Littelfuse, Inc. recently announced it will acquire the circuit protection business of TE Connectivity Ltd. for $350 million in cash. The acquisition will benefit Littelfuse in several key areas. It will transform the company from a niche to leading player in polymer-based resettable circuit protection; give it entry into the Japanese market, where it has lagged behind, and expand its product portfolio to fill in the gaps in automotive motor and battery protection segments.
TE Connectivity made the decision to sell its Circuit Protection Devices (CPD) business, which is a relatively small portion of its overall product portfolio, to focus on connector and sensor solutions.
"The sale of CPD is another step in our strategy to focus and expand our leadership position in harsh environment connectivity and sensor solutions," said Tom Lynch, TE Connectivity chairman and CEO, in a statement. "We believe that our investment dollars are best used in harsh environment connectivity and sensor applications and the CPD business will be better positioned for continued success and growth with Littelfuse. We thank our CPD employees for their hard work and innovative contributions to TE over the years."
For Littelfuse, the acquisition is the largest in the company’s history and is expected to strengthen the company’s position as a global leader in circuit protection, according to Gordon Hunter, Littlefuse’s CEO.
“This business is an excellent strategic fit with Littelfuse,” Hunter stated. “It will expand our global circuit protection product portfolio as well as our presence in the automotive electronics and battery end markets. This business has a long history of technology innovation and new product development, and its synergies with our existing circuit protection business will drive deeper engagement with our customers and channel partners. The business will also significantly increase our presence in Japan and serve as a platform for future growth.”
The CPD business – built on Raychem’s technology, which was acquired by Tyco in 1999, manufactures three billion circuit protection devices for automotive electronics, battery protection, and other end markets including communications and industrial. The polymer-based resettable devices were pioneered by Raychem in the 1980s and 1990s.
The addition of the polymeric PTC resettable devices, which have many applications where Littelfuse has product gaps particularly in automotive electronics and in the battery area, strengthens the company’s core circuit protection business, Hunter said during a webcast.
The great customer relationships for these products together with technology and product roadmaps and new product development are the major reasons for this strategic rationale, added Hunter.
“We have some polymer PTCs but it’s a very small niche position so we’ll go from a niche player in polymer PTCs to a global leader. We will be able to have much deeper relationships with customers and we’ll be seen as a strong technology player in this segment. This is also very good for our channel partners and brings additional products to them,” Hunter said.
TE Connectivity’s circuit protection business, with an estimated revenue of about $190 million in fiscal 2015, leads in polymer-based resettable circuit protection devices and has a strong global presence in the automotive, battery, industrial, communications and mobile computing markets.
The majority of CPD’s business comes from automotive and battery sectors, with both contributing about one-third in sales. The remainder comes from industrial and business, communications, and entertainment (BCE), which for Littelfuse is primarily a distribution sell, making the acquisition good news for its distribution partners.
Although Littelfuse has a very strong business in the automotive sector – for passenger cars and more recently in commercial vehicles, the acquisition fills the product gap in the area of automotive electronics including motor protection.
“Our products have tended to be more in the infrastructure of the car – the electrical system of the car,” said Hunter. “What we really get here is much more complementary towards the automotive electronics segment such as for motor protection. There are many small and medium motors in vehicles - whether they are for window lifts, seat motors, and door locks - that need protection.”
In addition, the CPD business has done a good job in getting its products designed into the automotive segment particularly in Japan where Littelfuse has not had the products to play in the past, Hunter said
He also sees the CPD business providing strong growth in areas of thermal protection in electric vehicles, automotive infotainment and navigation systems, and battery protection for a range of applications from electric scooters to mobile devices.
Hunter said battery protection for all kinds of applications is strategic to the company. “We see very deep relationships with some of the customer as important to develop new products in the future.”
Industrial also is a strategic area for Littelfuse around segments such as LED lighting, smart homes, intelligent buildings, automation, and robotics – a lot of applications where there is a requirement for higher power and higher reliability, said Gordon.
Headquartered in Menlo Park, California, the CPD business has manufacturing facilities in Shanghai and Kunshan, China and Tsukuba, Japan. The company employs about 1,500 people globally.
The acquisition increases Littelfuse’s presence in Japan with greater scale and a local manufacturing presence, which it has lacked, to provide a platform for future growth in Japan. With 25 percent of CPD’s business derived from Japan, it gives Littelfuse a stronghold in the country. However, Hunter said the Americas is still a very important design center with a lot of design wins. Similarly, for Europe, he added.
“We haven’t had as much strength over the years in Japan as we would have liked but we’ve been very pleased with our progress in other places such as China,” said Hunter. “We have a successful track record of manufacturing in China and from what we’ve seen of these [CPD] facilities they’ve some good teams that also have high quality manufacturing. We have strong teams, a strong supply chain, and a strong culture of lean. Those are things that CPD also has developed.”
Growth projections for the new business is in the mid-single digits, virtually matching Littelfuse’s five percent organic growth. Littelfuse reported revenues of $852 million in 2014, up 12.4 percent compared to 2013. Organic growth for the year was five percent versus acquisition growth of 7.4 percent.
The global circuit protection market is forecast to grow at a compound annual growth rate of 5.49 percent over the period of 2015 to 2019, according to market research firm Technavio.
The deal is expected to close in the first quarter of 2016.