Teledyne Technologies Inc. spent nearly $400 million last year acquiring companies that reflect its broad business focus. One made oscilloscopes that measure electrical signals in medical and engineering equipment, another produced underwater cables used in oil exploration or aboard oil platforms and a third manufactured 3-D scanning sonar to inspect dams, harbors and bridges. And the buying spree hasn’t slowed much this year. The Thousand Oaks company has taken ownership of four businesses to bolster its instrumentation and digital imaging divisions. And with four months remaining till Dec. 31, could Teledyne be cooking up more companies to buy? Teledyne Chief Executive Robert Mehrabian, in a conference call with analysts in July to discuss quarterly earnings, hinted strongly that would be happening even though acquisition costs are increasing. “I haven’t seen any big ones that we can afford at this time,” Mehrabian said during the call. “But I think we’ll make a few small ones going forward the rest of the year.” If so, it’s a familiar position for the manufacturer and supplier to the aerospace and defense, marine, and oil and gas industries. After all, acquisitions have played a defining role in the company’s growth strategy for years, said Chris Quilty, an analyst with Raymond James & Associates Inc., a St. Petersburg, Fla. financial services firm. “There is compelling evidence they have done a stellar job of finding attractive and accretive acquisitions,” Quilty said. In total, Teledyne has bought 43 other companies across the globe for a total investment of $1.8 billion in the past 13 years. Annual revenue grew from $1.65 billion in 2010 to $2.13 billion last year. But along the way, its debt load has ballooned, from $121 million in 2010 to $556 million at the end of last year. And it continues to grow, hitting $626 at the end of the second quarter. But with the company making money, investors have shrugged it off. The stock hit an all-time high of $83.52 a share last month, before settling back down. Teledyne management did not respond to calls for comment. But in August, Jason VanWees, vice president of strategy and mergers & acquisitions, appeared at the Needham & Co. Advanced Industrial Technologies Conference, where he said Teledyne is not making acquisitions simply with the aim of becoming bigger. First, the company enters negotiations with “price discipline.” Second, it acquires companies that fit into its existing portfolio. “We really consider ourselves an operating company, not a growth-through-acquisitions (company),” VanWees said at the conference according to a transcript of his remarks. He noted that after a purchase executives routinely visit the facilities and every quarter all the general managers come together to present their financial results. Broad portfolio The company was founded in Beverly Hills in 1960 and was later part of Allegheny Teledyne, Inc., headquartered in Pittsburgh. In 1999, Teledyne was spun off as a separate, publicly traded company. It has four divisions and employs more than 9,600 workers at more than 50 locations globally. In addition to its U.S. presence, the company has operations in Canada, the United Kingdom, Denmark and Iceland. Its instrumentation unit makes monitoring and measurement devices for marine, scientific and industrial applications; a digital imaging unit makes sensors, cameras, and software; an aerospace and defense unit makes electronic components and subsystems for military and business aircraft and space vehicles; and its engineered systems does advanced technology development, systems engineering, and manufacturing of hydrogen gas generators and small turbines. In 2010, Teledyne significantly added to its imaging and sensor equipment portfolio starting with ownership stakes in a Camarillo company and New Hampshire firm. That effort culminated in a $340.5 million deal in December 2010 to acquire DALSA Corp., a Canadian company that makes imaging equipment used in still photography and in the medical and life sciences industries. “When valuations were attractive in oil and gas they aggressively bought in that area,” Quilty said. “When valuations move out of their strike zone they opportunistically look at other places.” A major acquisition last year was LeCroy Corp., a Chestnut Ridge, N.Y. developer of oscilloscopes, in a deal valued at $291 million. It was Teledyne’s first entry into the electronic test and measurement market. In July, the company introduced a high-speed oscilloscope used in the development of digital networks for cloud computing applications. “That business is doing well, and we’re pretty sure, based on public comments from others that we are, indeed, gaining share there,” VanWees said at the Needham conference. So far this year, Teledyne has completed four deals. In January, it was the acquisition of Reson A/S, a Danish sonar company. A few months later, Axiom IC B.V., based in Enschede, the Netherlands, an integrated circuit manufacturer for image sensors and cameras, was brought into the fold. In July, Teledyne became the full owner of Nova Research Inc., in Buellton, an infrared-camera manufacturer. The most recent purchase was of CETAC Technologies, a Nebraska company that makes automated laboratory equipment that complements Teledyne’s instrument product line. Mitigating risks The acquisition strategy has left Teledyne with a broad customer base mostly from commercial markets, with no single customer accounting for more than 10 percent of sales. U.S. government contract work for such agencies as NASA and the Defense Department, accounts for about 25 percent of sales and about 15 percent of profit. That diversity has cushioned the blow from the decline in military spending both domestically and abroad. It’s been offset by the strength in markets like offshore oil and commercial aerospace, VanWees said at the Needham conference. Quilty, the analyst, noted that most of Teledyne’s defense contracts have been for spare parts and repairs. “They did not benefit significantly from Iraq and Afghanistan campaigns and they will not take a hit as (the U.S.) exits those operations,” he said. Still, the aggressive acquisition strategy is not risk free. While Teledyne inspects closely the finances and operations of an acquisition target, weaknesses may exist that are not detected or disclosed, or the purchase can change the nature and level of the risks Teledyne faces, the company wrote in its 2012 annual report for shareholders. For instance, the DALSA, LeCroy and other foreign acquisitions increase both revenue and expenses from international sources and so increases the company’s “exposure to U.S. and foreign policy changes and exchange rate fluctuations,” the annual report said. However, with the company humming along, both investors and analysts are pleased with what they see for the moment. For the second quarter ending March 30, Teledyne reported net income of $42.9 million ($1.13 a share) compared with $39.5 million ($1.06 a share) in the same period a year earlier. Revenue increased 15.9 percent to $601 million. That has led nine analysts who follow the company to be surprisingly positive, given the stock’s price run up this year, according to a poll by Bloomberg News. While five have the equivalent of a “hold” recommendation, four others are recommending investors still load up on the stock, including Quilty.
Teledyne’s Spending Binge: $400 Million Tab, Still Growing
