ABB To Acquire KEYMILE Group's Communications Business

Summary

• Electric technology company ABB has agreed to acquire the data transmission business from the KEYMILE Group for an undisclosed sum.
• The data communications business is focused on providing electric grid and other network operators with mission-critical connectivity solutions.
• The acquisition should fit much better with ABB's Ability Industrial Internet of Things group, so I'm positive on the deal for ABB.

Quick Take

Electrification products company ABB (ABB) has announced an agreement to acquire the network communications business from the KEYMILE Group for an undisclosed amount.

KEYMILE’s communications business provides data transmission technologies to electric and other network operators.

The deal will be an important building block in ABB’s Ability IIOT (Industrial Internet of Things) group as it expands its operations to take advantage of significant market growth for IIOT.

Target Company

Hanover, Germany-based KEYMILE Group was founded in 2002 from the merger of three technology companies in Austria, Germany, and Switzerland and provides a range of data transmission networking system capabilities using numerous technology standards.

Management is headed by Rolf Unterberger, who has been with the company since July 2016 and previously held senior positions at Siemens (OTCPK:SIEGY), Accenture and Frequentis AG.

Historically, KEYMILE has had two main business lines,

• Broadband Systems
• Data Transmission For Mission Critical Networks

Acquisition Terms and Rationale

ABB is acquiring the Data Transmission For Critical Networks division of KEYMILE for an undisclosed sum.

Following the deal, KEYMILE said it would focus its business exclusively on broadband systems, which it views as the smarter play, since it said, ‘Demand on the broadband market is continuing to grow at breakneck speed.’

For ABB, the 120-employee unit will make a better fit within its existing customer base of ‘network operators of energy grids, railways, oil and gas pipelines, as well as public authorities.’ The unit will join ABB’s Power Grids business group.

As ABB stated in the deal announcement,

The acquisition will bring with it key products, software and service solutions, as well as research and development expertise. These will further enhance ABB’s industry-leading digital offering, ABB Ability, by adding extremely reliable communications technologies that are essential to maintain today’s dynamic and complex digital electrical grids.

ABB’s Ability initiative is its foray into connecting edge devices on energy and other networks with a cloud platform to enable better network management and offer new services to end users.

This effort is primarily focused on the Industrial IoT (Internet of Things), and ABB has created partnerships with both Microsoft (MSFT) for enterprise cloud infrastructure and IBM (IBM) for its industrial artificial intelligence [AI] solutions.

The Industrial Internet of Things [IIOT] market has been growing dramatically in scope in recent years, as the graphic below shows:

(Source: CB Insights)

According to a 2016 report by Markets and Markets, the IIOT market is expected to grow from $113.7 billion in 2015 to $195.5 billion in 2022, representing a CAGR of 7.89 % from 2016 – 2022.

The report goes on to state that the market for camera systems will grow the fastest during the period, and the APAC region accounted for the largest share of the IIOT market in 2015 owing to its focus on manufacturing applications.

ABB isn’t alone in the market, as major players such as GE (GE), Rockwell Automation (ROK), Siemens, NEC and Bosch GmbH are among the many competitors of ABB.

The deal is nevertheless a smart move by ABB, as it brings a known quantity to the firm’s Ability group which will bolster its digital efforts while bringing established customer relationships that it can build on.

I view the acquisition plan as a positive for ABB in the medium-term while it continues to expand its offerings in the fast growing IIOT space.

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