ITT Industries Inc.'s recent acquisition of C&K Components Inc. will strengthen its market share in North America and position it as the world's largest switch supplier, company executives said this week.
ITT has agreed to pay $117 million for C&K, a privately held company that had revealed no prior interest in being acquired. In fact, company executives recently told EBN they intended to take the company on an aggressive growth path.
But ITT, as well as other component manufacturers, apparently liked the plan as well. ITT was prepared to buy C&K last year, but got sidetracked by another acquisition -- keyboard maker STX Pte. Ltd., a former unit of San Teh Ltd.
"Just as the ink was drying on the San Teh [deal], the C&K opportunity came along," said Gerard Gendron, president of ITT Cannon, the ITT subsidiary under which C&K will be run.
"It's a perfect fit," he added. The acquisition not only boosts ITT Cannon's product line, it also extends its distribution reach and penetration in North America. In the long term, the acquisition will satisfy OEMs looking for one-stop shopping of connector and switch solutions, according to Gendron.
But like any acquisition, it depends on how successful ITT is in integrating C&K. The first step is to identify each of the company's best practices and find ways to maximize other synergies such as product-development efforts between the two companies, Gendron said.
The deal is expected to be completed in the next 60 days. C&K's management team will stay in place, Gendron said, as will its brand. "Right now, we'd be silly not to use the C&K brand," he said. "It has a lot of value and significant strength, and is probably the number one brand in the market. We haven't decided how we'll drive forward in the long term, but certainly over the short- to medium-term, it will be status quo."
The acquisition came as a surprise to the industry. During a meeting in February at the company's Watertown, Mass., headquarters, Robert Palmatier, chief operating officer at C&K, outlined a plan to triple sales within two years by focusing on product development, improving operations, and seeking new business opportunities.
And in another interview, C&K said it had sought opportunities to acquire other companies. John Sutherby, director of marketing, told EBN that "it's not easy finding a good fit."
A C&K spokeswoman said the company was told by ITT not to discuss the acquisition. But in a statement, C&K president and chief executive Jerry Brady called the deal "a positive move for both C&K and ITT." He added that "C&K shareholders are well served, and ITT is getting a business with significant growth opportunities."
But what led C&K, which was founded in 1957, to end up in the arms of ITT? Gendron said the decision was done via an auction, with C&K's board selecting the bidder. He didn't know who the other bidders were. But one source said there were several, including Tyco International Ltd.
As far as product lines, there's little overlap. C&K brings to ITT Cannon an extensive line of toggle, tactile, DIP, snap-action, membrane, and rotary switches from a 400-plus-page catalog. ITT Cannon's portfolio leans toward more custom and innovative products, Gendron said.
C&K has manufacturing operations in Newton, Mass.; Kettering, England; and San Jose, Costa Rica. ITT Cannon has manufacturing plants in China, France, Germany, and the United States.
C&K's roster in North America includes distributors such as Arrow, Avnet, Future Electronics, Kent Electronics, and Sager Electronics. Internationally, the company relies on a direct sales force as well as Future Electronics Inc.
"C&K's extremely strong in distribution," Gendron said. "They're the No. 1 switch supplier for three of the top distributors in North America."
ITT Cannon has a global sales force and distributors in each of the key markets in Europe and Asia. In North America, the company uses distributors such as Arrow, Avnet, and Sager Electronics. "So the distribution channel in North America is a tremendous opportunity to bring our products through that channel, which historically we've done, but this will allow us to be significantly more successful there," Gendron said.
The deal adds about $100 million to ITT Cannon's revenue, which is expected to increase this year to $750 million. The division posted sales of $167.7 million for the first quarter, which ended March 31, a 38.4% increase from the prior-year period due to strong demand for telecom products and added sales from its San Teh acquisition.
ITT's total sales grew 11% in the quarter, to $1.21 billion from $1 billion in the same quarter in 1999. Earnings climbed to $51.3 million from $42.5 million.
One area of growth ITT Cannon will focus on is C&K's interface and subassembly business. ITT Cannon has a similar program that involves offering OEMs panel-switch assemblies and connectors. Gendron said the plan is to nurture this segment, which has been growing by about 20% each year.
The industry can also expect more acquisitions down the road. "Although the two acquisitions we've announced over the past six months have been switch companies, we have connector companies on our radar screen," Gendron said. "We're actively pursuing growth of connectors and switches. We're looking for the next C&K."