November 2007 was a busy month for the top 20 Innovators of The Innovation Index. Besides announcing key innovations, and
staying on course with 53% performance gains for the year, the Innovators added more punch - in the form of key acquisitions, mostly large. Here is a roundup of top acquisitions by the top innovators in November, and the potential impact of these acquisitions in 2008:
3M (NYSE: MMM) and Aearo Technologies Inc. (NYSE: AER) announced that "they have entered into a definitive agreement for 3M's acquisition of Aearo for a total purchase price of $1.2 billion, to be financed through a combination of cash and other borrowings. Aearo is a global leader in the personal protection industry and manufactures and markets personal protection and energy absorbing products. Aearo is owned by funds advised by Permira, a leading global private equity firm, and company management." For the past year, Aearo had revenue of $508 million, growing at a CAGR of 12%. Key Aearo brands include: E-A-R, Peltor, AOSafety and SafeWaze.
According to 3M press, "Aearo will significantly expand 3M's occupational health and environmental safety platform by adding hearing protection as well as eyewear and fall protection product lines to 3M's existing full-line of respiratory products. It provides a broad platform for accelerated growth. This acquisition enables 3M to provide industrial, military and construction customers as well as consumers with a more complete personal protection solution."
Further, Aearo has a reputation for developing high-quality, innovative products and strong market competitiveness. "The complete Aearo product line includes passive hearing, communication headsets, eye protection, head and face protection and fall protection. The company also markets systems solutions and proprietary energy absorbing materials, which are incorporated into other manufacturers' products to control noise, vibration, shock and temperature."
Bottomline: Expect 3M to increase the revenue by $550 to $650 million with Aearo acquisition; also, 3M legitimately and significantly expands it's occupational health and environmental safety platform to more than 70 countries where Aearo is already marketed and sold.
Earlier in the month, 3M also announced that "it has entered into a definitive agreement to acquire the business of Bondo Corp., a manufacturer of auto body repair products for the automotive aftermarket and various other professional and consumer applications.
Bondo's established brand complements 3M's well-known line of auto body repair products for the automotive aftermarket. Bondo brand products are designed for and widely recognized by both auto body repair professionals and enthusiasts. Products include body filler, fiberglass repair materials, under coatings, and adhesives. Bondo products are sold to the auto body professional market through auto body paint specialty stores in addition to mass merchandisers and auto parts retailers."
Bondo manufactures and markets automotive body repair, household repair and marine products under the Bondo, Mar-Hyde, Bondo Home Solutions, Dynatron, Marson, Laminex and Bondo Marine brand names.
Bottomline: Bondo, which was predominant in the South and Southeast, will open a huge distribution channel through 3M's network of dealers. Although, the deal will not have a significant EPS impact in 2008, it gives 3M key products with which to expand the Automotive line of business.
Dell (NASDAQ:DELL), another top 20 innovator, "signed an agreement to acquire privately held Everdream Corp., a leading provider of Software-as-a-Service (SaaS) solutions for remote-service management." Since terms were not declared, this appears to be a small investment for Dell.
Bottomline: Everdream could be a key component in Dell's strategy of enabling customers to Simplify IT. "Everdream's capabilities complement those provided by the recently acquired SilverBack Technologies, further enabling end-to-end remote management of customers' IT environments. With this acquisition, Dell can now extend remote management of critical IT assets from servers, storage, printers, etc. to desktops, notebooks and other end-user devices globally." Is Dell done with acquisitions in this market? This will have a minimal impact on EPS for 2008.
Earlier in the month, Dell (NASDAQ:DELL)
announced plans to acquire EqualLogic, a leading provider of high-performance iSCSI storage area network (SAN) solutions uniquely optimized for virtualization. The acquisition will strengthen Dell's product and channel leadership in simplifying and virtualizing IT for customers globally. iSCSI SAN technology represents the fastest growing part of the storage business.
"Under the terms of the agreement, Dell will purchase EqualLogic for approximately $1.4 billion in cash. The acquisition of EqualLogic is expected to close late in the fourth quarter of Dell's fiscal year 2008 or early in the first quarter of fiscal 2009. The company expects the acquisition to be dilutive to earnings per share, excluding the amortization of intangibles, by $0.02 to $0.05 in aggregate for Fiscal 2009 and Fiscal 2010."
Bottomline: Dell spent a lot of money for this company and placing big bets on storage; however without an announced upside in revenue, rather a dilution of EPS, one can't help but think about the future revenue growth from this acquisition. Dell has "plans to grow EqualLogic's successful channel-partner programs with current and future EqualLogic-branded products, and also to incorporate EqualLogic technology into future generations of its Dell PowerVault storage line available through the channel and direct from Dell." The investors will be in a "wait-and-watch" mode here until Dell sees real revenue growth from these acquisitions.
IBM (NYSE: IBM), a top 20 innovator, and
Cognos(R) (NASDAQ: COGN) (TSX: CSN) announced that "the two companies have entered into a definitive agreement for IBM to acquire Cognos, a publicly-held company based in Ottawa, Ontario, Canada, in an all-cash transaction at a price of approximately $5 billion USD or $58 USD per share, with a net transaction value of $4.9 billion USD. It is expected to close in the first quarter of 2008."
In one word, this acquisition is HUGE!! Huge for Cognos shareholders. Especially, since this was an all cash deal.
