TE Bets Big on Sensors

TE Connectivity Inc. said it has reached an agreement to purchase Measurement Specialties Inc. for $1.7 billion, bolstering its presence in the sensors market and as part of continuing plans at the company to boost sales and profit via targeted acquisitions and expansion into fast growing segments of the electronics industry. The acquisition represents a big bet for TE beyond its traditional connector business.

The Measurement Specialties’ transaction will expand TE’s presence in a market it estimates at $40 billion globally, deepen its product offerings and allow it to further cement existing relationships with OEMs in a wide range of industries, including aerospace and military, consumer, automotive and industrial engines, environmental monitoring and medical equipment. In addition, TE expects to gain additional engineering expertise and OEM relationships across multiple segments of the economy.

Under the terms of the transaction TE (NYSE:TEL) will pay $86 for each outstanding share of Measurement Specialties (NASDAQ:MEAS) and assume the company’s debts, bringing the value of the deal to $1.7 billion. Measurement Specialties had about $125 million of long-term debts as at the end of the March quarter and reported $412 million in sales for 2013. TE estimates Measurement Specialties will post sales of approximately $540 million in 2014, according to a statement released by the companies.

The Measurement Specialties transaction positions TE for a stronger role globally in the fast-growing sensors market. The components are being designed into a wider range of products across multiple sectors of the global economy and TE is expected to leverage its strong presence globally to push Measurement Specialties’ sensors to many of its customers. With two years of stalled sales growth, TE has been looking for new markets and the Measurement Specialties transaction gives it opportunity to expand at an even faster rate into new areas of the global economy, according to company executives.

"The acquisition of Measurement Specialties is a key part of our strategy to be a leader in the very attractive, high-growth sensor industry and adds nearly $40 billion to our addressable market," said Tom Lynch, TE Connectivity chairman and CEO, in a statement. "We are excited about this acquisition as it enables TE to provide customers with an unmatched range of connectivity and sensor solutions that are essential in a world where everything is increasingly connected. We look forward to combining Measurement Specialties' strong breadth of products and technologies with our deep customer relationships and global scale."

TE reported sales of $13.3 billion in the fiscal year ended Sept. 27, 2013, almost unchanged from the prior year and down from the $13.8 billion the company posted for fiscal 2012. On average, analysts are forecasting sales of approximately $14 billion for TE in the current fiscal year and rising to $14.8 billion for fiscal 2015. The Measurement Specialties deal could add $500 million or more to the company’s sales in fiscal 2015.

The connector vendor is aiming for more than just immediate sales growth, however. The sensors market is one of the more resilient segments of the electronics industry and as a big components manufacturer with a global presence TE is well positioned to capitalize on rising demand for the parts from various segments of the economy. In the press statement referenced above TE outlined why it has agreed to pay a more than 10 percent premium on Measurement Specialties’ closing price of $78 per share on Wednesday. TE said "he strategic rationale for the acquisition of Measurement Specialties is as follows":

Establishes a leadership position in the attractive sensor market: The combination of TE's sensor business with Measurement Specialties' leading range of sensors and sensor systems establishes TE as one of the largest sensor companies in the world. The sensor market is a fragmented, large and high-growth market, and the acquisition increases TE's addressable market by nearly $40 billion. TE's scale will be unique in this market.
Accelerates sales and profit growth: TE's scale coupled with Measurement Specialties' broad sensor product range is expected to create double-digit growth in TE's sensor business. TE's deep OEM relationships, unparalleled go-to-market resources, engineering strength, leadership in harsh environment applications, and global footprint are the underlying factors driving this growth. TE also expects to achieve significant cost and tax synergies and generate attractive financial returns for its shareholders.
Increases TE content: The combination of Measurement Specialties with TE creates the leading provider of highly engineered connectivity and sensor solutions. This combination will enable TE to provide a broader range of solutions for its customers and will increase TE's content per application.