Swiss Automation and Electical Giant ABB looks to consolidate it Acquisition spree

The Swiss company ABB has gone on a buying spree in the last few years acquiring companies in its core business of motors, electrical transmission, energy efficiency etc. The company made billions of dollars in acquisitions which has kept the company’s growth much higher than peers like Siemens and General Electric. The company’s stock price has done much better than other electrical giants such as Schnieder, as the company leveraged its expertise in growing markets like India and China.

ABB recently bought Power-One for a substantial premium to enter the lucrative fast growing solar inverter market. Large companies like Cisco, Siemens have been facing slowing growth as developed markets have faced recessions in the recent past. Now the faster growing developing markets like China and India are also slowing, making their task even tougher. ABB has managed to outperform as it has bought crucial assets under its American CEO Hogan. However, the company will now have to consolidate its acquisitions otherwise it might face the fate of its peers.

The company needs to integrate the new companies as the temporary boost in revenues and profits fade away with y-o- y comparisons. ABB is facing tougher competition from emerging market players who are cutting off ABB from low tech areas like low voltage transformers. Even in the middle and higher segments, the Chinese companies are starting to effectively copy and undercut ABB. The potential for growth remains as the world’s electrical grids are almost a hundred years old. ABB needs to enter the high growth areas of smart metering and grid automation.

Bloomberg

 ABB Ltd. (ABBN) investors, reeling from Chief Executive Officer Joe Hogan’s announcement last month to step down, want a more frugally-minded replacement to integrate the $10 billion worth of U.S. acquisitions he left behind.

Hogan’s three-year spending spree added motors and low-voltage gear to the world’s biggest supplier of power grids. While the deals boosted profitability and helped ABB’s shares to outperform German rival Siemens AG (SIE), they’re also absorbing management time. That’s prompted ABB to offer a bonus program to executives for meeting integration targets.Hogan, who took over almost five years ago during the 2008 financial crisis, expanded ABB by buying motor-maker Baldor Electric Co. and low-voltage gear maker Thomas & Betts Corp., purchases that helped counter a decline in spending on power grids in Europe. The company now needs to deepen the integration of these purchases to market new offerings through its global operations with 145,000 employees. ABB’s margin based on earnings before interest, taxes, amortization and depreciation rose by 1.1 percentage points to 15 percent in the first quarter while sales increased by 9 percent to $9.7 billion, the company said April 24. Thomas & Betts power fittings, connectors and switches contributed 7 percent to operating earnings. Power-One will give ABB inverters that allow solar power to be fed into grids and the deal is an example of how Hogan has been bringing new technology to the Swiss company. ABB is looking to tap a market forecast to grow by more than 10 percent annually, driven by a need for affordable energy and declining costs of producing solar power. ABB faces lower orders from China State Grid Corp., its largest customer, as local rivals make technological advances and make inroads into the Swiss company’s market share, he said.