Arlon President Brad Foster updates Nolan Johnson on EMC’s acquisition of Arlon in December 2020. Foster shares the basic structure of the agreement, the long-term stability built into the merger, and outlines how this brings EMC, Arlon and Technica together as a team. Foster also hints at what we can expect to see from Arlon and EMC in the coming months.
Transcript of Conversation:
Nolan Johnson: Hi, Nolan Johnson for I-Connect007. Thanks for joining today. I’m talking with Brad Foster, the president of Arlon Electronic Materials. Brad, welcome.
Brad Foster: Thank you, Nolan.
Johnson: We’re talking today because there is an acquisition that’s recently been in play: EMC and Arlon have joined forces. Can you tell us about that?
Foster: Certainly, Nolan. On December 23 last year, it became official: EMC acquired Arlon from Critical Point Capital. And a little bit on EMC, Arlon represents their sixth manufacturing site that they’ve acquired. They have three factories in China, two in Taiwan, and now one in the U.S. EMC globally are in the top five for the copper-clad laminate producers. Top client about a billion dollars. They’re producing about 3 million sheets a month and they continue to expand their production of their China factories and had a very nice first quarter. They grew about 35%. They’re a powerhouse and we’re in a good position with this acquisition.
Johnson: In putting together this sale, what are some of the pieces to the deal? Can you talk about that?
Foster: A little bit, Nolan. Because Arlon is heavily steeped in the military and military programs, there’s definitely government oversight that went into the acquisition. The CFIUS committee, which is the committee on foreign investment in the U.S., had to give the approval. CFIUS committee is made up of Department of Defense, Department of Justice, Commerce, but there was arrangements and agreements that EMC had to commit to, and such things as that they would not cancel any of our launch product lines, that they would continue to operate from a U.S. location. They were not going to outsource supply. They weren’t going to transfer production offshore, and that they had to guarantee the U.S. government a supply line. Getting the deal together, EMC had some requirements of Critical Point that they wanted to make sure happened. And one of these, EMC has plans to invest in Arlon.
For their future investment plans, they required a long-term lease. We were able to negotiate a 20+ year lease at our current footprint, current site. And EMC has plans for future investments into our facility to increase capacity, to put in additional equipment, to do upgrades to existing equipment. And the EMC philosophy of the president chairman of the board, Albert Tung, has been that EMC is going to add to Arlon, not take away. By that, he means they’re going to add sales and marketing resources. They’re going to add and upgrade equipment. They’re going to add product lines and going to allow us to expand. So, it’s pretty exciting from that stance.
Johnson: It’s fairly clear that what Arlon gets from this is a lot of long-term stability in a business partner. Is there anything additional that Arlon is looking to pick up out of this acquisition and what does the acquisition mean for EMC?
Foster: Very good point. Very good questions. From Arlon’s standpoint, this is the first time in Arlon’s almost 40-year history that we have not been owned by a private equity. We gain a parent company that’s aligned with us, it’s a billion-dollar company. They are world-class manufacturing; we’d get alignment in our strategy. Arlon receives additional resources for manufacturing and potential automation down the road.
On the sales and marketing side, we pick up about 20 additional salespeople with the Technica group, which is EMC’s distributor in North America. Basically, in short, when you add that in conjunction with some of the guarantees they had to give for CFIUS and then the long-term lease, you really get a stable business picture with a guaranteed long-term future for the Arlon business. On the EMC side, it’s very interesting, they gain access to what we call the AIM market. AIM is our Aerospace Industrial Military. So, we’re a niche manufacturer, a niche market supplier. EMC does not have any business there today, and this allows EMC products to be promoted into our target market, but we’re going to have another set of products to bring with us that are the EMC products.
Johnson: There’s a company commitment to invest in Arlon and add to Arlon; I take it that means product portfolio as well. Sounds like this just allows you to get broader and deeper into AIM.
Foster: Absolutely. Currently, our product line that we manufacture at Arlon is the polyamide product line. And that represents a percentage of what is being sold into the Aerospace Industrial Military. But that’s a small percentage. Bring along with that the EMC product line, and which we can utilize and leverage our OEM contacts in the AIM market space, and then we can promote this broader group of products that EMC manufacturers and they bring forward. I think it’s a good combination there. Our focus is really to do the OEM selling into our existing market, expanding it with the EMC product line.
Johnson: Lots of opportunity seems to be built into this, that’s for sure. As we’re watching this relationship grow for the next year or two, what should we expect to see?
Foster: Our immediate focus with Arlon is we’ve got to tie in with EMC’s distribution partner, the Technica group. And the Technica group is essentially they’re going to handle the commercial activities that apply to the EMC product line. And Arlon will continue to handle the commercial activities that apply to our product line. However, jointly we’re going to synergistically represent each other’s product line. So, in terms of pricing, we stick with what we’ve done in the past, and we do well; the Technica group sticks with what they’ve done in the past. There’s real stability in that. We’re not going to be shuffling the deck on that side of it. But, with this, Arlon brings five laminate specialists into the picture, and the Technica group brings in an additional 20+ salespeople that are distributor salespeople to help cover the fabricators on that side.
But over the next year or two, a nine-to-12-month focus is on sales and marketing side to get comfortable with our new partners, get comfortable with how we go to market, have customers be comfortable with the way that we’re set up and doing things. But beyond that, in the next two- to four-year timeframe, EMC is really committed to increasing Arlon’s capacity, increasing our output. They will invest in the company; they will invest in the manufacturing site and the capability of Arlon. With a 20+ year lease in place, a strategic owner, a billion top five laminator globally, we’re in the best position to participate and support our key markets that this company has ever been in its 40-year history.
Johnson: Well, that is great opportunity, isn’t it? That you are at a good place. This is exciting news.
Foster: It’s fantastic. And our employees are very excited, nothing really against private equity ownership, but this is the first time that we’ve had essentially a strategic owner who has made the amount of commitment that EMC has made into the Arlon business model, supports it fully, and has helped really structure it and define it. So, it gives us a whole new batch of products to sell. We double the product offerings that we can bring into the same markets that we’re familiar with, the same OEMs. And we’re really looking forward to the remainder of 2021 and then 2022 to crank it up.
Johnson: Well, thanks for taking the time to speak with us and share with us the details around this joining of forces.
Foster: Well, Nolan, I appreciate the opportunity. Thank you.
To download the audio (mp3) file of this conversation, click here.