Schneider Electric S.E. (0NWV.L)
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- Bloomberg
We Could Be Headed for a Face Mask Glut
(Bloomberg Opinion) -- Just a few short months ago, face masks were so hard to come by that companies were sending employees to safeguard shipments from government seizure or mysterious bandits. Now, the world is so awash in face coverings and shields that some of distributors are having a hard time getting full price.Fastenal Co., a supplier of industrial odds and ends for the factory floor, on Tuesday cited an improved supply of certain Covid-19 specific safety products — including masks and face shields — as the biggest reason its gross-profit margins were slimmer than expected in the third quarter. Average daily sales of safety products increased 34.4% in the period relative to a year earlier. While that was a sharp deceleration from the triple-digit increase in the prior quarter when the coronavirus was just taking hold and disruptions were at a peak, it’s strong enough to serve as a reminder that the pandemic hasn’t gone away and neither has the need for personal protective equipment. But many companies are stepping in to fill that void. Not wanting to put their employees at risk of going mask-less or resorting to the guerrilla-style approach to PPE that New York’s doctors had to take in the early months of the pandemic, many companies turned inward to crank out supplies. Ken Engel, Schneider Electric SE’s senior vice president of global supply chain in North America, told me the company purchased mask machines for its factories across the globe. Others, including Boeing Co., Ford Motor Co. and a collection of 3D printing companies, saw an opportunity to ease the public health crisis and started using spare factory space and machines to crank out face shields. The manufacturing and medical worlds require a higher degree of filtration, but most of us are satisfied with regular cloth masks, and the struggling retail industry has been only too happy to provide them. The net result is that it’s just not as hard or as pricey as it once was to buy face coverings.This has ramifications not just for distributors like Fastenal but also for manufacturers like 3M Co. The latter company has aggressively ramped up production to meet the spike in demand and is on track to manufacture some 2 billion masks globally by the end of the year. 3M has repeatedly sought to assure the public that it’s not raising prices on its coveted N95 masks as a result of the pandemic and has filed multiple lawsuits over alleged fraud and price-gouging. Gordon Haskett analyst John Inch has warned that the company could be looking at a price and demand cliff in 2021 as aggressive production efforts from others create a glut of masks. Fastenal’s comments on Tuesday would seem to signal that concern is appropriate. But for both Fastenal and 3M, face masks are a relatively small part of their business. Fastenal also reported “continued softness in underlying business activity owing to a generally weak industrial marketplace” for anything that’s not explicitly tied to battling Covid-19 outbreaks. That’s pressuring purchases of fasteners and a bucket of other factory-floor products that make up about 30% and 45% of its sales, respectively. At the end of the day, having too many masks is much better than the alternative.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Brooke Sutherland is a Bloomberg Opinion columnist covering deals and industrial companies. She previously wrote an M&A column for Bloomberg News.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
- Bloomberg
GM and Nikola Are a Match Made in Tesla Hell
(Bloomberg Opinion) -- If you want something done right, do it yourself. If you are an old-school manufacturer and want credit from investors for innovation, make sure someone else’s name is attached. General Motors Co. on Tuesday announced a strategic partnership with Nikola Corp. that will give it a $2 billion equity stake in the electric-vehicle startup. Rather than pay cash for the ownership foothold, GM is paying in services: It will be the exclusive supplier of fuel cells for Nikola’s Class 7/8 trucks outside of Europe, provide access to its battery technology and take on the manufacturing and engineering work for Nikola’s Badger electric-pickup model. GM expects more than $4 billion in benefits from the tie-up, between the equity stake and additional payments for manufacturing and parts work.GM’s backing provides a much-needed dose of credibility for Nikola, whose shares added a more than 30% gain on Tuesday to a high-flying streak that belied a lack of meaningful revenue thus far. The partnership will save the company an estimated $5 billion in manufacturing and engineering expenses; basically, it no longer needs to literally reinvent the wheel. But Nikola’s brand and buzz also provide valuable credibility for GM’s electric vehicle aspirations. Arguably, the 112-year-old titan from Detroit is the one who needed this partnership more. The market reaction to the news on Tuesday helped underscore how little the share price movements for both legacy and upstart automakers recently have had to do with the actual business of making cars. These days, it’s all about the packaging and messaging. GM rallied more than 7%, while news of its partnership with Nikola was one factor in a rout of Elon Musk’s electric-car darling Tesla Inc. that was