Here we go again
We’ve gone a while since the last notable COTS acquisition, but Curtiss-Wright is hot on the trail of VME provider VMETRO.
As I was contemplating this column and basking in the glow of two fabulous tech trade shows – National Instruments' NIWeek 2008 and the Intel Developer Forum – Curtiss-Wright Controls Embedded Computing (CWCEC) dropped a bombshell on the VME COTS market. In a largely content-free press release designed, I'm sure, to keep the SEC happy (SOX, you know), CWCEC (NYSE: CW) said they plan to "launch a voluntary offer to acquire 100 percent of VMETRO ASA." But why VMETRO, and why now? No one at Curtiss-Wright would speak with us on the record, so the following is merely conjecture on the possible motivations for the acquisition.
At the current U.S. exchange rate to the Norwegian krone, this translates to around $2.20 per share, or a total purchase price of somewhere north of $52 million if the deal were done today. Not bad for CWCEC, considering VMETRO had been on track to exceed $60 million in sales, and has been trading between $9.50 and $18.00 the past 12 months, probably due to fluctuating margins the past year: -6.23 percent net profit margin and -4.58 percent operating margin. This most certainly is due to the company investing heavily in R&D and Cap-Ex.
But there's much more to this story than simply savvy financial deal-making on CWCEC's part. Editor Sharon Schnakenburg and I met with VMETRO executives several months ago and emerged thoroughly enthralled with the depth of the company's marketing and technology arsenal. After all, it was only a year ago that VMETRO acquired Micro Memory and started its really aggressive march into the rugged VME market space using FPGAs as the core weapon (pun intended).
For CWCEC, the company has a long history of COTS acquisitions, and I've written about them many times before. As a refresher: Curtiss-Wright is primarily an avionics control system company that decided five years ago to climb the food chain by acquiring Lau Defense Systems (which had previously acquired VME provider VISTA Controls). CWCEC's rationale was rock solid: become a Tier 2 defense prime by selling higher margin and long life-cycle integrated subsystems (not just actuators) a la BAE or DRS. Lau/VISTA brought the COTS electronic backlog, systems integration, and open standard platforms such as VME. This kicked off a string of rapid-fire acquisitions including Dy 4 Systems (from Force, who bought them from CMAC), Primagraphics, Peritek, Synergy Microsystems, and maybe a dozen more I can't remember. [Full disclosure: I have worked at VISTA Controls, Dy 4 Systems, and had previously advised CWCEC on their Dy 4 acquisition.]
But why VMETRO, and why now? No one at Curtiss-Wright would speak with us on the record, so the following is merely conjecture on the possible motivations for the acquisition.
Looking only at technology drivers, a few items pop off the page: storage/recorders, FPGAs, and DSP, VPX, and mezzanine boards. For the past three years, CWCEC has probably invested a disproportionate amount of their R&D budget in VITA 46/48 (VPX/REDI) in anticipation of the Army's Future Combat Systems (FCS). Early on, Boeing endorsed the specs, and CWCEC was the first to announce a public VPX win - and it was an FCS win. It appears they spent their money wisely. But on the other hand, technology marches on and companies like Aitech, VMETRO, and others continue to follow VPX but also create their own tech IP.
Whereas Aitech chose outer space as their differentiation, VMETRO went after FPGAs and DSP. The Micro Memory acquisition was all about reconfigurable FPGAs acting as coprocessors for garden variety SBCs. Previously, Micro Memory created their FPGA IP as a CPU offload engine for the company's memory boards, but it wasn't long before customers began requesting pre- and post-processing functions in the FPGA engine. The company reinvented itself with the launch of CoSine, an FPGA base- and daughter-board family with companion IP library tailored to signal processing applications. VMETRO was quick to notice, bought the company, and wasted no time making FPGAs the cornerstone of their VME strategy. VMETRO also spearheaded VITA 57, the FPGA-centric mezzanine standard. If CWCEC succeeds in acquiring VMETRO, it'll secure two companies' worth of IP plus a bevy of savvy tech types.
Lastly, VMETRO's other business (roughly 40 percent, according to last year's financial reports) includes analyzers and data recorders. I'm not sure CWCEC wants the analyzers, but the data recorders and solid-state disk IP developed by VMETRO dovetail beautifully with CWCEC's core rugged business - and allow it to balance fickle congressional production program funding with ongoing test and measurement prototype programs. Voila: new stuff to sell to the existing customer base - always a smart move.
If VMETRO becomes a part of CWCEC as I suspect it will, the landscape of rugged VME suppliers will look like this: GE Fanuc, CWCEC, Kontron (via Thales), Mercury Computer Systems, Aitech ‚Ä¶ and then a grouping of sub-$20 million COTS companies. Elsewhere, keep your eye on the likes of Cornet Technology, Extreme Engineering Solutions, North Atlantic Industries, TEK Microsystems, General Microsystems, and Themis. One of these is sure to make a daring move up the rugged COTS ladder.
Chris A. Ciufo
VME and Critical Systems magazine