Bombardier Transportation & the Adtranz Acquisition
OVERVIEW
Bombardier had evolved from its humble beginnings as a snowmobile manufacturer based in Joseph-Arman an Bombardier’s garage to a global business in which it’s once core recreational products were over shadowed, on a revenue basis at least, by its offerings in transportation, aerospace, and capital. In every segment in which the company operated it was either number 1 or 2 globally. This was not the case for the Transportation group (BT) in Europe, where in 2001 it sat in fourth place behind Alstom, Siemens and Adtranz (AT). However, the AT acquisition presented the opportunity to vault BT to the forefront of the industry. At a price tag of US$715 million (23% of AT’s 2000 revenue) AT was a bargain and an opportunity worth considering for several reasons:
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Revenue Growth
: Unlike all other Bombardier businesses, BT’s revenue was counter-cyclical so growth in the sector would provide better balance to its overall revenue (Figure C1 in Appendix C).With the addition of AT, BT’s annual rail-related revenue could grow to US$7.6 billion in 2001 (up from US$2.2 billion in 2000) with a backlog of US$14.5 billion.
1
While BT was a low margin business it was a cash generator that helped to finance other Bombardier businesses.
•
Geographic Expansion
: AT had a presence in a broader range of European markets and the region was viewed as the center of technological development. Asia and South America utilized European engineering and practices so AT provided BT better access to future markets.
•
Completion of Product Portfolio
: BT lacked propulsion system and train controls competence. This had been mitigated by outsourcing to competitors and suppliers; however it was a competitive weakness as was exemplified by AT’s exclusion from a key deal in the UK in 2000. AT excelled in these areas, and provided immediate cost synergies and long term strategic strength. Naturally the acquisition was not without its downside. There were many aspects of the deal that
Bombardier had evolved from its humble beginnings as a snowmobile manufacturer based in Joseph-Arman an Bombardier’s garage to a global business in which it’s once core recreational products were over shadowed, on a revenue basis at least, by its offerings in transportation, aerospace, and capital. In every segment in which the company operated it was either number 1 or 2 globally. This was not the case for the Transportation group (BT) in Europe, where in 2001 it sat in fourth place behind Alstom, Siemens and Adtranz (AT). However, the AT acquisition presented the opportunity to vault BT to the forefront of the industry. At a price tag of US$715 million (23% of AT’s 2000 revenue) AT was a bargain and an opportunity worth considering for several reasons:
•
Revenue Growth
: Unlike all other Bombardier businesses, BT’s revenue was counter-cyclical so growth in the sector would provide better balance to its overall revenue (Figure C1 in Appendix C).With the addition of AT, BT’s annual rail-related revenue could grow to US$7.6 billion in 2001 (up from US$2.2 billion in 2000) with a backlog of US$14.5 billion.
1
While BT was a low margin business it was a cash generator that helped to finance other Bombardier businesses.
•
Geographic Expansion
: AT had a presence in a broader range of European markets and the region was viewed as the center of technological development. Asia and South America utilized European engineering and practices so AT provided BT better access to future markets.
•
Completion of Product Portfolio
: BT lacked propulsion system and train controls competence. This had been mitigated by outsourcing to competitors and suppliers; however it was a competitive weakness as was exemplified by AT’s exclusion from a key deal in the UK in 2000. AT excelled in these areas, and provided immediate cost synergies and long term strategic strength. Naturally the acquisition was not without its downside. There were many aspects of the deal that