies In higher volume end markets such as
automotive, where lowest unit cost is
the differentiator, there is huge pressure
to relocate manufacturing out of
developed nations. For example,

Current Valuations
The sensor and instrumentation
market is often closely aligned with “UK businesses are attractive
the wider industrials sector. Over the acquisition targets for US and
past year though, our composite European acquirers in this sector”
has out-performed the wider market
Paul Vanstone, Director
as a whole (Figure 3).

Figure 3: Sensor & Instrumentation composite
valuation index

140%

120%

100%

80%

60%

40%

20%

0%

-20%

-40%

FTSE 100 Catalyst Sensor and Instrumentation Index

Source: Capital IQ
Catalyst Index: Cooper Industries, Danaher, Halma, Jenoptik, Measurement Specialties, Meggitt, Omnivision, Roper, Sensata, Spectris


Figure 4: Comparison of average EV/EBITDA multiples
Net debt
Latest Net change Average Average % Change
Revenue EBITDA Debt 2011 during 24 EV/EBITDA EV/EBITDA EV/EBITDA
(£m) Margin % (£m) months FY 2010 Oct 2011 (2010-2011)

Cooper Industries 3,239 16.8 252 -58.7 10.6 9.8 -7.5
Danaher 8,442 20.5 762 -46.5 11.7 12.6 7.6
Halma 518 22.3 37 -27.5 12.0 11.2 -6.6
Jenoptik 419 13.1 69 -58.6 16.5 5.6 -66.3
Measurement Specialties 130 18.2 31 -30.4 21.5 8.7 -59.5
Meggitt 1,162 24.9 730 -33.4 10.4 11.9 14.4
Omnivision 611 16.6 -270 78.4 16.7 2.8 -83.2
Roper 1,525 28.0 684.6 -1.7 12.6 11.5 -8.8
Sensata 984 28.3 894 -42.8 13.3 14.5 8.6
Spectris 901 18.9 87 -45.7 10.7 7.6 -29.3
Average 1,793 20.7 328 -26.6 13.6 9.6 -23.1

Source: Catalyst Corporate Finance

Trade Buyer Activity Catalyst’s observations on current corporate
activity are as follows: Acquirers paying
The sensor and wider instrumentation Large industrial groups continue to 8x EBITDA
market has experienced relatively spin off lower margin businesses. for acquisitions
active levels of M&A in recent years. This was demonstrated by
In addition to the many mid-market PerkinElmer’s recent disposal of its
transactions, there have been a number detection and illumination business to
of industry changing deals. the Veritas Group.

For example, in 2006 Texas Instruments (TI) Many buyers are focusing on the
disposed of its Sensors & Controls business mature markets of the US, UK and
(renamed Sensata Technologies) to Bain Western Europe to source acquisitions,
Capital, the global private equity firm, for to secure advanced technology and
$3.0 billion. TI sold the business in order to established customer relationships.
focus on high-growth core digital signal
processing and analog semiconductor Whilst the more active acquirers have
markets. Since then Sensata has spent over clear strategies to acquire in BRIC
£470 million on four acquisitions in the US countries, they have failed to achieve
and Europe, acquiring two Honeywell this for a number of reasons and opted
automotive divisions which were deemed for alternative entry / market
to be too cyclical by Honeywell. development strategies. We expect
these companies to become more
Leading UK companies Spectris and Halma successful in these countries as
have also been particularly active in 2011, experience builds. BRIC acquisition

completing four deals each. Spectris’s
acquisition of Omega Engineering in the Recent trade deals have been strategies have largely
US for £291 million follows its strategy to completed at a range of valuation
levels, however some buyers have paid
failed to materialise
acquire stand-alone businesses with similar
characteristics to its own. up to 8x the current run rate EBITDA. to date


Figure 5: Recent Sensors and Instrumentation M&A
Deal Value
Date Bidder Target Target Product line (£’m)

First Sensor Manufacturer of pressure sensors for the
Sept -11 SensorTechnics (Ger) 58.0
Technology (Ger) auto industry

Manufacturer of measuring and
Aug -11 Sensata (US) Sensor-NITE (Bel) 199.0
temperature sensor equipment

Manufacturer of temperature and
Aug -11 Spectris (UK) Omega Engineering (US) 290.0
measuring equipment

Gas Measurement Manufacturer of advanced gas detection
Aug -11 Battery Ventures (US) n/d
Instruments (UK) systems

Maxim Integrated Products Design and manufacture proprietary
Jul -11 Sensor Dynamics (Aust) 100.0
(US) sensors

Manufacturing of measurement and control
Jul -11 M-Cap Finance (Fra) Gossen (Ger) n/d
products for industry

Calibration of pressure, temperature and
Jun -11 Trescal (Fra) Antech Engineering (UK) n/d
flow sensors

