Every weekday in December, tED magazine is counting down the Top 20 Stories of 2013. Below, the #2 story of 2013, originally posted on January 8, 2013.
By Jack Keough
For more than a century—101 years to be exact—the name Eaton has been a household name in American manufacturing. The diversified industrial manufacturer has expanded exponentially over the years and in the past two decades has successfully absorbed nearly 30 acquisitions, helping fuel that growth.
But its blockbuster $13 billion acquisition of electrical manufacturer Cooper Industries, completed Nov. 30, 2012, caused more than a few eyebrows to be raised in the industry and positioned the newly-transformed Eaton into an electrical powerhouse.
“This is absolutely the largest acquisition in our 101-year history and we view this as transformational…an extension of our power management and electrical business,” said Tom Gross, vice chairman and chief operating officer of the electrical sector for Eaton. “This is strategically one of the most, if not the most, important we’ve ever done.”
The huge acquisition, which was first announced last spring, means that Eaton, which has more than $21 billion in sales, will have nearly 60% of that revenue coming from the electrical side of the business. And that is remarkable when you think of Eaton being a leader in so many market sectors such as hydraulics, aerospace, truck and automotive.
Eaton is either number one or two in most of the markets it serves and with customers looking to improve its energy efficiency, the future looks bright for the newly-combined company.
In a far ranging interview, Gross, a veteran of the electrical distribution business, pointed out that Eaton and Cooper complement one another.
“We’ve known Cooper and worked together for a long time,” Gross said. “We’ve been a customer and supplier for them and have been working with them for decades.”
In addition, the two companies have worked together on various projects. Gross noted that Cooper was a “terrific” fit for Eaton and in 2012 his company began the steps toward making the acquisition.
Ironically, despite the fact that Eaton and Cooper served many of the same markets such as oil and gas there was little overlap in products or products solutions, Gross said. Eaton has long been known as an electrical power management and automation company while Cooper services its end users through several units including its Cooper Power Systems Group and Cooper Lighting Group.
“We like to say that this [acquisition] stretches us upstream and downstream,” said Gross.
In effect, it now allows the new Eaton to be involved from where power is generated all the way to the light bulb.
“What Cooper does for us is to stretch us significantly to the utility and to the end user,” Gross added.
Basically, Eaton’s electrical business has become broader, allowing the companies to offer a complete package to its end user market segments. Cooper is known as an infrastructure electrical supplier with a number of products that can be used in hazardous industrial applications while Eaton, also heavily involved in those sectors, can offer controls and automation solutions.
Gross believes oil, gas, utility and data center customers will benefit from the newly-combined company.
Eaton prides itself on being a solution provider and specifically exemplifies the trend toward customers wanting integrated solutions to problems. The capabilities that each company brings to the table bode well for the end-user/customer.
Take data centers, for example, where Eaton has a strong leadership position. Cooper sells many supplies like wiring and cable to that business sector and Eaton supplies solutions for the infrastructure work, including back-up capabilities.
For some companies, integrating two huge companies into one and identifying synergistic opportunities would prove to be a nightmare. Not so with Eaton.
“We have a very, very structured process in place for integrating companies.” Gross said.
This integration process, Gross said, would take about three years. Eaton has a team in place consisting of representatives from various disciplines in the company from IT, manufacturing and customer solutions and a team leader to assist in the integration. Unlike other companies that are involved in the acquisition process, Eaton’s team consists of 50% representation from Eaton and 50% from the acquired company.
“We really do work side by side. We want to protect what they do well and incorporate it into Eaton and there are some things we excel in and put it into the acquired company. We have a very structured process,” Gross said.
In fact, he said Eaton was proud of the fact that 50% of the systems within the company have come from acquired companies.
Eaton and Cooper both are well represented in international markets, with Eaton probably having more sales outside the United States than Cooper. Both companies have an active presence in Asia and the Middle East and, with the power of the newly-combined company, can look to new markets in emerging countries.
But Gross is quick to point out that Eaton uses a segmented market approach in growing internationally. In Eaton’s case that means if there are opportunities to grow market sectors like oil, mining or gas, the company will be there to service, sell and support those markets whether it is in Chile, Peru or any other country.
“The geographical (expansion) follows where those segments take you,” Gross said.
Eaton’s announcement of the massive purchase of Cooper came only a few months after ABB bought Thomas & Betts for nearly $4 billion. Gross believes purchases like these will continue in the years ahead.
“The electrical industry has been consolidating for some time and this is reflective of a couple of things,” he said. “One reason is that we’re all trying to broaden our solutions offerings and expand our geographical footprint and market. Consolidation grew because of this and at the same time I believe there is a trend for smaller boutique type distributors to be fewer and fewer.”
For Eaton and Cooper distributors, there will be plenty of opportunities ahead.
“I hope they view this as meaningful because we now have a greater opportunity to serve our distributors because we can offer them a broad product line. We can effectively help them not just sell components but solutions,” Gross said.
That can also mean innovation driving new products into the marketplace. Gross pointed out that Cooper is a leader in the emergence and growth of LED technology and is outpacing the overall market for those products.
The power of the two combined companies will help spur innovation and introduction of solution-driven products for distributors to sell.
“Really what you have for electrical distributors is a combination of two terrific companies who have the ability to sell a package and have one supplier stand behind them and give full support and give full support in helping them do the job that they do so well,” he said.
Jack Keough was the editor of Industrial Distribution magazine for more than 26 years. He often speaks at many industry events and seminars. He can be reached at email@example.com or firstname.lastname@example.org
Read the rest of the Top 20 list here:
#20 Crescent Electric Acquires Lake Electric Supply – March 5, 2013
#19 Reports: Copper Delivery Prices Soar – May 31, 2013
#18 Blog: WESCO Outlook – August 13, 2013
#17 Graybar achieves near-record profitability in 2012 – March 15, 2013
#16 Blog: Wesco’s Strategies For Growth – November 13, 2013
#15 Blog: Siemens shareholders approve Osram spin off – January 25, 2013
#14 Blog: Acquisitions fueled distributors’ growth in 2012 – March 4, 2013
#13 Southwire Introduces Electrician’s Tools – July 18, 2013
#12 Southwire Announces Organizational Changes – January 22, 2013
#11 2013 tED Magazine Best Of The Best Awards – August 7, 2013
#10 Blog: Amazon, Google Supply Update – August 30, 2013
#9 WSJ: Copper supply concerns – April 15, 2013
#8 Huge copper theft bust in Arizona valued at $10 million – May 6, 2013
#7 NAW speaker predicts strong economy, copper inflation for 2013 – January 30, 2013
#6 Leff Electric Acquired by AMP Electric – October 2, 2013
#5 Southwire to roll out new cable pull technology – March 12, 2013
#4 Super Bowl blackout traced to preventive equipment – February 8, 2013
#3 tED magazine 2013 30 Under 35 List – June 4, 2013
#2 Eaton executive outlines company’s future with Cooper – January 8, 2013
Tagged with acquisition, distribution, Exclusive Feature, lighting, tED