Amphenol Corporation recently announced it had come to terms with MTS Systems Corporation to acquire it for $1.7 billion. The acquiring company expects to close its latest purchase by mid-2021, barring any regulatory complications.
After the transaction closes, Amphenol anticipates its new subsidiary will add $0.16 to its annual earnings per share (EPS).
Why Amphenol Wants to Buy MTS
In a press release, Amphenol explained it is combining with MTS to break into a host of new markets.
At present, the Connecticut manufacturer is one of the world’s top producers of interconnect solutions. That enables it to occupy leading positions in the military, aerospace, networking, industrial, automotive, and consumer electronics sectors. But with MTS under its corporate umbrella, it will be able to move into the rail, civil engineering, biomedical, and energy fields.
Founded in 1966, MTS has two business segments: sensors and test and simulation equipment. As an innovator in both arenas, the Minnesota-based company has extended its footprint into the Americas, Europe, and Asia. The firm revealed that it generated $828.5 million in revenue during its recently concluded 2020 fiscal year.
Because of its portfolio and business relationships, Amphenol viewed MTS as an asset worth buying and developing. After finishing its takeover, the purchaser intends to review its subsidiary to position it for future growth.
Amphenol CEO R. Adam Norwitt said his company’s new acquisition would help it “further capitalize on the long-term growth potential of the electronics revolution.” Similarly, MTS Interim President Randy J. Martinez expressed his happiness at bringing his firm’s “diversified customer base of blue-chip companies” to its new corporate parent.
Why MTS Benefits From Being Bought Out
Although it stands as a $1.13 billion enterprise, MTS’ leaders are wise to agree to a buyout.
Like many organizations, the components manufacturer encountered significant headwinds connected to the coronavirus pandemic. In September, the firm announced it would shrink its test and simulation workforce and reduce its range of offerings intended for the Chinese market. The company took action to cut costs and improve profitability in light of COVID-19’s impact on its operations.
MTS’ decisive reorganization efforts enabled it to beat Wall Street’s estimates for its Q4 revenue and EPS. Unfortunately, it faced so much disruption recently, it exited the fiscal year with $88.9 million in cash on hand and $584.6 million in debt.
In addition, the electronic components industry has undergone significant consolidation following the coronavirus outbreak. In particular, Infineon Technologies and STMicroelectronics, leaders of the global sensor segment, both completed large corporate acquisitions this year.
With COVID-19 affecting its business and its rivals expanding the resources, MTS had been on course for a challenging 2021. But it will be in a much better place after merging with Amphenol. As part of a larger corporation, it will have less immediate pressure to perform financially. It could also meaningfully improve its income if its parent company offers its products in new markets.