IoT M&A kicks up a gear this week, industrial a hotspot

It has seemed quiet in the world of IoT mergers and acquisitions, but things got a lot louder in the past week. The industrial sector seems popular, with GE offloading its PLC wing to Emerson, Johnson Controls looking to boost its smart home portfolio, and Honeywell buying a rival in warehouse automation. The trend of buying outfits to flesh-out an existing interest continues – evidence that companies now recognize that the IoT is not a way to broach entirely new markets, and more a way to improve a core competence.

Honeywell has completed its spin-out of Garrett Motion, formerly its Transportation Systems Business (the engine turbocharging wing that is thankfully using the much-respected Garrett name going forward). Honeywell is also spinning-off its Homes portfolio. Riot covered the Resideo spin-out recently, which will also house the ADI brand, the venerable security system provider.

The other piece of Honeywell news was that it had acquired Transnorm for $490mn, a German warehouse automation specialist that was owned by IK Investment Partners. This deal builds on a previous purchase, where Honeywell bought Intelligrated for $1.5bn, back in July 2016.

Transnorm supplies conveyor units and software, used by parcel delivery customers. Honeywell says the company has an installed base of 160,000 systems, and a growing aftermarket parts and services business. Around 60% of Transnorm’s sales are in Europe, with annual sales north of €100mn.

The global supply chain is a huge opportunity for the likes of Honeywell, as so many products move through it. All of these are candidates for first digitalization and then active connectivity. This is why Riot has been so interested in advances in RFID, as that is one of the easiest ways to connect an item as it passes through the distribution systems.

A much smaller deal took place in this same area, as TrackLoop acquired ChainTrack, a provider of IoT-powered tracking products, which TrackLoop hopes to use to enhance its own software and analytics offerings. The Canadian firm is not just in the supply chain game, however, and says it will continue to develop its digital asset exchange product, peer-to-peer lending platform, and credit risk analysis system.

The deal makes TrackLoop the sole provider of tracking and analytics to Volta Air Technologies, and other customers include Sustainable Produce Urban Delivery (Spud), BC Ferries, Save-on-Foods, Canadian Blood Services, and EY-maker BYD Motors. It hopes to expand into more cold chain and enterprise services, in Canada and overseas.

Another smaller transaction saw Mondicon acquire Simfony, an IoT PaaS provider that targets CSPs with a full-stack offering that enables them to launch communication services. For the past four years, Simfony developed and offered a system that would let a customer spin up an IoT project. These features included the MVNO core network stack, application development environments, APIs, and business and customer support facilities.

Mondicon itself provides internet connectivity services, focused on edge-case companies that require national and international data. Ocean-going vessels are prominent customers, including cruise liners and luxury yacht manufacturers, but the company also cites smartwatch makers (Wanderwatch) and field marketing firms (including Sky Sports’ broadcast). To this end, Simfony adds more to its portfolio, letting it sell additional features than just the data packages.

The penultimate acquisition saw Johnson Controls splash out on Lux Products, a fellow specialist in thermostats that also had some tempting smart home products and services. Lux sold residential and commercial lines, and its smart thermostats, Kono and Geo, had gained some traction. It claims 16.3mn homes use Lux thermostats. You may also recognize the Lux kitchen timer.

For Johnson, the deal is a way to quickly shore up its nascent Glas thermostat line – a very luxurious looking unit that has suffered some mixed reviews, due to price, lack of remote sensing, and the Microsoft Cortana implementation. Lux could help improve Johnson’s offering, although the thermostats are just one piece of the Johnson Controls attack.

General Electric’s recovery strategy is continuing at pace, but selling off the programmable logic controller (PLC) business, the Intelligent Platform wing, to Emerson is strange. GE has been trying for some years now to cut the fat from its operations, but PLCs are a staple of the Industrial IoT (IIoT). They are the interface between dumb machinery and smart or connected platforms, and while no price is given, we’re not convinced Emerson is paying enough to justify a complete exit from the PLC market. This has an air of ‘fire sale’ about it.

However, while the division is part of an important trend, it is not a good performer. The Intelligent Platform wing chalked up 2017 sales of $217mn, employing some 650 staff. Give GE’s current market cap of $107bn, you can infer that its priorities lie elsewhere, but for a company apparently focused on turning things around, selling off an area that has a lot of upside seems short-sighted.

GE’s share price has been suffering for a while now. In The Riot 50, our tracker of influential IoT companies and their financial performance, GE is down from a high of $15.32 in May to the current value of $12.32. Back in July, JP Morgan warned that GE was overvalued, stating that the price should be around $11.

A year ago, GE was worth $24.80 a share, but since December 2016, when a share was worth $31.75, the company has been on a sharp down turn. One of the sharpest periods of decline was from that October 2017 price, where it dropped to $18.19 on November 24, before stabilizing for a time and then continuing the decline, bottoming out in April of this year at around $13 – where it has then fallen further.

Contrasted with GE, Emerson has been a stellar performer. Since the 2008 crash, when a share was worth around $33.50, Emerson has risen steadily, to today’s valuation of $77.86 per share. In the past five years, 2015 was a low point, falling from a high of $70 in 2014 to just $43.78 in September 2015. The holiday period was good to Emerson, but another slump arrived in January 2016, hitting $43.17. However, since then, the trajectory has been firmly upwards.

Emerson, a manufacturer and service provider for industrial, commercial, and some consumer markets, is not a small company. Its market cap is currently just shy of $49bn. However, it has nothing like the debt problems that GE is saddled with.

In addition, GE has just booted CEO John Flannery, the man who took over from Jeff Immelt and was meant to lead the turnaround. Flannery forged ahead with a pretty aggressive plan to break the company up, culminating in spinning out GE Healthcare, selling its energy assets to Baker Hughes, and slashing GE Capital.

It seems that investors and the board ran out of patience, but if they collectively thought turning around a behemoth like GE was going to be straightforward, they are quite delusional. So the new successor, former Danaher Corp CEO Larry Culp, is likely not long for the job either, especially as GE just announced that it would be missing its 2018 earnings per share (EPS) and cash flow guidance, and Moody’s is considering downgrading its credit rating.

GE is running out of things to sell off. The past year saw it sell its Industrial Solutions business to ABB for $2.6bn; GE Industrial Motors Mexico to Wolong Electric Group for around $160mn; Ambulatory Care & Workforce Management Software to Veritas Capital for just over $1bn; cash out of its joint venture with Alstom for $3bn; offload GE Transportation to Wabtec for $10bn; Industrial Gas Engine business to Advent International for $3.25bn; Energy Financial Services to Starwood Property Trust for $2bn; and MRA Systems to Singapore Technologies Engineering for $630mn.

That’s around $22.78bn in transactions (not necessarily cash in its pocket) plus what Emerson has paid for Intelligent Platforms – which is though to be less than $500mn. And still, GE can’t seem to turn the boat around. Things still look rough in the Power business, and if the more promising assets are being sold off, simply because they are smaller than the likes of GE Aviation, one wonders how much of the company will be left when the investors and board are happy.