Molex Will Change Under Koch But How Much?

Don’t hold your breath if you believe Molex Inc. will not change at all or only superficially following its acquisition by Koch Industries Inc. The new master is in the house and more than the furniture will be shifted around. Koch targeted Molex because it sees an opportunity to improve operational performance, jack up sales and squeeze more profits out of the company. It will do whatever it sees necessary to achieve these goals, including reorganization, management reshuffle, further acquisitions and brand extension into new markets.

Koch Industries will be in a haste to achieve these objectives quickly but without disrupting current operations. The buyer paid $7.2 billion for Molex because it believes the company can become a bigger player in the $48 billion connector market. Molex’s revenue of $3.62 billion for the fiscal year ended June 2013 makes it a large player in the sector but it still controls less than 10 percent of the sector and the company has been growing recently below the industry’s 20-year 5.3 percent compounded annual rate. In fiscal 2013 Molex’s sales rose barely 4 percent from $3.49 billion in fiscal 2012 and less than one percent from $3.59 billion in fiscal 2011.

Molex can do better and under Koch Industries, which paid a fat 42 percent premium and cash to acquire Molex, it will be pushed to outperform the market. Koch Industries is also certain to aggressively use the company to accelerate the consolidation of the connector industry, a market characterized by the presence of hundreds of small companies holding niche geographic positions. The top 10 connector suppliers, according to Molex in a Securities and Exchange filling, account for only 57 percent of industrywide sales. That leaves a lot of room for consolidation and Koch Industries might be just the right company to ignite this.

Martin Slark, Molex CEO

“We are moving into, obviously, a very large and powerful company that doesn’t have a platform in the electronics industry and intends to use Molex as a powerful company in that market,” said Martin Slark, CEO of Molex, during a conference call to discuss the company’s results in October. “We are excited, frankly, to participate in the market as a private part of Koch Industries and be an aggressive player in the market going forward.”

Some of that consolidation is already in process. In a statement announcing the completion of the Molex acquisition today, Koch Industries said it had merged Koch Connectors Inc. “with and into Molex.” How Molex evolves will depend on how much deeper into the electronics world Koch Industries wants to forage and also how the recent acquisition ties into the company’s existing holding. Molex did not immediately respond to request for comments ahead of the publication of this article but it’s unlikely anyway that anyone in the senior management would be interested in discussing embryonic investment plans that Koch Industries might be holding close to its chest.

Dave Robertson, president and chief operating officer, Koch Industries

The statement released today by Koch Industries indicate the company is itching to stamp its management style on the connector manufacturer. “This acquisition represents a new platform for growth and innovation for us. We’re looking forward to applying our Market-Based Management philosophy at Molex to help identify and capture additional opportunities,” Dave Robertson, president and COO of Koch Industries said in the statement.

What is the Koch Market-Based Management (MBM) philosophy and how will this principle directly impact Molex, its suppliers, customers and other audiences? The MBM principle was developed by Charles Koch, CEO of Koch Industries and one of two brothers who control the company, and has been honed repeatedly in line with his belief in market economy as well as the concept that the status quo must be continually challenged if an enterprise is to achieve its fullest potentials.

“The essence of MBM is creating real, sustainable value for customers, communities and Koch companies. MBM encourages innovations that create value by making people’s lives better and contributing to prosperity in society. Value creation requires providing products and services that customers value more highly while consuming fewer resources. This leaves more resources available to satisfy other needs in society,” Koch Industries said in a statement on its website. Click on the “Science of Success: The Challenge Process” video link below to learn more about Koch Industries and its MBM philosophy.