Delta Force

Delta''s acquisition takes it to a global leadership position and marks another example of an Asian company buying in Europe.

Compounding the trend of manufacturing moving east, Thailand's listed Delta Electronics has bought the power supply business of Switzerland's Ascom Holdings for $110 million.

The move takes the Delta Group into a global leadership position in the area that produces sub-systems for telecoms base stations and data centres - a market estimated to be worth $2.7 billion in 2003 sales.

It is obviously a market segment that has been pounded by the telecom & tech downturn, with Ascom deciding to exit the area because it was non-core and because it needed to raise cash to restructure and reduce debt levels.

It could prove to be a smart move for Delta Electronics - which is 20% owned by Delta of Taiwan. Both Delta companies are involved in the field, with Thailand providing one low cost manufacturing base and the Taiwan entity using China to the same end. Together they may now rank first in the sector globally.

It is tough to make that statement because data on market shares is old. The last data that bankers were able to quote goes back to the end of 2001. Then Emerson controlled a leading position with $1.5 billion of sales, Tyco was second with $1.3 billion, Delta third with $1.16 billion and Ascom had sales of $338 million. As a merged entity, Delta and Ascom's businesses are almost as large as Emerson, possibly larger.

The deal secures Delta's footprint in Europe where Ascom was strong, and allow the synergy of its much lower cost of production with the former Ascom business's strong local sales force and R&D.

The deal has been in the works for six months, and Delta was advised by JPMorgan - which also worked on a similar deal where Emerson bought Huawei's Chinese power supply business. Richard Gross, the JPMorgan banker who worked closely on the deal says Delta's due diligence was one of the most exhaustive he has seen in his 12 year career.

It seems that by not being in a rush, Delta may have got a good deal. It paid $110 million for a company with sales of $270 million, which equates to a multiple of 0.4 times revenue.

For Delta Electronics this is one of its two core businesses. It is also in LCD displays. However, its power supply business already made up 60% of sales before the acquisition and so the balance is set to shift even further in favour of this area as a result. This fits with management's strategy to focus more on the area of power supply to the telecoms and server market.

According to UBS Warburg, Delta Electronics is forecast to make revenues for 2003 of $969 million and net income of $90.2 million.

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