"The acquisition of Cognos supports IBM's Information on Demand strategy, a cross-company initiative announced on February 16, 2006 that combines IBM's strength in information integration, content and data management and business consulting services to unlock the business value of information. Integrating Cognos, the 23rd IBM acquisition in support of its Information on Demand strategy, will enable new business insights to be delivered to a broader set of people across an organization, beyond the traditional users of business intelligence.
IBM said the acquisition fits squarely within both its acquisition strategy and capital allocation model, and that it will contribute to the achievement of the company's objective for earnings-per-share growth through 2010."
Bottomline: Together, IBM and Cognos are poised to become the leading provider of technology and services for Business Intelligence (BI) and Performance Management, and Business process management and possibly financial management. Cognos provides a technology platform and leadership that IBM was lacking; on the other hand IBM provides a worldwide distribution platform for Cognos across multiple industries and geographies. Together, both companies provide a complete integrated solution. This acquisition will have a nominal upside on 2008 earnings for IBM. If IBM Global Services make Cognos an integral part of their portfolio, the potential upside is huge.
Microsoft Corp. (NASDAQ: MSFT), another top 20 innovator,
announced acquisition of Musiwave SA, an Openwave company (NASDAQ: OPWV) and a leading provider of mobile music entertainment services to operators and media companies, in particular in Europe. The terms of the pending acquisition were not announced.
"Mobile operators are continually looking for ways to deliver digital entertainment to their customers, and have looked to companies such as Musiwave to deliver music services that help provide the necessary infrastructure. As a provider of white-label music solutions to mobile operators in Europe, Musiwave has helped to bring a rich selection of millions of ringtones, full-track downloads and music videos to consumers." According to technology research firm Ovum, 1,106 million mobile music phones will be shipped worldwide in 2010.
Bottomline: The acquisition would bring Musiwave's relationships with music labels, device makers and mobile operators that deliver digital entertainment to consumers, together with Microsoft's Connected Entertainment technologies and services, including Windows Mobile, Zune, MSN and Windows Live. This is a strategic entry point for Microsoft in Europe, and provides Microsoft a network and a platform on which to serve up mobile entertainment. Whereas Windows Mobile provides the client entry point on mobile, Musiwave extends this further into the world of music services delivered through a solid network. Musiwave is Microsoft's answer to iTunes.
November was a busy month for some of the top innovators. Would these acquisitions lead to more innovations and positively impact the 2008 revenue for these innovators? Would
Innovation Index sizzle in 2008 as it has in 2007 due to these acquisitions and its direct impact on revenue growth? We will have to fast forward to July 2008 to find answers to these questions. For now, the innovators have paved the way with key acquisitions.
The Innovation Index Reports:
Invest in The Innovation Index - Invest in the brand new Innovation Index Fund
Top 50 Innovative Companies in the world - 2007 Report on Top 50 Companies
Annual Report - Chapter One - Total Innovation Activity - 2006 Annual Report One
Annual Report - Chapter Two - The Top Innovator - 2006 Annual Report Two
Annual Report - Chapter Three - The Innovation Insights - 2006 Annual Report Insights
Innovation and Stock Performance Correlation - The Innovation Index and Stock Performance
The Innovation Index gallops to 56% - Quarterly Report - Q3, 2007
The Innovation Index gains 3% during the first quarter - Quarterly Report - Q1, 2007
About
The Innovation IndexThe Innovation Index introduced in December 2006 is a weighted stock price index of the top 20 Innovators in North America.
The Innovation Index has returned 119% over the last five years. This assumes an investment in each stock of The Innovation Index (buying each stock). An average of $100 invested in The Innovation Index on December 31, 2001 returned $219 as of December 29, 2006. By comparison, $100 invested in each of S & P 500, NASDAQ and Dow Jones Index returned $124. The Innovation Index beats the S & P 500, NASDAQ and Dow Jones Index by 77% over the last five years.
The Normalized Innovation Index has returned an impressive 174% over the last five years. This assumes equal investment in each stock of The Innovation Index as of December 31, 2001.
Alphabetical list of the top 20 Innovators of The Innovation Index and their stock ticker symbols:
3M Company - (NYSE: MMM)
Amazon.com, Inc. - (NASDAQ: AMZN)
America Movil - (NYSE: AMX)
Apple Inc. - (NASDAQ: AAPL)
Cisco Systems, Inc. - (NASDAQ: CSCO)
Dell Inc. - (NASDAQ: DELL)
eBay Inc. - (NASDAQ: EBAY)
General Electric Co. - (NYSE: GE)
Google Inc. - (NASDAQ: GOOG)
Hewlett-Packard Co. - (NYSE: HPQ)
Intel Corporation - (NYSE: INTC)
International Business Machines Corp. - (NYSE: IBM)
Microsoft Corporation - (NASDAQ: MSFT)
Research In Motion Limited - (NASDAQ: RIMM)
Southwest Airlines Co. - (NYSE: LUV)
Starbucks Corporation - (NASDAQ: SBUX)
Target Corp. - (NYSE: TGT)
The Proctor & Gamble Company - (NYSE: PG)
Wal-Mart Stores, Inc. - (NYSE: WMT)
Yahoo! Inc. - (NASDAQ: YHOO)
The Innovation Index will analyze the positions and standings of the top 20 Innovators at the end of each year. For 2007, there will be no further changes in The Innovation Index.
Disclaimer: I invest in the stocks comprising The Innovation Index.