the worst on an intraday basis since March. Tesla’s failure to gain membership in the S&P 500 Index also damped enthusiasm, while news of derivative bets by SoftBank Group Corp. underscored the role financial speculation and hype had played in the company’s steep rise this year, as my colleague Chris Bryant noted. The Nikola-GM partnership will pose strong and well-financed competition for Tesla's much-promoted Cybertruck, but given how much GM is bringing to the table in this transaction and its pre-existing plan to launch an electric version of its Hummer, that threat arguably already existed. It’s now just marketed better. And that really is the genius of this deal. It’s nearly impossible for manufacturers like GM to rebrand themselves for the digital age in the eyes of investors, and not for a lack of trying or a lack of success. GM is in a position to draw on decades of experience to capitalize on new innovations, whether that’s electrical vehicles, autonomous driving or predictive-maintenance software, but legacy investors have decades of memories of false steps and are more interested in a steady stream of dividends and share buybacks. It has poured billions into electric vehicles, and the willingness of Nikola to partner with the company and incorporate its battery and fuel-cell technology into its products is a strong testament to its progress. But Nikola, not GM, is the one with the sky-high valuation.It’s telling that GM shares had their best monthly performance since 2011 in August — not because of anything particularly notable that the company had done but because of a raft of speculation about an eventual spinoff of its electric-vehicle business.This may be where GM is eventually headed in its partnership with Nikola. A deal could be structured similarly to Schneider Electric SE’s 2018 agreement to fold its software operations into Aveva Group Plc and take a minority stake in the combined company; as I wrote last month, the benefits of that set-up were clear in the investor reaction to Aveva’s pricey $5 billion takeover of industrial-software company OSIsoft. For now, the Nikola deal provides GM with some of the benefits of a spinoff, without the headaches of actually carving out the business and standing it up on its own. But it wouldn't be surprising to see the relationship continue to deepen and evolve. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Brooke Sutherland is a Bloomberg Opinion columnist covering deals and industrial companies. She previously wrote an M&A column for Bloomberg News.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
- Bloomberg
Aveva’s $5 Billion Deal Is First of Many as Factories Go Digital
(Bloomberg) -- Aveva Group Plc’s $5 billion acquisition of SoftBank Group Corp.-backed OSIsoft last week will make the little-known software company one of the U.K.’s largest publicly traded tech companies. It may also make it a target.Aveva, based in Cambridge, England, makes software for industrial firms and specializes in tech that can take data from sensors in factories to predict malfunctions and find ways to improve output. As manufacturers have been pushed to upgrade technology to deal with more remote working and monitoring during the coronavirus lockdowns, that niche has fuelled growth.Chief Financial Officer James Kidd said that he wants Aveva to continue to expand through deals, scooping up more of the small tech companies that have blossomed around this industry in recent years and incorporating them into an increasingly global enterprise.Kidd and his colleagues already have experience with dealmaking: Aveva merged with French industrial giant Schneider Electric SE’s software business in 2018 in a transaction that left Schneider as its majority shareholder.“We learned a lot through the Schneider-Aveva merger,” Kidd said in an interview. “It’s a playbook we could use again first and foremost. The sector is obviously consolidating and we want to play a major part in that.”With a gross margin that beat Microsoft Corp.’s last fiscal year, according to data compiled by Bloomberg, and subscription revenue that grew 30% in the quarter ending in June, the company’s success could draw the attention of bigger rivals. The total addressable market for all types of industrial software makers is expected to grow more than 30% to over $56 billion by 2024 as more factories deploy digital tools, according to research from the ARC Advisory Group.“It was in most companies’ three-to-five-year plan, then once the pandemic came, it really accelerated,” said Craig Resnick, vice president of consulting at ARC Advisory. “It’s really difficult to operate these plants remotely without having all the right tools -- not only to be able to monitor and visualize and control what goes on in the plant floor, but also to create digital models of some of the assets on the factory floor.”Aveva is in a sweet spot having software development expertise and an intimate knowledge of the needs of industrial companies, Chief Executive Officer Craig Hayman said. Companies that don’t have both sets of skills find making this type of product much more difficult.“It’s a little harder for some of the bigger software companies to do this,” said Julian Serafini, an analyst at Jefferies Financial Group Inc. “It doesn’t mean they won’t try, but Aveva is well-positioned from this angle of specialization.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