WIKA Alexander Wiegand Manufacturer of pressure calibration
Apr -11 DH Bunenberg (UK) n/d
(Ger) equipment

Manufacturer and supplier of health and
Mar-11 Halma (UK) Medicel (Swi) 66.0
diagnostic equipment and sensors

Provider of analysing and measuring
Jan -11 Parcom Capital (Neth) Hobre Instruments (Neth) n/d
equipment for the Oil and Gas industry

Detection and Illumination
Dec-10 Veritas Capital (US) business of PerkinElmer Manufacturer of lighting sensors 318.0
(US)

Manufacturer of wireless sensors for
Nov -10 Halma (UK) Alicat Scientific (US) 25.2
measurement

Electronic instruments for the aerospace
Oct -10 Astrium (Ger) Jena-Optronik (Ger) n/d
industry

Automotive on Board
Oct -10 Sensata (US) Sensors business of Linear position and wheel speed sensors 88.0
Honeywell (US)

Manufacturer of data acquisition
Oct -10 Spectris (UK) N-Tron (US) 32.0
equipment for mission critical MIS

Measurement Specialties Manufacturer of precision level and
Oct -10 Pressure Systems (US) 16.0
(US) pressure instrumentation sensors

Manufacturer of calibration and
Oct -10 3i Group (UK) Trescal (Fra) 94.0
measurement service solutions

Mine Safety Appliances Manufacturer of high tech gas monitoring
Sept -10 General Monitors (US) 182.0
(US) and flame detection instruments

Provider and manufacturer of highly
Aug -10 TransDigm Group (US) Semco Instruments (US) 46.0
engineered sensors

Manufacturer and provider of heating and
Jun -10 Chequers Capital (Fra) Thermocoax (Fra) 37.0
temperature measurement

Source: Catalyst Corporate Finance


Private Equity million in 2011. Bain-backed
Sensata has also followed a buy Private equity
and build strategy.
International Private Equity (PE) continues to be
investors have been relatively active in Private Equity investors in the UK important for
the sensors market in recent years, have however been relatively quiet in
completing a fifth of all transactions this sector. Some of the characteristics global M&A
since January 2010. of typical sensor businesses have not
been compatible with PE investment
Battery Ventures, a multi-stage criteria. However, the opportunity to
investment firm focused on technology execute a buy and build strategy in
and innovation, acquired UK based such a fragmented market with the
Gas Measurement Instruments in benefit of high barriers to entry, are
August and Detcon (US) in September. expected to attract some sector
Together the companies create a specialists.
comprehensive portfolio of fixed and
portable gas detection products with
global reach. Buy and build
3i plc completed the secondary opportunities expected
buy-out of Trescal, the former Air
Liquide sensor and measurement
to appeal to
business, for £94 million. In the last PE investors
year 3i has backed three acquisitions
for the company resulting in Trescal
increasing its turnover by over £30

Prospects for M&A Market leaders have committed to an
ongoing acquisition strategy targeted Companies seeking
at bringing technology and production
In 2010 transaction values and deal capability in-house. Streamlining complementary
volumes increased and this trend has
continued into 2011. Industry
operations, reducing costs and the technologies are
ability to shorten the product
valuations have recovered to 2007 development cycle are all high on expected to drive
levels (8x EBITDA in some cases) and
with a number of serial acquirers
the agenda. continued mid-
active, we expect further consolidation Recent economic uncertainties have market M&A
in the mid-market. seen sensor and instrumentation
companies focus on markets that they
Recently the industry has been focused on understand, maintaining sales channels
investing in niche high margin businesses that fit with established strengths.
with international scale as well as divesting However the drive towards scale and
non-core high volume businesses developing an international footprint will
generating low margins. encourage the industry trend of
seeking out complementary
Whilst drivers for growth do remain, in
technologies. This is borne out by M&A
the short-term the macro environment
figures suggesting that the majority of

is presenting challenges. For example,
deals have been under £100 million.
the recovery in the automotive sector is
applying pressure on the sensor
industry to lower its unit cost and
develop products that combine low
power consumption with high
performance.

Award-winning international corporate finance advice
Catalyst advises management teams, private shareholders and
corporates on:
Buying businesses (MBOs/MBIs/BIMBOs)
Selling businesses
Searching for businesses to acquire,
both in the UK and overseas
Investment opportunities for
private equity firms
Maximising shareholder value
This is all we do and all we want to do. ʻMid Market Adviser of the Yearʼ 2011

International experience
Through our international partnership, Mergers Alliance, we provide:
Access to overseas buyers International M&A Research
Local knowledge of M&A culture Identifying targets overseas
and tactics and executing acquisitions

www.catalystcf.co.uk

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Catalyst Corporate Finance Industrial Electronics M&A Report - Sensors Report

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