Emerson to acquire NI as LabVIEW changes hands

Author: EETimes China

Emerson values NI's strength in automated test equipment and software for data acquisition, instrument control and machine vision, and the acquisition of NI has been ongoing for almost a year, starting in May 2022. In the acquisition, Emerson beat out smaller rival Fortive Corp . The other potential acquirer, Keysight, was less promising because of possible antitrust issues.

According to the website of US engineering and industrial software company Emerson, they have reached a definitive agreement with measurement tools maker National Instruments (NI), under which Emerson will acquire NI for US$60 per share in cash, a purchase price of US$8.2 billion in equity value.

This compares to NI's closing price as of January 12, 2023, the day before NI publicly announced its strategic review, which was 49% higher.

As Emerson already owns approximately 2.3 million shares of NI, representing approximately 2% of the outstanding shares, these shares were acquired at a weighted average price of US$36.84. As a result, Emerson's final effective purchase price per share was US$59.61.

One of the people familiar with the matter added that Emerson beat out smaller rival Fortive Corp . Emerson beat out smaller rival Fortive Corp. in the bid, while another potential acquirer, Keysight, had less hope because of possible antitrust issues.

In a separate statement, NI said it had decided to conduct a "comprehensive review" including the interests of other potential buyers, "rather than just negotiating with Emerson, which NI believes would be detrimental to the interests of shareholders." The board will evaluate the proposal as part of NI's previously announced review of strategic options.

The "takeover battle" has been going on for a year

The acquisition of NI has been going on for almost a year since May 2022, as Emerson values the strength of NI's automated test equipment and software for data acquisition, instrument control and machine vision. At that time, Emerson's bid was $48 per share and was prepared to nominate directors to the NI board of directors by a deadline of January 27, 2023.

On January 11, 2023, Emerson offered to acquire NI for $53 per share in cash, valuing the company at approximately $7 billion. At the time, some analysts suggested that the decision to make an open offer could be a prelude to a hostile takeover, a move that would require Emerson to nominate replacement directors to the NI board.

NI's explanation at the time was that the company would adopt a limited term shareholder equity plan that would expire in approximately one year. These plans, known in the industry as "poison pill plans", are a defensive tactic designed to keep potential acquirers out by preventing them from acquiring significant additional shares.

Senior statements from both sides

In recent years, Emerson has been trying to develop its core automation business, around which it has not only sold off non-core assets, but has also stepped up its acquisitions. Among other things, the company has divested non-core businesses, including InSinkErator and Therm-O-Disc, while investing in organic growth opportunities and completing key transactions such as the AspenTech acquisition.

Emerson also sold a majority stake in its Climate Technologies business in 2022, following the acquisition of a majority stake in AspenTech, a process industry software maker, in a transaction that included Emerson's leading Copeland compressor business and its entire portfolio of products and services for the HVACR end market, with sales of The transaction includes Emerson's leading Copeland compressor business and its entire portfolio of products and services for the HVACR end markets, which will generate sales of $5 billion by fiscal 2022.

The acquisition of AspenTech already gives Emerson the industry's most comprehensive range of advanced automation technologies and software products. The sale of the Climate Technologies business marks the vendor's transition to a company that serves a diverse set of end markets and focuses on global automation.

Emerson CEO Lal Karsanbhai had said in an open letter, "The acquisition of NI is another step forward in Emerson's journey to develop a cohesive, higher growth and more profitable product portfolio and consolidate its global automation focus."

"By expanding into test and measurement, Emerson will enhance its automation capabilities and gain access to more customers who rely on NI solutions at key points in the product development cycle. These capabilities diversify Emerson's industries into attractive and growing discrete market s such as semiconductors and electronics, transportation and electric vehicles, as well as aerospace and defense, which are poised to benefit from long-term growth trends. the NI business is very much aligned with our vision for automation, and we look forward to working together to bring more comprehensive and innovative solutions to our customers, accelerate growth, and enable Emerson to deliver significant value to shareholders." Lal Karsanbhai said.

Eric Starkloff, Chief Executive Officer of NI, said, "Over the past several months, we have been evaluating strategic options for the future of our business to maximize its value. We have run a robust and comprehensive process, considered a range of potential options and believe this is the best outcome for all NI stakeholders. This transaction is a strong testament to the improvements and initiatives we have implemented in recent years that have transformed NI into a software-focused company with higher growth rates, better profitability and lower cyclicality Emerson recognizes the value we create and we believe they will help us build momentum and further position NI as a leading software-connected automated test and measurement system provider of software-connected automated test and measurement systems."

