IP&E expert TTI Inc. raised a few eyebrows when it acquired semiconductor specialty distributor Symmetry Electronics in July of 2017. The announcement of TTI’s intent to acquire RF/microwave expert RFMW Ltd. raised a few more.
Until 2017, TTI focused exclusively on interconnect, passive and electromechanical (IP&E) components. Its expertise in these products has sustained TTI through multiple upcycles and down markets. Expanding into semiconductors is a departure from TTI’s longtime strategy.
It has also been an unexpectedly smooth transition, said Michael Knight, president of TTI Semiconductor Group (TSG). Symmetry, CHANGNAM I.N.T. Ltd. (acquired in December 2017) and RFMW are focused on a narrow, high-quality semiconductor line card; have highly-trained personnel; and service a well-established, loyal base of customers.
“[Expanding into semiconductors] hasn’t been a disruption for the TTI family,” said Knight. “In fact, there is a very satisfying connection between Symmetry and the core TTI business, and of course Mouser. We have TTI salespeople who are introducing Symmetry salespeople to customers and vice versa. Collectively, we are getting closer to the center of the customers’ designs. I think I’m most pleased about the way the core TTI team has embraced what we are doing [in semiconductors.]”
Historically, managing a set of independent specialists has been profitable but ultimately not successful in electronics distribution. The most recent example was the VEBA group of companies that acquired or created a global network of semiconductor specialists. VEBA found its customers wanted to procure their entire bill of material (BOM) from fewer distributors. As VEBA did not carry IP&E products, it formed alliances with other distributors. VEBA divided and sold off its businesses in 2000.
“The distribution industry has largely been chasing customers that want one-stop shopping,” said Knight. “We’ve been there, done that, and came up short with that model. That doesn’t mean broadline distributors are dinosaurs — they serve different customers and different markets. This specialty model serves people that didn’t want or didn’t have an option [to engage across the board with a big distributor.]”
Specialty distributors provide significant value to suppliers. Broadlines carry hundreds of suppliers and are unable to focus on all lines that want special attention. Suppliers offer incentives to partners that “create demand” for their devices. For many distributors, that has required hiring high-priced engineers that assist with— but don’t generate – sales. The demand-creation model is already baked into the three semiconductor companies that TTI has acquired. TTI’s practice is to maintain the independence, management, business model and personnel of its acquisitions.
“Demand creation is really at the heart of [TTI's semiconductor] business,” Knight said. “All three companies are very well known for demand creation and they all punch well above their weight class in demand creation and design wins. We know them for their technical prowess and not just the applications engineers – the majority of their FAEs are engineers. Engineers are very important to suppliers and the class of supplier these companies carry is unbelievable.”
TTI's acquisition model
TTI also has a track record it can point to regarding its acquisitions. Mouser, Sager and other TTI acquisitions have remained independent; have retained their management, and have benefited from the capital available from Berkshire Hathaway, which acquired TTI in 2007.
“Symmetry was pretty small when we acquired it and they will grow more than 50 percent this year,” said Knight. Symmetry recorded $35 million in sales in 2017, according to EPSNews Top 50 Distributors report. “They have a phenomenal IoT line card — AMD, Digi, Nordic — and they have high expectations of their channel, so we don’t get a pass on that. We view [our semiconductor acquisitions] as an opportunity — a focused, narrow supplier base and a narrow market segment in which, pound for pound, they can out-design anybody. The Symmetry team excels at designing in wireless modules and CHANGHAM is good at designing in automotive — not having to be an expert in hundreds of suppliers is the advantage of being a specialist. That’s what always made TTI tick.”
RFMW Ltd., which reported sales of $69.4 million in 2017 to EPSNews, is a longtime specialist in RF and microwave components. “This is a great market in terms of today and for the future,” Knight said. "RFMW’s niche is closely related to Symmetry’s, think of it as the other side of the same coin, and its management is well-known in the RF and microwave world.” RFMW's two founders — Joel Levine and Steve Takaki—are staying with the business, as is the entire team. “As with Symmetry, we expect we’ll help them grow at a faster rate,” said Knight. “These companies are not all that small—they are bigger than most people think and growing well, which can put a strain on cash. As part of the TTI family of companies, cash flow is no longer a limiter to growth.”
RFMW is so important to suppliers and customers that many reached out to TTI for assurance its team would not be diminished. “It really helps that TTI has a perfect track record of not impacting acquired companies in any negative way,” Knight said. “When you look at the acquired companies that we have integrated, the people have thrived. And the same is true for those companies we have not integrated (Sager, Mouser and the companies comprising the TTI Semiconductor Group, including RFMW). More years than not, we are a net adder [of personnel], never a cutter, and the people that join us through acquisition are extremely important to us. “
“Opportunities like this are rare,” RFMW's president Levine said in a release. “TTI’s specialist vision aligns perfectly with RFMW and represents the best possible scenario by allowing RFMW to focus on radio frequency and microwave products and technology. Joining the TTI family of companies will allow RFMW to continue our growth path and benefit our loyal employees who remain committed to the RFMW specialization strategy, world-class suppliers, and focused customer base. TTI’s investment in our future will support the next generation as we add resources, extend our reach and increase our capabilities for both suppliers and customers.”
With the addition of semiconductors, the TTI family of companies is able to fulfill more of a customer’s bill of material. “If a customer values what we do for them in IP&E it makes sense that they’ll want that for their entire whole BOM,” Knight said. “[TTI] in the past has said we can’t do that because we are a specialist by design, and so not a broad line distributor. Now that we have rounded out our offering with the creation of the TTI Semiconductor Group, we’re working through how to remain true to our specialist model but still support a larger part of a customer’s BOM.”