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Flextronics Set to Buy RIWISA

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Flextronics (FLEX - Free Report) recently announced that it has entered into a definitive agreement to acquire Switzerland-based RIWISA. This privately-held company provides injection molding and automation solutions. Although the financial terms were not disclosed, the transaction is expected to be complete by the end of October this year.

RIWISA’s acquisition will boost Flextronics’ product offerings in the medical sector. Under the terms of the agreement, Flextronics will acquire RIWISA’s manufacturing facilities as well as its existing employee pool. We believe that the acquisition of a highly trained and skilled, ready-to-deploy employee group will save a lot of time and training resources.

Moreover, the takeover will expand Flextronics’ footprint in Europe, which is on the verge of an economic recovery following a prolonged period of economic stagnation. We believe that the RIWISA facility acquisition will further drive Flextronics’ growth prospects over the long term.

The recent acquisition follows the takeover of certain assets of Motorola Mobility LLC, a division of Google . Flextronics acquired Motorola’s manufacturing facility, equipment and employees in Tianjin, China and Jaguariuna, Brazil for an undisclosed amount.

Flextronics expects the Motorola deal to be accretive on both operating income and earnings per share basis for fiscal 2014. Its revenue potential is expected to be of several billions. The company expects to earn a return on invested capital (“ROIC”) of 20% going forward.

Flextronics has undertaken a number of new initiatives to gain a competitive edge, which include divestiture of non-core assets and deployment of new technologies. New programs are expected to boost production volumes in fiscal 2014, although profitability is expected to remain weak due to continuing investments.

In this regard, we believe that strategic acquisitions and strong new bookings will also drive top-line growth over the long term. However, macroeconomic concerns and weak end-market demand are major headwinds in the near term.

Moreover, the portfolio realignment is also expected to hurt Flextronics’ top-line growth in the near term. Further, increasing competition from Jabil Circuit Inc. (JBL - Free Report) and Plexus Corp (PLXS - Free Report) remains a concern going forward.

Currently, Flextronics has a Zacks Rank #3 (Hold).

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