Omron Corp.'s recent agreement to acquire the Safety Products Group of Scientific Technologies Inc. (STI) will catapult the Kyoto, Japan field automation vendor into the top spot for safety products in the North American market, according to one market research firm.
Already a major supplier of safety relays and PLCs in Japan, Omron will widen its product breadth when the all-stock deal, valued at about $94 million, is completed. The acquisition will position the company as the undisputed leader in North America with a 20% market share, according to ARC Advisory Group (Dedham, MA). STI is the current leader in North America, with a 17% share of the market; Rockwell is second with 12%; and Omron lingers behind with 3%, ARC estimated.
The deal, which is expected to be completed by September, pending shareholder and regulatory approvals, puts Omron in an enviable position. The safety products market is expected to grow at a compound annual growth rate (CAGR) of 8.4% over the next few years, according to ARC. The worldwide market for the machine safeguarding business, for instance, hovered around $1 billion in 2004 and is forecasted to reach $1.5 billion by 2009, ARC projects.
"It has been on an uptick for about three years," said Sal Spada, ARC's director of research, in an interview. "A lot of it has to do with the increasing awareness that safety is also a productivity enhancer. People are viewing safety as more than just a requirement on the factory floor. It is actually a way of increasing uptime on equipment," Spada said.
Many manufacturers are reengineering their traditional hard-wired safety systems with programmable products that offer more efficient ways to apply applications, Spada said. For instance, integrating a safety controller with a motion controller is a cost-saving step. But the multi-tasking aspect of integrating controllers also increases safety concerns.
"The other aspect in this is that some of the automation equipment [manufacturers] are using is becoming complex, and they are trying to do multiple things," Spada explained. "The operator needs to get access to equipment while it is still in operation." This means guarding the operator is of greater concern, he pointed out.
In the area of light-curtains alone -- a product category that ARC estimates generates about $300 million in revenue globally -- Omron will be able to fill a gap in its product offerings. The company is generally not well-known in the segment, while STI has a considerable presence.
"We have a safety products offering, but it is nowhere near as large [as STI]," noted an Omron spokesperson in an interview. "STI has a major distribution channel in North America ... and that is the real benefit to Omron."
As a result of the acquisition, Omron plans to aggressively grow its safety business from revenues of $85 million in fiscal 2005 to $255 million by fiscal 2008. "By acquiring STI, we will be able to offer a wider range of cutting-edge safety products and consultancy services to our customers," said Fumio Tateisi, president of Omron's Industrial Automation Business, in a statement.
STI's Safety Product Group will become part of the Omron Management Center of America Inc., Omron's North American holding company. It will report business and financial results through Omron Electronics LLC to Omron's Industrial Automation business. STI's operations will remain in California; Omron did not disclose whether it intends to make changes to STI's staffing or to the company's executive management team.
STI has been proactively seeking a buyer, in part, because it has "become increasingly more expensive to remain a small public company, particularly with the high costs associated with the regulatory environment post-Sarbanes Oxley," said Joseph Lazzara, president and CEO of STI, in a statement. For example, STI estimates it costs more than $1 million a year just to be a public company. That's money that the company cannot use for other purposes, such as investing in new products and services, he said.
"We realize that as our markets become more global, STI would be able to achieve greater success if it could become part of a larger, global automation supplier organization. Omron is that organization," Lazzara said.
Omron is not purchasing STI's other business -- its Automation Product Group. That group is being sold separately to a newly formed company led by current STI board members.