Eaton and Cooper: A year later

By Jack Keough

It has been a year since Eaton announced that it would acquire Cooper Industries for $13 billion, making it one of the largest acquisitions in the electrical sector in many years. The Cooper deal was completed at the end of November in 2012 following months of regulatory approvals in a number of countries.

Eaton executives say the acquisition is going even better than expected, with the company achieving millions of dollars in cost synergy savings as well as giving the newly-combined company the opportunity to sell more products and services to their existing customer bases.

Richard H. Fearon, vice chairman and chief financial and planning officer for Eaton, recently spoke at the 2013 Credit Suisse Global Industrial Conference and pointed out that the acquisition has gone smoothly and bodes well for the future.

“We’ve taken advantage of the fact that we’re now so much bigger and so our spend is so much bigger across large sets of commodities, and we’ve leveraged that to achieve savings from our vendors. We’ve only gotten some of those benefits this year because many of those contracts take multiple months to negotiate, so we will certainly see additional supply chain savings next year,” he said, according to a transcript of the presentation.

The Eaton acquisition was unique because Eaton and Cooper offered complementary lines, not overlapping product groups. Cooper, because of its complementary nature, “greatly extends our ability both upstream and downstream to provide electrical solutions, and we think that that’s an important extension of our solution capability,” Fearon said.

And that seems to be working. Eaton is now able to sell more products to its existing customer bases. “We’ve had a lot of success recently in oil and gas – that’s gaining speed – as well as data centers, where we each have part of the solution but not the whole solution. You put us together, we have a really compelling package, and so that’s gaining steam,” Fearon said.

He also said that 2014 may be the year when total channel sales kick in with Eaton’s expanded offering of products. Fearon said that now means Cooper and Eaton together can supply about two-thirds of a given electrical wholesaler’s complete product range, “so that’s something that’s quite attractive to a lot of wholesalers.”

Cooper has proven capabilities in utility power distribution, smart grid lighting, lighting controls, wiring devices, and safety solutions while Eaton has strength in power quality, power distribution and energy services. Eaton, in effect, has become a total global integrated power management company.

Eaton is also looking to expand its service business.

Cooper did not service the equipment it sold, particularly in areas like utility distribution transformers. Much of that work was done by third parties or customers. Eaton, on the other hand, is well regarded for its service business in North America and is growing internationally in that field.

“We can take the infrastructure we’ve developed and the knowledge of how to hire and manage a service business, and we can deploy that against the Cooper install base, and that’s what we’re doing. We’ve had a fair amount of success already in doing that,” he said.

The new Eaton now has the opportunity to expand in other parts of the world. The Middle East, Fearon said is just one such example where one or both of the companies were “not of true scale as some of its competitors.  You put us together, we have a scale-size Middle East business. In fact, we have a business that’s big enough that we can combine facilities and really create the kind of customer presence, customer solution capability that is necessary to truly compete effectively in the Middle East. So that’s what we’ve done, and you haven’t seen the results yet because we’ve just actually completed a lot of that consolidation, but we’re confident that we’ve got a lot of momentum in the Middle East,” he said.

In all, about half of Eaton’s sales come from outside the U.S.  Electrical now comprises about 60 percent of Eaton’s total revenues. “We think that the electrical business is very attractive,” Fearon said also noting that hydraulics make up about 14 percent of revenues. Cooper’s acquisition allowed Eaton to add a significant amount of components to its product mix, which is extremely important in MRO usage.

Eaton has grown tremendously in the past decade through acquisitions and new products. In fact, Eaton bought four companies in 2012 and has led to $600 million in additional revenues this year.

The company’s sales are three times what they were in 2000, Fearon 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 john.keough@comcast.net or keoughbiz@gmail.com