Teledyne
Thousand Oaks-based defense conglomerate Teledyne Technologies snapped up seven companies in 2008, up from the two it acquired in 2007.
The acquisitions – for which Teledyne is expected to have spent more than $130 million, compared to just $50 million on business purchases in 2007 – came from a range of industries that reflects the firm’s diversity. They include underwater robots and other technology for offshore energy production, defense electronics and flight line maintenance terminals used by commercial airlines.
“Essentially, we like to buy businesses that have specialized technology in markets that we already participate in, bring new technology to Teledyne and expand our markets in the process,” Jason Van Wees, Teledyne’s vice president of corporate development and investor relations, told the Business Times.
With valuations tumbling, Teledyne could be poised for another acquisitive year in 2009. But Van Wees cautions that the kind of firms the company targets won’t plummet like the rest of the market. “Teledyne is not a bottom fisher,” Van Wees said. “We buy good companies at reasonable prices.”
With about 45 percent of Teledyne’s business coming from the government, and much of that from defense contracts, the incoming Obama administration’s budgets could produce a mixed outlook for the firm.
On one hand, the administration might pour money into cost-savers such as unmanned submarine vehicles, making Teledyne’s buyout of underwater glider-maker Webb Research look prescient. But cuts to missile defense could hurt.
“If the president-elect acts on his word, that stuff disappears in a heartbeat,” said Rick Whittington, a principal at JSA Research, which has a “sell” rating on Teledyne’s shares.
On the other hand, Teledyne’s defense electronics business – to which it added Judson Technologies for $27 million and U.K.-based Filtronic for $24 million – could provide stability.
“I think there are going to be reasonable budgets for companies in the electronics space, and that clearly will benefit companies like Teledyne,” said Mark Jordan, an analyst with Noble Financial Group. “Every five to 10 years, everything you have in the field is obsolete and you have to replace it with the current generation.”
“Long term, when you think about satellite communications, battlefield radar, data uplinks and downlinks from unmanned air vehicles … those are all positive,” Teledyne’s Van Wees said.
Underwater success
Teledyne made four of its 2008 buys in the marine technology business. The company has added 10 firms to that line since 2005, Van Wees said, and the marine ventures account for about 17 percent of its commercial-side sales – the most of any single business.
The technologies – which include everything from underwater robots to cabling and interconnects to underwater surveying instruments – serve the oil and gas exploration market. But they also find applications in the military and oceanography and could even be used to track sea temperatures during a La Niña event, which some forecasters predict for this year.
With the price of oil down, and demand for costly offshore exploration softened, Van Wees said those alternative markets have become important.
“We like the fact that were not 100 percent tied to [oil and gas].”
But $40-a-barrel oil won’t last forever. When the price rises enough, exploration will resume.
“As companies start to purchase capital goods again, you’ll see systems like these once again bought,” said BB&T Capital Markets analyst Michael Lewis. “As an analyst, I’m not necessarily concerned that it’s a sustained slowdown.”
Acquisition target?
In recent months, Teledyne’s shares have plunged more than 35 percent, from a July high of about $65 to the $40 range.
Shares fared far better than those in other sectors – automakers have dropped harder – but the low price leaves open the possibility that another firm could snap the company up. Some in the Tri-Counties – such as Carpinteria’s CKE Restaurants – have implemented “poison pill” plans against potential takeovers.
“[Teledyne] could be [an acquisition target], especially if, as most people expect, the defense budget shifts around and the large platform companies don’t get as much business as in the past,” said Stephen Levenson, an analyst with Stifel Nicolaus & Co. “They’ll have to make acquisitions to grow.”
“This is a consolidating space,” Lewis said of the defense industry. “Everyone is an acquisition candidate at this time.”
But other analysts say Teledyne might be too diversified to attract buyers. It derives about 45 percent of its business from the government – from defense mostly, but also from NASA and the Department of Energy – and the remaining 55 percent from the commercial sector.
A defense buyer might like a few business lines but find commercial ventures unappealing. Suitors also might shudder at managing a covey of small subsidiaries.
“People who acquire other entities like to buy focus, rather than a conglomerate,” Whittington said. “But that’s to be determined – if oil returns to $100 and the Chinese build an aircraft carrier battle group, there could be a bull market on underwater robotics.”
For its part, Teledyne hasn’t taken any steps to thwart potential buyers and hasn’t said anything on the subject.
“That’s sort of out of our control,” Teledyne’s Van Wees said. “We haven’t done anything different recently in terms of governance.”
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