In the pecking order of Tyco International Ltd.'s most recent purchases, last week's $72 million purchase of embattled printed-circuit-board maker Praegitzer Industries Inc. barely rates a mention.
Place Praegitzer within Tyco's Printed Circuit Group, however, and add the specter of a consolidating PCB industry with fast-improving revenue potentials in today's Internet-driven economy, and the acquisition becomes a warning shot across the bow of competitors.
Even before the dust of that acquisition had settled, Tyco's chairman and chief executive, Dennis Kozlowski, told reporters that the company was reviewing a list of about 40 possible purchases in the $400 million to $700 million range. Could some of these be in the PCB industry?
Highly likely, analysts said. And while company officials declined to comment, previous statements confirm that Tyco, notwithstanding a recent controversy about its accounting practices, is not going to be steamrolled into abandoning its strategy of growing earnings through acquisitions.
"Tyco's purchases are of companies whose businesses overlap with something [in which] they already have exposure," said Phua Young, an analyst at Merrill Lynch & Co. Inc., New York. "For fiscal 2000, free cash flow could exceed $3 billion, [and] all of the free cash flow and more will be redeployed into accretive acquisitions."
Some of that money flowed into Praegitzer last week, rescuing the company from a severe cash crunch that almost crippled its operations. Praegitzer's long-term debt had ballooned to about $80 million following the shuttering of its plants in Huntsville, Ala., and Redmond, Wash. The cost-cutting resulted in a charge of $29.8 million. Last week, Praegitzer announced a quarterly loss of $817,000, as its revenue dropped 14.6%, to $47.3 million.
"After a review of possibilities, the Praegitzer board of directors determined that being acquired by Tyco was the best course of action for our shareholders, employees, and customers," said Matt Bergeron, president and chief operating officer of Praegitzer, in a statement.
By buying Praegitzer, Tyco gets a business that still has three profitable plants, according to Thomas Moro, an analyst at Advest Inc., Hartford, Conn.
"Tyco is getting Praegitzer at a good price," Moro said. Praegitzer "has a lot of debt and didn't have much wiggle room during negotiations with Tyco," he added.
While Kozlowski said Praegitzer will contribute immediately to Tyco's earnings, the Hamilton, Bermuda, company is getting a lot more than a few cents added to its bottom line. Tyco already has a small PCB business that contributed $250 million to its fiscal 1998 revenue. In Tyco's world, that's a miniscule amount. The Praegitzer acquisition offers the company a chance to become an even bigger player in the PCB market.
If Tyco is looking to acquire more PCB companies, it is doing so at an opportune time, according to a West Coast analyst, who declined to be identified. Many PCB manufacturers, including Hadco Corp., Merix Corp., and Plexus Corp., are trading below their 52-week highs. Hadco, for instance, closed Thursday at $37.06, down 22.2%, while Plexus ended the day's session at $26.50, down 34.2%. Even Praegitzer, which Tyco is acquiring for $5.50 per share, traded as high as $9.75 within the last 12 months before sliding to a low of $3.50.
Depending on whether the small- to medium-size PCB makers wish to remain independent and specialize as niche players, or link up with a major player like Tyco to slash costs and take advantage of its deep pockets, Tyco will certainly find many other targets within the industry, analysts said.
"You really need to be big to make a difference in this industry," Advest's Moro said. "It would be almost impossible to go it alone."