ABB to Acquire Los Gatos

Zacks

Recently, ABB Ltd. (ABB) announced that it intends to acquire Mountain View, California based Los Gatos Research. The financial terms of the deal were not disclosed. Through this acquisition, ABB will be adding to its portfolio of high performance gas analyzers providing real-time measurement of trace gases and isotopes for research and environmental monitoring. 

Los Gatos Research (:LGR) is one of the leading developers of innovative laser-based measurement strategies for non-destructive analysis of gases, liquids and solids. The company offers high performance analyzers for measuring trace constituents of gases and liquids.

Los Gatos analyzers use a unique laser absorption technology called Off-Axis Integrated Cavity Output Spectroscopy (OA-ICOS), which is a patented technique of the company. This technique provides superior performance, value and reliability compared to the traditional CRDS technology.

The acquisition of Los Gatos is a strategic move by ABB and comes at a time when the depletion of oil and gas reserves is pushing up demand for oil & gas exploration projects worldwide. Therefore, demand for these technologies will continue to grow in both emerging and mature markets and should boost ABB’s revenues going forward.

Industrial, utility and energy markets are expected to rapidly expand further and the industrializing economies will help to offset some of the declines in the already developed regions.

Energy demand in developing nations (Non OECD) will rise 65% by 2040 compared to 2010, as a result of the growing prosperity and growth in these regions. Overall, global energy demand will grow 35%, even with significant efficiency gains, as the world’s population expands from about 7 billion people today to nearly 9 billion people by 2040, led by growth in Africa and India.

(http://www.exxonmobil.com/Corporate/files/news_pub_eo.pdf)

Therefore, Los Gatos should help ABB enhance its offerings and complete the already-existing and new projects in an efficient and effective manner. This is because, by adding Los Gatos research to its business, ABB will have a completely new line of business that is very critical to the clients having large scale projects in the industries such as oil & gas production and transportation, combustion, emissions, power generation and environmental monitoring.

With the increasing activity in the energy sector globally, there has been consolidation in the sector. For instance, companies such as Chicago Bridge & Iron (CBI) and KBR Inc. (KBR), dealing with the energy projects at various stages of their life cycle have made a number of acquisitions to be competitive.

In the recent past, Chicago Bridge & Iron announced that it has entered into an agreement to acquire E-Gas Technology business from Phillips 66 (PSX). Similarly, KBR had also acquired Houston-based Energo Engineering that provides Integrity Management and advanced structural engineering services to the offshore oil and gas industry.

Los Gatoswill be a part of ABB’s Process Automation Division. In the latest reported quarter, revenues from this division grew marginally by 1% while orders declined 1%. During the quarter, order growth in mining and marine was fully offset by declines in metals and pulp and paper. Further, oil and gas orders were flat, with growth in base orders offset by lower large orders.

ABB currently has a Zacks Rank #3 (Hold).

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