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Tata Technologies Plans Major Acquisitions Push

August 2, 2016 (Photo Credit: Tata Technologies)

WASHINGTON — Over the next four years, Tata Technologies plans to acquire a number of secondary and tertiary defense suppliers as part of a corporate plan to grow revenues from $500 million today to around $1 billion by 2020.

In a wide-ranging interview at the Farnborough Air Show last month, Tata Technologies CEO Warren Harris made it clear that his company is actively seeking companies it can buy up in order to grow its global footprint, specifically among those secondary and tertiary firms that make up the US defense supply chain.

Relationships between US defense primes and their suppliers “require a lot of trust,” Harris told Defense News July 14. “It’s very difficult to fast-track your way into a relationship that is predicated on a lot of trust. So we’re trying to buy into marquee relationships through targeted acquisitions.”

Tata Technologies is part of the larger Tata Group, the massive Indian conglomerate with 29 entities collectively valued at over $116 billion. While not among the largest Tata companies, Tata Technologies handles a significant portion of the conglomerate’s defense work.

Part of that comes from handling offset obligations from Western defense firms that want to do business with India. In 2008, the company created a joint venture with Hindustan Aeronautics Limited (HAL), India’s largest defense aerospace firm, for just that purpose, focusing on tooling and manufacturing.

But with a corporate mandate from Tata Group leadership to reach $500 billion in global revenue by 2021, Harris sees an opportunity for Tata Technologies to grow in importance moving forward.

“In the last six years our compound annual growth rate is 16 percent,” Harris explained.  “We fully expect to be able to maintain that organically. Our trajectory over the next four years organically sees us going to $800 million, so we see about $200 million in revenue that will come in from acquisitions.”

The company will maintain a blend of commercial and defense work, Harris said, noting that right now Tata Technologies is about 70 percent automotive, 11 percent aerospace, and 12 percent industrial heavy machinery. As a result, Harris wants to see aerospace grow at a much higher rate than automotive, in order to keep a balanced portfolio.

Asked whether there is a target for defense growth, Harris said the company has “aspirational targets in terms of commercial and defense, but I think it is going to be very driven by our success in and around acquisitions.”

In other words, the company is casting its gaze far and wide to figure out what additions could help it grow revenues. So what kind of companies could be targeted?

“Most of the traditional work we’ve done is in mechanical systems, and increasingly a lot of innovation is being driven in embedded and software arenas, so we’re looking very aggressively at organizations on the West Coast and organizations that can complement that mechanical bias,” he said.

Harris later added that given the automotive focus of the company, firms that do defense work in land systems would make a lot of sense. Specialists in cyber could also be on the list, as well as companies specializing in smart-car-type technologies.

It’s a good time to be shopping, Harris believes, because the economic situation of the last few years, particularly in the defense world, means a number of small firms are looking for more security than they’ve had in the past.

“You take in the United States, most of the big defense manufacturers have grown up through the support of a supply chain that has a very long tail. There are a lot of small companies providing engineering services, IT services, some of which are commodity services, many of which in some areas are very strategic,” Harris said.

“Those organizations have not fulfilled their potential because of limited cash, access to the right appropriate resources, global footprint — and what we hope to offer those organizations is all of those things, and what we’re hoping to get through the relationship is the type of relationship that is difficult, again, for an outside organization to fast-track their way into.”

Systems Versus Prime

But while the company is looking to make additions, don’t expect Tata Technologies to become a prime developer of weapons systems in the near future — at least in the US.

The company’s role will remains “secondary to tertiary in the developed markets. In the UK and US that’s where we tend to position ourselves,” Harris said.

But in India and the Middle East, “we’re looking to play a much more influential role, we’re looking to be Tier 1. Even as a prime,” he added.

Unsurprisingly, India remains the hub of Tata’s defense growth strategy. Harris expressed hope that India is sorting out the procurement knot that deviled numerous programs over the last decade, which in turn will net his company an influx of cash thanks to its tie-up with HAL.

“We’re certainly very bullish about the prospects for the Indian government to discharge some of the plans that have been built in for the last 10 years,” he said. “We’ve been expecting this wave of procurement decisions that have not been realized, but I think over the last 12-18 months we’re really starting to see signs that will start to happen.”

In the long term, Harris said he could see Tata move into being prime on a number of defense programs in India – “it is certainly the ambition of the group,” he notes — thanks in part to the planned procurement decisions and the offsets that come along with them.  

That ties into concerns from US industry that, in a rush to secure international sales over the last decade, American firms gave away too much knowledge and intellectual property to customer nations.

Both David Melcher, head of the Washington-based Aerospace Industries Association, and a report from the analytics group Avascent have warned that some of these nations may rise up as competitors to the US thanks to the knowledge they gained through offsets.

Harris agreed that “if the US defense industry stands still, that’s likely to happen,” but expressed confidence that US industry will find a way forward.

“If they stand still and don’t invest in talent, don’t invest in IP, then there is no question there are a lot of organizations out there that are very ambitious and they are looking to take advantage of current opportunities to get better very quickly. And many organizations, including ourselves, have relatively deep pockets to invest,” he noted.

“But I live in the United States and I’m very much an advocate for the US. There is no other country that can innovate the way the US companies can, and as long as we continue to commit ourselves to that, I think the US shouldn’t be too concerned about the competition that is likely to come in from different parts of the world.”

 

Email: amehta@defensenews.com

Twitter: @AaronMehta

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