Telecom Boom Sparks Parts Deals

Electronic News, May 8, 2000 by Bernard Levine

The telecommunications boom is sparking component acquisitions. Obtaining more switches to meet red-hot demand from makers of cell phones and other communications products was one of the key drivers behind the recent agreement by ITT Industries Inc., White Plains, N.Y., to acquire C&K Components Inc., Watertown, Mass., for $117 million in cash and debt.

"Telecom is the number one market C&K serves. That was clearly one of the factors," said Gerard Gendron, president of ITT Industries' Cannon connectors and switches business. Both Cannon and the telecom business, he noted, are especially strong in Europe, with C&K relatively small there. "This is a tremendous opportunity to bring this C&K product to the European marketplace." ITT also gains C&K's North American strength in distribution and elsewhere.

C&K is a privately held maker of switches for the telecommunications, computer, and electronic equipment markets. It will join ITT's line of keypads, high-end electromechanical switches, electronic interconnect systems, smartcard connectors, high speed/high-bandwidth network systems and services, and value-added panel and switch assemblies. The transaction is expected to close within 60 days.

"The acquisition of C&K is consistent with our strategy of expanding our footprint in higher-growth, profitable markets," said Travis Engen, chairman and chief executive of ITT Industries. "We have been growing rapidly in the $3.4 billion worldwide switch market, most notably through our acquisition last year of San Teh's keypad business. C&K now elevates us to a leadership position in this arena. In addition, C&K's solid financial performance is expected to add to the profitability of our business, with positive contribution to ITT's earnings per share in 2001."

Engen also noted recently, "Our end markets are clearly stronger than this time last year, with demand for electronic components from the telecommunications sector leading the way."

Cannon's switch sales are currently strongest in Europe and Asia/Pacific. C&K's sales are primarily in North America, with "particular strength in distribution," Gendron said. C&K employs 1,300 worldwide, specializing in toggle, rocker, pushbutton, switchlock, snap-action and slide switches.

ITT's switch sales after the acquisition will be $350 million to $400 million, Gendron said, around half the $750 million revenues for the firm's connectors and switches business.

Might there be more acquisitions by ITT in the offing? "That's always a possibility," Gendron said. "We are aggressively looking at more acquisitions in connectors and switches." What about other passives? "Probably not," he replied, "although maybe network systems or cable assemblies."