Representatives for NI and Fortive did not respond to requests for comment, and representatives for Emerson declined to comment.

LabVIEW to change ownership

Founded in 1976 and headquartered in Austin, Texas, NI is a publicly traded company in the measurement industry (listed on the NASDAQ under the symbol NATI) with more than 50 subsidiaries and offices around the world and numerous system alliance members. For more than 30 years, NI has served approximately 35,000 customers in the semiconductor, transportation, aerospace and defence industrial markets, producing automated test and measurement tools that help engineers and scientists in the test, control and design fields solve challenges in the design, prototype and release processes.

NI's best-known products include LabVIEW, a graphical development environment, LabWindows / CVI, a C language virtual instrumentation application, and NI Multisim, an integrated circuit analysis program, among others; hardware products include frameworks and modules for VXI bus, PXI bus, VME bus, IEEE-488 interfaces, and standards for internal integration of circuits and other automation technologies. If the acquisition is finalised, LabVIEW, as engineers know it, will change hands.

In 2022, NI has revenues of US$1.66 billion.

For its part, Emerson summarized the benefits of the NI acquisition for its transformation into a global automation company, including the following:

Balanced and diversified end markets: With favorable long-term trends and an estimated $35 billion priority total target market, the test and measurement market is growing rapidly, is highly complementary, and is one of the four priority adjacent markets presented by Emerson at its 2022 investor conference. By expanding and diversifying its customer base in attractive end markets, the deal is expected to drive value creation and enhance Emerson's position as a global automation leader. With a diversified portfolio of end markets including semiconductor and electronics, transportation, aerospace and defense, NI is expected to capitalize on a megatrend that offers attractive growth opportunities. In markets such as semiconductor and electric vehicle manufacturing, NI extends Emerson's reach into the design and verification phases of the lifecycle, providing customers with early access. Overall, NI will increase Emerson's end-market exposure in discrete markets to 18 percent of sales, which will be Emerson's second largest industry segment.?

Complementary software and innovation capabilities: NI's industry-leading smart device, control and software technology stack complements Emerson's own technology stack and will accelerate Emerson's efforts to create a higher-value, cohesive industrial technology portfolio. NI's flexible, modular system-level test solutions with an open and interoperable software platform is a key differentiator that enables customers to evolve and automate their test processes in an increasingly complex and rapidly changing end market. With 20% of software sales, NI also adds to Emerson's knowledge of high-growth industrial software opportunities. Both Emerson and NI share a culture of innovation-focused engineering. With Emerson's proven track record of innovation and successful new product launches, the combined company will be able to leverage the complementary expertise of both organisations to accelerate and expand the development of innovative products for customers.

Delivering significant synergies: By applying best practices from Emerson's management systems, Emerson has identified $165 million in cost synergy opportunities at the end of year 5. Emerson intends to leverage Emerson's scale in manufacturing and supply chain while driving productivity gains and streamlining duplicative costs across general and administrative, sales and marketing, and R&D functions. Additional opportunities to increase NI free cash flow generation will be pursued through proven operational excellence and productivity levers.

Strong financial position and attractive shareholder returns: The transaction is expected to immediately add to adjusted earnings per share and Emerson's long-term financial targets outlined at the 2022 investor conference. NI's strong position in attractive and growing markets is expected to deliver sustainable underlying growth, in line with Emerson's full-cycle underlying growth target of 4-7%. NI also brings significant recurring revenue and immediate gross margin growth to the combined Emerson portfolio. The combination of strong growth, attractive gross margins and the synergistic potential to expand operating margins all contribute to a return that meets Emerson's published return criteria.

A united company culture: NI's innovation and problem-solving focused culture is highly complementary to Emerson's culture of goal-oriented innovation. Employees will have increased opportunities for career development and advancement at Emerson.

Transaction terms and approval

The transaction has now been approved by the boards of directors of Emerson and NI. Under the terms of the agreement, NI shareholders will receive $60 per share in cash, which represents a 49 percent premium to NI's closing price as of January 12, 2023, the day before NI publicly announced its strategic review.

NI shares opened up more than 9 per cent on the news of the acquisition, with shares peaking at US$57.74 per share at press time.

The deal is expected to close in the first half of Emerson's fiscal 2024, subject to completion of customary closing conditions, including regulatory approvals and NI shareholder approval. Emerson expects to use available cash and liquidity to fund the transaction, including approximately $8 billion of after-tax proceeds from the sale of the majority of Climate Technologies to Bristol-Myers announced in October 2022, which is expected to close in the second calendar quarter of 2023.