By Jack Keough
It has been less than six months since Eaton completed the acquisition of Cooper Industries for $11.9 billion, one of the largest acquisitions ever finalized in the electrical manufacturing sector.
Certainly it is the largest acquisition in Eaton’s 102-year-old history and that says a lot based on the company’s success in being an active acquirer of businesses. In addition, the acquisition adds $5.9 billion in additional revenue based on 2012 numbers and 0.9 billion in incremental 2012 operating profit.
But already Eaton executives are saying the integration is going along even better than expected and the company is saving millions of dollars more in synergistic cost savings than it had projected. Eaton also is expecting increased revenues and further expansion into international opportunities.
During a recent financial presentation, Richard H. Fearon, vice chairman and chief financial and planning officer for Eaton, noted that the Cooper acquisition is transforming the electrical sector. Fearon made the remarks at Bank of America’s Merrill Lynch Global Industrials and EU Autos Conference.
Fearon pointed out that the Cooper acquisition increases the scope of Eaton’s electrical business, improves the breadth of its product offerings, and helps the company increase energy efficiency for its customers. The acquisition also means that the diversified industrial manufacturer’s revenues will now reach $23 billion with sales in 175 countries. The newly-combined combined company has 103,000 employees and its stock for the year is up in double digits. Eaton also increased its dividend by 11 percent earlier this year.
Eaton’s sales now break out into 60% of its revenues coming from electrical, 18 percent automotive, 14 percent hydraulics, and 8 percent aerospace. Based on 2012’s numbers about half of Eaton’s sales would come from the U.S., 27 percent from international developed countries, and 23 percent from international emerging countries.
Eaton executives note that the combined company now can offer customer expansion across the entire power system: upstream into power solutions encompassing primary and secondary distribution, grid automation and smart grid and downstream into lighting, lighting controls, and wiring devices.
Eaton sees other benefits. It can now sell a larger package to common customers of both companies, build on stronger global infrastructure, and allow geographic expansion into countries such as China, Mexico, the Middle East, Africa, and Russia.
There are many reasons for optimism for Eaton as well as other electrical manufacturers and distributors. Fearon noted that Eaton is projecting a 600 percent increase in the global LED lighting market by 2020, a compound annual growth of more than 25 percent.
In addition, the company also projects a 60 percent increase in global demand for energy in buildings by 2050.
Fearon also says that Eaton’s transformed portfolio makes it better positioned to withstand market contractions.
Eaton has come a long way in the last decade. Its total sales in 2000, for example, were $8.3 billion while its 2012 sales were $21.88 billion. (Cooper was only part of Eaton for one month in 2012).
Eaton’s combined business is now focused on six primary platforms for growth: residential and commercial construction, oil, gas and other industrials, utility, machine builders, and data centers/IT. Each of these platforms is expected to have additional sales of more than $1 billion. And all of those platforms have a global scope.
Eaton now expects a 2 to 3 percent in market growth for 2013. It projects a 4 percent increase in market growth for its electrical product index in the U.S. and 2 percent outside the U.S.
Jack Keough was the editor of Industrial Distribution magazine for more than 26 years. He often speaks at many industry events and seminars. He can be reached at john.keough@comcast.net or keoughbiz@gmail.com
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