FARO Technologies, Inc., Lake Mary, FL announced it has acquired 3D laser scanning manufacturer iQvolution AG, Ludwigsburg, Germany in a transaction valued at approximately $12 million of which 1/3 is cash and 2/3 is shares in common stock of FARO. FARO says the cash portion and just slightly less than 1/2 the stock is payable immediately; the balance of the stock will be held in escrow and is payable upon the attainment of defined performance goals.
Earlier this year we reported that iQvolution had sales of EU4 million (approximately $5.4 million USD) just less than half of which was 3D laser scanning hardware. FARO forecasts iQvolution sales for 2005 will total $7.5 million. Most of iQvolution’s business to date comes from sales of hardware and services to European automotive manufacturing firms. In North America the company also reported sales to the FBI, Electric Boat and Atomic Energy of Canada Limited.
Founded in 1981, FARO provides computer-aided manufacturing measurement hardware, software and services to automotive, aerospace, consumer products, electric power generation equipment and heavy equipment manufacturing firms. According to Greg Fraser, executive vice president and co-founder of FARO, 35% of the company’s current business is automotive-related, 25% comes from aerospace and 15% from heavy equipment. FARO reported sales of $97 million for year ending 12/31/2004, up from $71.8 million the year before. FARO has been publicly traded on the NASDAQ since September 1997. geovisit();
Impact on the 3D laser scanning market
This acquisition will intensify competition in the 3D laser scanning market, particularly the market for phase-based laser scanning hardware. Other companies that compete specifically for the phase-based scanner business include Zoller+Fröhlich GmbH, Wangen, Germany; Leica Geosystems HDS, San Ramon, CA which has a non-exclusive OEM relationship with Zoller+Fröhlich, and Visi Image, Salem, MA. Quantapoint, Inc., Pittsburgh, PA manufactures a phase-based scanner but uses the product for its own service work and does not sell it to third parties. FARO already competes with Leica Geosystems in its laser tracker business.
FARO’s sales and marketing reach, particularly in automotive and aerospace markets, ought to stimulate new levels of investment in these sectors. Certainly BMW, DaimlerChrysler, Ford, General Motors, Toyota, Volkswagen and others all use laser scanning to model production facilities and equipment today. Our view is that the business case to use even more laser scanning is becoming much more compelling as these firms seek to avoid unnecessary capital expenditure by repurposing existing production assets and tooling. All car manufacturers have to modify their production assets to make new product – laser scanning enables lower-cost, lower-risk modifications earlier in the design cycle. Manufacturing and facilities engineering which has labored with 2D work processes left over from the last century is beginning the transition to 3D. Laser scanning aids, abets and accelerates this transition.
Step-function improvements in manufacturing efficiency are the prize
Step-function improvement in manufacturing efficiency in the past has been achieved by breakthrough dimensional control. When Eli Whitney pioneered mass production two centuries ago, interchangeable parts were the key. Interchangeable parts require dimensional control, and analysis and management of variance. What strikes us as particularly promising about this acquisition is that it is a step along the road to deeper, tighter dimensional control for not only the product but the production equipment and production facility itself. That bodes well for balancing the demand for ever-increasing product variety with the call on scarce capital to retool production assets to fulfil this demand.
FARO seems well positioned to capitalize on this market opportunity with its offering of 3D measurement systems that now span the space from product to tooling to facility. We believe automotive, aerospace and other manufacturers will relish the prospect of even better dimensional control – i.e., managing variance – across all aspects of manufacturing, from product to process to facilities. FARO’s brand presence in this market ought to accelerate adoption.
Impact on iQvolution
According to Fraser, FARO has a good track record for retaining executive talent when it acquires companies. He says that most of the key executives from the acquisiton of 3D manufacturing quality control software company CATS GmbH in 1998 and laser tracker manufacturer SpatialMetrix Corporation in 2002 are still with the company. With almost 1/2 of the stock payment at stake, iQvolution majority owners Bernd-Dietmar Becker and Reinhard Becker have signficant financial incentives to make this successful. With its manufacturing assets in Switzerland, FARO expects to streamline production of laser scanners.
Industry consolidation continues
This is the second acquisition this year in the 3D laser scanning hardware market. Last month we reported BitWyse purchased Visi Image. We’ve heard rumors from time to time about others. Consolidation events often whet investor enthusiasm and spur development. That’s good for customers! geovisit();