Lincoln Electric Buys Businesses

Lincoln Electric Holdings, Inc. (LECO - Analyst Report) has completed the acquisition of three operations from ITT Corporation (ITT - Analyst Report). The acquired businesses are Kaliburn, Burny and Cleveland Motion Control (CMC). The financial details of the transaction were undisclosed.

The facility at Kaliburn offers a wide range of conventional and high current density plasma cutting systems. Shape cutting control systems are manufactured in Burny while CMC produces a broad line of industrial control and automation solutions such as engineered systems, motion controllers, tension controllers, web tension control, tension transducers and load cells.

The strategic step will further augment Lincoln Electric’s wide product portfolio, enabling it to cater to a wider clientele with diversified solutions. The acquired operations employing nearly 140 recruits generated annual sales of $35 million in 2011.

Earlier in May, Lincoln Electric acquired privately held automated systems and tooling manufacturer, Wayne Trail Technologies, Inc. for an undisclosed price. It fortified Lincoln Electric’s market leading position in welding automation in North America along with expanding its wide range of welding and automated solutions for customers in both the U.S. and international markets.

These acquisitions are in line with the goals that Lincoln Electric has set to achieve by 2020. It expects to double its market share by 2020. Moreover, it envisions achieving compound annual revenue growth of 10% or more by 2020. In addition, the company expects a return on invested capital in excess of 15% through 2020. With these achievements, the company will strengthen its position as one of the strongest and successful welding companies globally.

Lincoln Electric invests significantly in acquiring new businesses in North America as the region contributes more than 50% to its business and has proved to be the strongest geographic region. Moreover, demand continues to be strong despite the challenging macroeconomic environment.

However, raw material costs have been escalating and the company has a strategy to increase selling prices to counter raw material inflation. If the company is unsuccessful in increasing future prices due to competitive pricing across its markets, its margins will be affected.

Lincoln retains a short-term Zacks #3 Rank (Hold). We have a long-term Neutral recommendation on the stock.