Rockwell and Emerson Head Merger and Acquisition News

I was putting together this piece on mergers and acquisitions when I received word that Emerson had been in conversations to acquire Rockwell Automation. Final price was $27.5 billion. That wasn’t sweet enough. The Rockwell board turned it down.

Note: I feel vindicated. I told an investment company once that they could never touch Rockwell with their war chest of $1 billion. Figured I was safe on that one.

I don’t see Rockwell as wanting to sell. Despite a friend telling me for 15 years that it had to sell, I just never saw that necessity. But I do think that consolidation is rampant in the industry right now. Schneider Electric and ABB have been acquiring strategic companies to compete with Siemens. An Emerson / Rockwell combination would have awesome market share.

Because of weaknesses elsewhere, I’m not sure either really needs the deal to survive. But I think the industry is coming to that point. My thoughts were that the most logical suitors for Rockwell were Emerson and ABB. Sources at ABB have told me that they did the evaluation (of course) and figured that Rockwell would be hard to digest. So, it went with B+R Automation.

My feeling is that this deal is not finished. But it will settle for a while until Rockwell’s share prices stabilize. Then we’ll see. Trying to integrate that Rockwell culture would be a supreme challenge for the best managers, though. It’ll be interesting.

Meanwhile, I received a quarterly update from PwC regarding global industrial manufacturing deals with disclosed values greater than $50 million.

What follows is from the PwC report.

Industrial manufacturing M&A results for Q3 2017 displayed much of the same as the previous quarter with relatively flat value and volume levels. Deal value came in at $16.5 billion while the number of deals announced were 57 compared to 55 in Q2 2017.

Cross sector global and US deal volume has modestly increased for the third consecutive quarter indicating the appetite to seek out M&A plays is still active and healthy. US cross-sector deal volume is substantially up for the first nine months of 2017 vs. 2016 which correlates with
the double digit volume increases seen in the industrial manufacturing sector over the same period.

Although there is an eagerness to investment in technology and innovation, industrial manufacturing remains somewhat risk-averse, especially as it relates to targeting larger size investments. As highlighted in our second quarter report, the slowness of implementing
trade, regulatory and tax reform in the US and the uncertainty of its implications continues to be a barrier to some. Conversely, others have accepted its existence and shifted their investment strategies to mitigate against these uncertainties.

• Deal value for the first nine months of 2017 was $52.6 billion, 18% lower than the first nine months of 2016, while deal volume saw an increase from 150 deals to 170 deals from the first nine months of 2017 vs. 2016.
• Deal value for Q3 2017 was $16.5 billion compared with $16 billion in Q2 2017. Deal volume increased slightly from 55 deals in Q2 2017 to 57 deals in Q3 2017, a 4% increase.
• The average deal size in Q3 2017 was 21% lower than the 2017 YTD quarterly average of $367 million, indicating a preference towards smaller transactions.
• There were four megadeals (deals greater than $1 billion) in Q3 2017 with an aggregate transaction value of $7.7 billion. Three of the deals were crossborder deals.
• The largest deal announced in Q3 2017 was the Swiss firm ABB acquisition of US-based GE Industrial Solutions for $2.6 billion.
• Asia and Oceania remains the most active region, accounting for 56% and 35% of M&A deal volume and value during Q3 2017.
• There were 14 megadeals announced in the first nine months of 2017 ($24.3 billion) compared to 17 in the same period of 2016 ($55.9 billion).
• Seven of the top ten megadeals in the first nine months of 2017 include China or the US as a part of the transaction vs. four over the same period in 2016.

Strategic investors continue to account for the largest share of deal activity in the sector with $12.9 billion of value and 27 deals for the quarter. As shown below, this reflects 78% of value and 65% of volume. Financial investor deal value for the first nine months of 2017 was $15.9 billion vs. $12.8 billion over the same period in 2016. This contribution is consistent with previous quarters and implies the market is more attractive for companies who can create synergies.

Deal value in the industrial manufacturing sector continues to be constrained as deal makers are still wary of the current investment playing field. Many of the same political uncertainties, particularly in the US and Europe, linger and have been the primary influence in declining average deal size over the last three quarters of 2017.

For foreign investors looking to capitalize on attractive businesses in the US there are positive and negative factors simultaneously working against one another. On the positive side, the Federal Reserve sees confidence in the US economy and plans to gradually continue to increase the federal funds rate. However, negative influencing the deals environment is the current administration’s inability to progress its agenda related to tax, trade, and healthcare.

We project the industry will close out the year in similar fashion to each of the three quarters of 2017 unless we see a catalyst event in the market such as tax reform.

Authors
Paul Elie, US Industrial Manufacturing Deals Leader

Bobby Bono, US Industrial Manufacturing Leader

Barry Misthal,Global Industrial Manufacturing Leader

 

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