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Tuesday, May 17, 2022

Extra Work on Teledyne’s French Acquisition

In a rare move by a company that has grown through its acquisitions, Teledyne Technologies Inc. has made only one in the past year.But that does not mean the Thousand Oaks manufacturer of aerospace, marine and digital imaging products hasn’t been trying.For much of the year, the company lobbied to buy Photonis International SAS, a French company that makes primarily night vision products for military use, for $550 million.But in September, Teledyne paused its acquisition efforts and voluntarily withdrew its application for approval from the French government, Robert Mehrabian, the executive chairman of the company, said during a conference call with analysts in October to discuss third quarter results.

Since then, negotiations have resumed with the company’s owner, Paris-based private equity group Ardian.“At this time, we are hopeful to conclude the negotiations and announce the acquisition before the end of the year,” Mehrabian said.

During the conference call, Mehrabian explained that the French government did not want Teledyne owning 100 percent of Photonis and asked that a state-sponsored investment bank own 10 percent of the company. That was agreeable to the U.S. company although Mehrabian said that a price reduction of about 15 percent would be part of the deal.

“I think we have an agreement in principle right now and we need to finalize our detailed paperwork with the government and then see if we can proceed,” he added.

The single transaction that Teledyne completed was in January of 2020 when it bought software and hardware developer OakGate Technologies Inc., in Loomis. In comparison, there were three transactions completed in 2019.As for future acquisitions, Mehrabian said that the company has between $1.5 billion and $2 billion to spend on buying other companies. After subtracting out the cost of a Photonis deal, that would leave between $1 billion and $1.5 billion, so the company is looking very hard, he said.Additionally, after a difficult year, Mehrabian explained, company boards and management tend to look backward at what their stock price did while shareholders are more forward looking and want see what transactions are attractive.

“So having said all of that, I think, we think this is a good environment for us to make acquisitions,” he said.Greg Konrad, an analyst with Jefferies Financial Group Inc., said in a research note that looking at Teledyne’s recent history of acquisitions, it has proven that it can find companies that fit well within its portfolio, while providing a wider reach from a customer or technology standpoint.“The company also tends to be fairly conservative around what it pays, with multiples typically ranging from nine to 12 times, depending on the company’s growth outlook, in addition to potential synergies, which are typically included in the deal multiple,” Konrad said in the note.  Joe Giordano, an analyst with Cowen and Co. wrote in a research note after the third-quarter earnings that acquisitions were looked upon favorably by shareholders.

“Acquisition is a core growth driver of the company,” Giordano wrote, “and inability to identify, close and integrate new businesses into the portfolio would likely lower forward growth and investors’ sentiment toward the shares.” Engineering revenueFor the third quarter ending on Sept. 27, Teledyne reported net income of $93.9 million ($2.48 a share) compared with net income of nearly $107 million ($2.84) in the same period a year earlier. Revenue dropped by 7 percent to $749 million.

Teledyne’s share price increased by 6.5 percent from the start of 2020 through Dec. 14. The share price closed at $384.91 on Dec. 29.

Three of the four company’s operating divisions had a decrease in revenue during the quarter. The one that had an increase was engineered systems, the division that provides systems engineering and integration and advanced technology development for defense, space, environmental and energy applications. It also manufactures small turbine engines and electrochemical energy systems.Cowen and Co.’s Giordano said in his research note that the division’s sales were helped by higher volumes of engineered products and turbine engines but offset by lower sales of energy systems.

“Higher sales for space, nuclear and other manufacturing programs were also a benefit in the quarter,” Giordano wrote.

Konrad, the Jeffries analyst, said in his research note that the increase in turbine engine sales reflected higher sales for the U.S. Navy’s Harpoon missile programs.“The sales advance was broad-based across end markets, with strength in marine, nuclear programs and other electronic manufacturing services,” Konrad wrote. “The space business continues to be supported by the legacy NASA business.”

Mark Madler
Mark Madler
Mark R. Madler covers aviation & aerospace, manufacturing, technology, automotive & transportation, media & entertainment and the Antelope Valley. He joined the company in February 2006. Madler previously worked as a reporter for the Burbank Leader. Before that, he was a reporter for the City News Bureau of Chicago and several daily newspapers in the suburban Chicago area. He has a bachelor’s of science degree in journalism from the University of Illinois, Urbana-Champaign.

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