Passive Profit

Schneider Electric, the
global specialist in energy management, signed an agreement to
acquire the assets of the href="http://www.dqweek.com/Schneider-Electric-acquires-Digilink">DIGILINK
business from Smartlink Network
Systems. In a landmark deal inked in Mumbai recently, Smartlink sold
their DIGILINK brand to Schneider Electric for Rs 503 crore. The
DIGILINK brand comprises passive networking business including the
manufacturing, marketing, and sale of structured cable products.
DIGILINK has 92 employees in its Mumbai HQ. It has a manufacturing
unit and an R&D center in Goa along with sales and distribution
offices across India. DIGILINK has a strong presence in retail,
educational institutes, government, financial services, small office,
and home office segments.

KR Naik, executive
chairman, Smartlink said, “We are pleased to enter into this
agreement as the transaction recognizes the value of DIGILINK's
pre-eminent position in the structured cabling business including the
strengths of the brand, the strong network, support and dedication of
our distributors and last but not the least, a well qualified,
capable and motivated workforce.” According to a company report,
DIGILINK had sales of about Rs 155 crore for the year ended December
31, 2010 and is being sold on a slump sale basis to Schneider as a
going concern. The transaction would primarily include the transfer
of the 'DIGILINK' brand and trademarks, manufacturing facility at
Goa, distribution network, and the employees related to the business.

However, the DIGILINK
brand name will remain unchanged. The company has agreed to a
non-compete condition for a period of 5 years for the passive
networking business, subject to shareholder approval and other
customary conditions. Regarding what Smartlink intends to do with the
proceeds from
this deal, Naik said that the company was in talks for investment and
equity-sharing among the company shareholders. However, one of the
primary areas of focus will be on building the Digisol brand in
India.

With DIGILINK, Schneider
Electric is well positioned to capture opportunities in the fast
growing Indian network connectivity market as well as in other new
economies, particularly in Asia Pacific and Middle East. The Group
will be able to gain access to DIGILINK's well-established
distribution network in the retail sector which complements its
presence in the enterprise segments and will generate significant
crossselling opportunities for its power and IT products.

Thanks to the expertise of
the foreign brand (Schneider), this acquisition stands for a lot more
opportunities for channel partners because DIGILINK has been
consistently growing at a rate of 15-20% per year and this figure can
reach up to 20%, with Schneider's partnership. Schneider recently
acquired US-based Lee Technologies, a leading services provider for
data centers. Olivier Blum, country president, Schneider Electric
India said, “DIGILINK is one of the best companies for network
connectivity in
India-an area that we also specialize in. This is a very important
move for Schneider and we plan to grow at 30% per year for the next 5
years, and expand the company size by 3-4 times by 2015. In the next
3 to 6 months, we will expand our products in the export market in
APAC, exporting around 30-40% of our products by 2015.”

Currently, DIGILINK has
3,000 retail outlets all over India. While the investment fits in
well with the expected RoI, the objective of Schneider is to have
India as one of the top four pillars of Schneider in the world. It
seems obvious that for future acquisitions, Schneider is focused on
the energy management space, which would also complement the
company's green strategy. As a global specialist in energy management
with operations in more than 100 countries, Schneider offers
integrated solutions across multiple market segments, including
leadership positions in energy and infrastructure, industrial
processes, building automation, and data networks, as well as a broad
presence in residential applications.

“DIGILINK not only gives
us a very strong presence in retail where other Schneider Electric
products could be distributed, but also in SoHo and education
segments which is strongly complemented with the enterprise presence
of Schneider. DIGILINK products will be also made available to
international markets where Schneider benefits from a strong access
to customers,” summarized Blum. Analysts say that it's a classic
case of asset stripping, giving no visible gains for minority
shareholders either in form of a special dividend or an open offer,
while Smartlink got a good value for its brand. Besides, similar
deals in the past have seen company's trade at much lower valuations,
leaving not
much return for investors.