Westlake, Ohio-based Nordson Corp. has started 2017 out strong in the acquisition space.
In the first two months of the year, the maker of precision dispensing equipment and systems has completed three acquisitions and announced one more. The most recently announced acquisition of a portion of Vention Medical, for more than $700 million, is the most significant of the four and is expected to close in the second quarter of Nordson's fiscal year.
Nordson has always used acquisitions to add to its portfolio, but in the past, it was more opportunistic, said president and CEO Mike Hilton. Now, the company is more strategic about its acquisitions, and it's an important component to creating growth in slow economic times.
"You never can control the timing of these things," Hilton said during an interview last week. "The important thing is to strategically know what you're interested in, to establish relationships early, and to be there when everybody's ready and take advantage of it. So that's kind of what we do: to have a continuous pipeline of opportunity that fit our strategy."
That doesn't mean the company will do the same number of acquisitions each year. In 2016, Nordson had just one: LinkTech Quick Couplings Inc.
But so far in 2017, Nordson has completed the acquisitions of plastic dispensing and packaging products maker Plas-Pak Industries Inc., selective soldering systems maker InterSelect GmbH and the assets of selective soldering systems maker Ace Production Technologies Inc. Terms of those deals weren't disclosed.
Vention Medical, which was owned by private equity, is being split in two, and Nordson is purchasing the Advanced Technologies business for $705 million, according to a news release. The segment, which makes minimally invasive products for the medical industry, reported sales of $150 million in the 12 months ending Jan. 31.
Hilton said it's just a coincidence that so many acquisitions happened at the start of the year. And given the "size and scale" of the Vention acquisition, Hilton said the rest of 2017 likely will see the company looking at smaller deals, if any, but that it would be ready for another large deal in about a year.
Relationships that lead to deals often are established "years in advance," he said. Nordson identifies the areas it would like to acquire in, based on whether growing organically would be too difficult or too time-consuming, and then gets to know the properties in that space, even if owners aren't yet ready to sell. Currently, Hilton said the company's main areas of interest are plastic packaging, test and inspection, room-temperature adhesive dispensing and medical.
Medical is a particularly interesting area of growth for Nordson. The aging of the population is a big factor, but so is a move to plastic components that can be disposed of, Hilton said. Minimally invasive products also are popular, and companies are outsourcing more products outside of their core focus, Hilton said.
In 2010, when Hilton joined the company, Nordson had "virtually" no medical business, Hilton said. Last year, medical made up about 8 percent of the company's portfolio, he said, and when the Vention acquisition is complete, it will be up to 15 percent.
Altogether, these acquisitions will add up to "close to a couple-hundred million dollars" in additional sales, Hilton said, which is significant compared to the approximately $1.8 billion the company posted in sales in the fiscal year ended Oct. 31.
Nordson looks for acquisitions that fit well into their existing business, but that also offer room for growth. For example, Plas-Pak fits into one of the company's existing businesses, but also puts Nordson into a new market with its products in animal health, Hilton said. Or take LinkTech. The company primarily operated in North America, but now Nordson can use its reach to globalize it.
The common theme is the "solution-based approach" that lets Nordson work closely with customers to craft highly engineered products, Hilton said.
Elliott Schlang, managing director of Great Lakes Review, said the acquisitions don't change the firm's opinion on Nordson. Great Lakes Review looks for midsize Midwestern companies that dominate their niche, he said. Nordson already is one of its "favorite" industrial companies, Schlang said, and that doesn't rely on acquisitions. Instead, Great Lakes Review likes that Nordson has a strong hold on its markets, gets sales from emerging markets and has a strong free cash flow.
KeyBanc Capital Markets Inc. had been neutral on Nordson, but upgraded the stock to "overweight" on Feb. 14. Although Jeff Hammond, managing director, equity research, said KeyBanc looks at the deals favorably, the shift wasn't a response to the acquisitions. It was confidence that Nordson's technology business would continue to grow. The four acquisitions made this year have all been in that space, with the two larger ones — Plas-Pak and Vention — in medical, which is less cyclical.
Of course, acquisitions are about more than adding products and sales. It's also about people. Nordson takes the acquisitions on a case-by-case basis, bringing in new leadership when necessary or preserving strong leadership teams when possible.
"I think the first step is: Don't screw up something that's really good," Hilton said. "So whatever the magic is in the company you have, you want to make sure you don't screw that up."
But the company does look for efficiencies. That may mean consolidating smaller facilities into larger ones or introducing Lean Six Sigma into a plant, Hilton said. And it looks to create "revenue synergies," he said, by cross-selling between customers or taking what was a regional company to a global audience.