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Peter A. Sokoloff & Co. regularly analyzes transactions which occur within the industries covered. An archive of these case studies is kept online as a courtesy to our colleagues. To receive by e-mail new case studies as they are prepared, please e-mail [email protected] with your contact information.

Archives > Transaction Case Study 28

Schneider Electric to acquire Pelco, Inc.

Dear Colleague,

On August 1, 2007 French multi-national Schneider Electric announced they are acquiring California-based Pelco Inc., a privately held manufacturer of video cameras and equipment. Schneider does business in some 190 countries and had 2006 revenues exceeding US $18 billion. It provides power and controls products and servicing to the residential, building industry, energy and infrastructure markets.

Schneider is paying Pelco’s shareholders an enterprise value of $1.22 billion for the business. In addition, Schneider is paying the sellers $320 million, representing the net present value of a tax benefit resulting from the step-up of Pelco’s assets. As a consequence, the total price paid in cash at closing will be $1.54 billion.

At the enterprise value of $1.22 billion and based on Pelco’s 2006 revenue of $506 million and $46 million in EBITDA, the transaction represents 2.41x revenue and 26.52x EBITDA. News reports suggest Pelco’s revenue for calendar 2007 will be $570 million, with EBITDA of $65 million. On this basis the multiples are actually closer to 2.14x revenue and 18.76x EBITDA.

Pelco designs, develops and manufactures video security systems and supporting equipment. The company is probably the #1 market share leader for security cameras in the U.S. Overall it serves some 15,000 distributors and generates 36% of its revenue outside the US, with sales reported in 130 countries.

With the acquisition, Schneider Electric make a significant addition to its existing Building Automation Division and strengthens its ability to offer fully integrated systems. Building Automation, which encompasses power and HVAC control, electronic security and fire safety, is one of Schneider Electric’s new businesses. The prior acquisitions of TAC, Andover Controls and Invensys Building Systems have enabled the Group to become a major player in that business.

Arne Frank, Executive Vice President of Schneider Electric Building Automation business unit, said: “The combination of our companies will create a unique portfolio of products, services and solutions in the building management industry. Pelco’s unique position in IP-based video security represents a tremendous additional organic growth opportunity. With this acquisition, a very important additional step is made to further reinforce our leadership in Open & Integrated solutions for Building IT®.”

Jean-Pascal Tricoire, Chief Executive Officer of Schneider Electric, commented: “This acquisition significantly reinforces our building automation business unit. Pelco systems will integrate gradually in our Power and Control solutions for buildings and infrastructure. Security offers a highly attractive growth profile and video is becoming the key application in the building management market.”

This transaction is expected to be accretive to earnings per share from year 1 and the ROCE (Return of Capital Employed) to cover Schneider Electric’s cost of capital in year 3, in accordance with the Group’s acquisition criteria. ROCE is a ratio that indicates the efficiency and profitability of a company's capital investment.

The transaction is subject to anti-trust and other regulatory approval and is expected to close by October 2007.

We hope that you find this feature from Sokoloff & Co. interesting, informative and useful.  We welcome your comments and suggestions.

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