DEALTALK-Energy efficiency drive puts RuggedCom on M&A radar

* RuggedCom may come on radar of ABB, GE, Cisco, Siemens

* Potential bidding war could churn significant premium

* M&A activity in industrial networking space

* For more Reuters DEALTALKs [DEALTALK/]

Mary Meyase & Aftab Ahmed

BANGALORE, Dec 16 (BestGrowthStock) – RuggedCom Inc (RCM.TO: ), a
niche Canadian player in the so-called ‘Smart Grid’ space,
could attract a hefty premium in any takeover bid, as tech
heavyweights and conglomerates eye a lucrative trend to energy
efficiency.

Cisco Systems Inc (CSCO.O: ), ABB (ABBN.VX: ), Siemens AG
(SIEGn.DE: ) and General Electric Co (GE.N: ) have been scouting
for expertise and technology in the smart grid growth market,
and have the muscle and money to acquire RuggedCom.

The company’s suite of products, from routers to ethernet
cables, support integrated communication and power system
infrastructure — allowing for robust two-way communication,
advanced sensors and distributed computers, all essential
elements of a smart grid network.

“RuggedCom is a prime candidate to be acquired,” said
Paradigm Capital analyst Spencer Churchill, citing Cisco, ABB
and Siemens as the most logical bid candidates.

Industrial Alliance Securities analyst Steve Li added GE as
another potential buyer, and expected any bidding war for
RuggedCom to inflate the premium.

GE is investing heavily in developing utility-scale
batteries and, last month, the U.S. conglomerate and a group of
venture capital firms said they plan to allocate a total of
$200 million to funding this kind of investment over 12-18
months. [ID:nN16112449]

According to Pike Research, the software and services that
will enable smart grid data analytics represent one of the
largest growth opportunities in the utility sector over the
next few years, soaring to $4.2 billion in annual revenue by
2015 from just $356 million this year.

Earlier this year, Cisco, which is working with a number of
utilities, said it identified $20 billion in opportunities in
the next 5 years. [ID:nN02178832]

Cumulative global investment in smart grids, including
smart meter implementation as well as upgrades to the
transmission and distribution infrastructure, will approach $46
billion by 2015, according to recent forecasts from ABI
Research.

Regulatory measures in a number of U.S. states to
incorporate renewable power and the near-$4 billion infusion of
federal stimulus funds are also aiding the deployment of the
smart grid — a loose term used for a more efficient
electricity supply chain.

The smart grid defines an efficient power supply network
that would aid development of renewable energy and appliances
that turn themselves on and off, and would support a fleet of
electric cars.

PREMIUM PREY

RuggedCom, which counts original equipment makers GE, ABB
and Areva (CEPFi.PA: ) among its bigger customers, currently
serves the electric power, transportation systems, military
applications and industrial processes markets.

The company is also seeing early success in new market
segments, primarily wireless and wind, said Paradigm Capital’s
Churchill. Its “core market is huge at $5.4 billion, though
penetration remains below 25 percent,” he noted.

“When you look at RCM’s biggest partners — industrial
players like ABB, Areva, Siemens and GE … if they see it
being swallowed by large firms like Cisco, they may be tempted
to participate in a bidding war for RCM as well,” Industrial
Alliance Securities’ Li said.

Li pegged the premium at 30-40 percent, valuing the company
at up to $310 million.

But RuggedCom — the name reflects its products which are
designed to be used in harsh conditions — would likely hold
out for more before striking any deal.

RuggedCom shares have jumped more than 50 percent in the
past 7 weeks, and this month hit a 29-week high of C$19.07.
Analysts have a median price target of C$20.51 for the stock,
according to Thomson Reuters data — some C$10 below its
mid-2009 life high.

Mike Shannon, a fund manager at Pembroke Management, which
he said owns some 640,000 RuggedCom shares — a stake of around
5 percent — would prefer to see the stock regain levels nearer
C$30 before any offers come in.

Last month, Belden Inc (BDC.N: ), a rival in industrial
networking, said it was buying GarrettCom, a player in the
smart grid vertical, for about $52 million — a sign that
dealmaking in the sector could accelerate.
($1=1.004 Canadian Dollar)
(Reporting by Mary Meyase & Aftab Ahmed in Bangalore, Editing
by Ian Geoghegan)
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DEALTALK-Energy efficiency drive puts RuggedCom on M&A radar