Today the cable connector supplier Belden Inc. (NYSE: BDC) announced plans to purchase the privately held PPC Inc. for $516 million. The deal is expected to accelerate Belden's transformation into a major player in the connectivity, networking, and signal transmission markets.
The transaction is expected to propel Belden into new market segments, including the information and entertainment sectors where PPC is a player. It will also help diversify Belden's revenue base and position it as a one-stop supplier for many OEMs in the telecommunications, networking, and entertainment markets. One extra advantage for Belden is the addition of a fast-growing company that has bucked the connectivity industry's sales slides over the last 10 years
"This acquisition is a wonderful example of our business transformation and highlights our strategic focus on building global business platforms with strong financial attributes, serving attractive end markets," John Stroup, Belden's president and CEO, said in a press release announcing the deal. "PPC provides innovative products that enable our customers to profitably grow their business by delivering higher bandwidth and enhanced services, with fewer service calls."
Belden hopes buying PPC will ignite growth at a time of continuing economic pressures. Last month, the company lowered its 2012 revenue target to a range of $1.94 billion and $1.95 billion, versus analysts' consensus estimate of $1.95 billion. Belden had reported revenue of $1.98 billion for 2011. With the PPC acquisition, Belden is adding a business that continues to grow strongly and is projected to post $238 million of sales for 2012.
That's the good news. But by itself, buying PPC will not solve Belden's growth problems, and it may even bring the company into direct competition with bigger companies determined to stunt its expansion into their corners of the connectivity solutions market. Belden may find itself competing against companies like TE Connectivity and a bunch of lower-cost Chinese firms in the broadband arena. Furthermore, this transaction will probably result in higher debt leverage.
Belden hasn't disclosed how it expects to pay for the PPC deal, but I expect the financing will include corporate bonds or direct bank borrowing. With approximately $400 million in cash and short-term investments and $960 million in long-term debt as of Sept. 30, it could find itself more leveraged than at any other time in its history.
Faster growth and improved cashflow could reduce some of the financial pressure. So could proceeds from business divestiture. Last month, Belden announced plans to sell its Thermax and Raydex divisions to Carlisle Co. Inc. for $265 million. That transaction is expected to close this month.
When it announced the deal with Carlisle, Belden also said its board had approved share repurchases of up to $200 million. Some of that money will hopefully be used instead to fund the PPC transaction. Belden said it will provide more information about that deal later today. I hope it will shed more light on how buying PPC strengthens the company.