Camera giant sold

RUEIL-MALMAISON, France--Schneider Electric, a Fortune 500 specialist in automation management based here and generating $17.2 billion in sales annually, $1.4 billion from its building unit, has bolstered its building automation portfolio with the acquisition of the privately held, California-based Pelco Inc., a global leader in the design, development and manufacturing of video security systems. Schneider will pay $1.22 billion expressed as an enterprise value on a cash-free, debt-free basis for Pelco, along with a net present value of a tax benefit resulting from the step-up of Pelco's assets amounting to $320 million, resulting in a total cash payment at closing of $1.54 billion. Pelco will operate within Schneider's Building Automation business Unit, TAC, which is headquartered in Malmo, Sweden. The company will be managed in an autonomous manner, will retain all management staff and employees, and will keep its name and logo. Operations will continue on the company's Clovis, Calif., campus virtually unchanged, except that Pelco will now head TAC's Fire and Security Product Division, globally, which currently does roughly $300 million in annual sales with Integral Technologies (DVRs) and Esmi (fire, access control). "It's totally business as usual," said Pelco president and chief executive officer David McDonald, also a part owner. "For Pelco we have a dual strategy," said Arne Frank, Schneider Electric's executive vice-president for building automation. "We believe organizations all over the world using our open IP-based solutions will offer an excellent platform for Pelco to accelerate growth. And with their professional management and market positions, with the smaller fire and security companies we already have, we believe the only logical thing to do is ask Pelco to take the lead for the Fire and Security division." He estimated the division would generate $800 million in sales in 2008, with Pelco's roughly $500 million included. It is telling that Frank should mention Pelco's IP role. Pelco just unveiled a line of IP cameras at this year's ISC West show, after entering the IP market with its Endura NVR product roughly two years ago. Vincent Graham is president of Security Design Services, which is a top-100 Pelco Authorized Dealer, has been a dealer since 1991, and sells Pelco equipment largely through www.cctvhardware.com. He said Pelco "didn't jump into the IP market quite as fast as I would have liked," but emphasized: "the product has always been good." Frank countered: "We did a customer survey, and that confirmed just the opposite, that Pelco is perceived as a successful player in the IP arena, and well positioned to be very strong in the IP field." He emphasized, too, that hybrid solutions, employing IP and analog pieces, will be in great demand for the next few years. He acknowledged there might be camera manufacturers who are more "IP specialists," but "you can't compare Pelco's strong brands, strong channels, and strong market presence to what amount to very small niche players or start-ups." Graham said if there were one thing he hoped Schneider wouldn't change it would be "the availability of the products. Everything was shipped out when [Pelco] said it would be. There weren't any problems with their ability to ship and service." Scott Schafer, Pelco senior vice president of marketing and North American sales, said, "the most important thing that drew [Pelco] to this relationship is that they understand what this whole fanatical customer service process is, and they're very supportive of it. In fact, they want to learn a little from us in this area." Frank confirmed this: "We share this philosophy [of customer service], and I would say that Pelco is better than we are, but we look forward to having the Pelco guys push us forward a bit." Pelco is eager to begin work with other products under the TAC/Schneider umbrella, Schafer said. "Those things will become really evident by the end of the year," he said. "We've been doing a lot of integration work with access control companies, and that's fundamentally important to us. Customers want that, and having our own opportunity with access control and other applications will be a good thing. We're excited about it." Frank said, "There are plans to equip Pelco with an access control product," but did not offer a time frame. He said the Esmi line would be cross-sold with Pelco products, but likely not in the United States. Schafer said Schneider's concentration on growth was a big driver for Pelco, as well, noting that Schneider grew business 25 percent last quarter, 14 percent of that organically. "That tells you they're a group that's well managed," he said. He also said Pelco liked Schneider's tendency to take a relatively hands-off approach to acquisitions, allowing in-place management teams to take advantage of new resources, but not imposing structure or a change in business philosophy. Further, Schneider's presence in nearly 200 countries is attractive to Pelco, which still does the majority of its business in the United States. The Pelco acquisition comes on the heels of a string of acquisitions by Schneider aimed at strengthening its presence on the building automation market, including TAC, Andover Controls and Invensys Building Systems. This deal must win anti-trust and regulatory approval. The companies expect an October close.