GE Fanuc Embedded Systems will acquire Radstone Technology, the high-end conduction cooled VME boards specialist, for about £130.4 million pounds (approx. US$ 247.8 million). Venture Development Corporation (VDC) published a bulletin about the acquisition. In their bulletin, VDC answered three questions:
- Why does the timing of this deal make sense for GE Fanuc Embedded Systems & Radstone?
- How should we evaluate this transaction?
- What does the deal mean for the competition?
Why does the timing of this deal make sense for GE Fanuc Embedded Systems & Radstone?
Segmentation Growth Through Acquisition
GE Fanuc Embedded Systems’ strategy has been to increase the firm’s product portfolio and market share through the aggregation of niche players. The company began through the acquisition and merger of VMIC, RAMiX, and Computer Dynamics. Then in March of 2006, GE Fanuc acquired Condor Engineering and SBS Technologies. The plan to purchase Radstone Technology is just the latest niche player acquisition by GE Fanuc Embedded Systems to expand in the Embedded COTS Military/Aerospace market.
A Good Time to Sell
Radstone had two years of double digit growth in a row, growing 14% from fiscal 2004 to fiscal 2005 and 10% from fiscal 2005 to fiscal 2006. The firm was growing faster than the market and also posting strong operating margin of 17.8% and 19.0%. It was a great time for Radstone to sell.
A Good Time to Buy
Only a week before, Eurotech tried and failed to acquire Radstone. GE Fanuc Embedded Systems snagged Radstone before any other suitors could make a play.
How should we evaluate this transaction?
VDC believes that this deal fits neatly within the GE Fanuc Embedded model: growth through acquisition. With Radstone, GE Fanuc Embedded has filled out its line card in a core product offering, gained access to additional smaller lines, and likely found itself a few dozen additional defense programs to manage and leverage. VDC thinks that Radstone and the larger GE Fanuc Embedded business will continue to grow in the near term, throughout the integration transition, and likely beyond. VDC likes the deal and is optimistic about the role GEFE might play in the COTs and larger embedded market.
What does the deal mean for the competition?
Because the market is so broad and wide open, the acquisition is a small transaction. For the big boys, especially the Primes and the large Systems Integrators, this deal may seem insignificant. However, this deal does have major implications for the traditional embedded military COTS systems suppliers, these companies often sell to the Prime Defense Contractors: Mercury Computer Systems and Curtiss Controls. Theses two companies have in the past been the leaders of this market.
You can read the entire VDC’s bulletin here (pdf).