Fujitsu General [TYO:6755], the Kawasaki, Japan-based manufacturer of air conditioning (A/C) systems, is exploring acquisition and/or business alliance opportunities in the US and India to shore up its overseas business, said Yasushi Asanuma, general manager of the international marketing & sales division.
The JPY 186.8bn (USD 1.7bn) market cap company is receptive to approaches from advisors regarding potential targets, noted Asanuma, who is also responsible for M&A as deputy general manager of the corporate planning and strategy department.
It is already in talks with some candidates around the world, he added without elaborating.
Fujitsu General has been expanding its business into solutions businesses, such as designing, installation, and maintenance work through M&A, from its traditional hardware business, which involves manufacturing and sale of equipment, he said. In particular, it is focusing on growing the light commercial A/C system segment, which includes packaged A/C systems and variable refrigerant flow (VRF) systems used in commercial facilities and office buildings, while continuing to maintain the residential air conditioner business, he continued.
Ideal targets/partners are companies engaged in the design, installation or maintenance work of light commercial A/C systems, primarily in the US and India, but not limited to those markets, he noted.
Based on this strategy, Fujitsu General acquired Australia-based Precise Air Group (PAG) in December 2018, and a 52% stake in India-based ABS Aircon Engineers in October 2018, he said. The deal size was undisclosed for the former. Fujitsu General spent INR 510m (USD 7.1m) for the stake buy, as announced.
It would not rule out a manufacturer of A/C equipment if its product lineup complements Fujitsu General’s portfolio, Asanuma added.
The company has not set a specific budget for M&A, he said.
Fujitsu General had cash and cash equivalents of JPY35.4bn at the end of March 2019 (FY18), according to the company’s financial portfolio.
The US, alongside India, is the priority market for Fujitsu General and it is seeking opportunities across the country, Asanuma said.
Since the company’s US headquarters are located in New Jersey, it has some presence in northeastern US, while its exposure is limited in the West Coast and the south, he explained.
In the south, the company is working with Georgia-based heating, ventilation, and air conditioning (HVAC) system maker Rheem Manufacturing Company as a business partner, Asanuma continued. Rheem is the leading player in ducted central A/C systems, which deliver warm or cool air through ducts inside the walls and ceilings of buildings. Fujitsu and Rheem announced a strategic collaboration in 2016 to complement each other’s product line, and that Fujitsu General would sell its duct-less A/C system through Rheem’s sales channel.
Meanwhile, the West Coast is a challenging market for A/C companies as California has stricter energy saving regulations, and the company is studying how it should tackle this issue. That said, stricter regulations could be positive for Fujitsu General, he noted.
The company is collaborating with Oregon-based Ventacity Systems to provide more efficient heating, cooling, ventilation and control solutions for commercial buildings, Asanuma said.
Fujitsu General invested an undisclosed sum in Ventacity in November 2017, according to the company’s press release.
Separately, Fujitsu General is looking to consolidate India-based distribution joint venture ETA General Private Limited (EGPL) and is in talks with its Dubai-based JV partner ETA-ASCON STAR to acquire its stake, as announced in its medium-term management plan released in April 2018.
The process is taking longer than initially expected, but an agreement is expected to be concluded shortly, Asanuma noted without elaborating.
EGPL was established in 2000 to distribute A/C systems in India, according to the company’s website.
Fujitsu General owns a 39.9% stake in the JV, according to the company’s financial statement.
The JV was originally set up for assembling Fujitsu General’s A/C systems in India, but once India and Thailand, where it also has a production base, signed a free trade agreement, Fujitsu terminated production in India, he noted.
Now that the company is planning to expand in India, it could mull establishing a local production base there again. It could seek a potential business partner to this end, he added.
In Southern Europe, Fujitsu General has had a traditionally strong distribution network through distributors, and it does not have immediate plans to start direct distribution through acquisitions, Asanuma said.
However, as with its acquisition of a 51% stake in Italy-based distributor F.G. Europe Italia announced in October 2018, it may consider expanding into design, insulation, and maintenance work in the region via an acquisition or partnership, he continued.
For the rest of Europe, it would collaborate with its distributors to expand business, he added.
Although the A/C system business accounts for around 90% of the company’s revenue, it would hold on to its other smaller businesses such as its electronics devices and information & communication system businesses, the company’s spokesperson said.
The electronics device business is engaged in manufacturing automotive cameras and electronic components for industrial robots, according to the spokesperson. The revenue of the business is temporarily being dragged down by China’s economic slowdown, which has affected the demand for industrial robots, but Fujitsu General is still seeking other sources of revenue to fill the gap, he noted.
The information & communication system business which is engaged in manufacturing and sales of fire and disaster prevention systems is highly profitable, and it should generate a stable profit due to equipment constantly being renewed, he added.
In FY18, Fujitsu General had sales of JPY 252.6bn, down 3.7% from the previous year, and operating income of JPY 14.5bn, down 27.8% from FY17.
Tokyo-based Fujitsu [TYO:6702] owns a 44.08% stake in Fujitsu General.
by Ryuya Shiga in Tokyo