Siemens signalling revenues are split 64% mainline 34% mass transit, while Invensys is 44% mainline, 32% mass transit, and 24% products. The Americas account for only 5% of Siemens' signalling turnover but 30% of Invensys Rail's revenues. The acquisition therefore strengthens Siemens position in the rush to roll out Positive Train Control (PTC) in the United States by bringing Invensys wayside offering and Siemens onboard technologies under a single supplier.
It also expands Siemens' capabilities in interlockings and CBTC projects, and enhances its position in the Asia Pacific region and Britain.
It's worth remembering that until relatively recently Invensys Rail was predominantly focussed on the domestic markets of its constituent companies in Britain, Spain, the United States, and Australia. The strategy of diversification into new regions has really paid dividends for shareholders who stand to reap £625m from the transaction.
This expansion leads us to the reason why Invensys has taken the decision to sell a business that has succeeded in consistently building revenues and expanding its customer base over the last five years. As it continued its successful push to expand the business outside its home market, Invensys Rail saw that industry trends meant it would soon hit a glass ceiling. Following a strategic review of its various activities, Invensys concluded that opportunities for further development of the rail business would be limited because of consolidation in the signalling industry.
"The key issue with consolidation is that rolling stock manufacturers would be reluctant to part with key assets in signalling, so we would only have very limited ability to become the consolidator," says Invensys chief executive Mr Wayne Edmunds. "We therefore decided to seek a partner and Siemens was an easy choice being a clear leader in the signalling market."
The Invensys Rail acquisition brings complementary capabilities and geographical coverage to Siemens signalling business, and this looks certain to be an astute strategic purchase for the German giant, providing broader coverage and important cost and sales synergies. There is also the prospect of exciting technical developments emerging from the union of two of the industry's most important players.
The question is whether such consolidation is in the best interests of the signalling market, and whether this trend weakens or strengthens the position of the buyer, who may benefit from technical innovation on the one hand but potentially fewer bidders for contracts on the other. For the time being signalling remains a vibrant and competitive market, but one wonders whether other key suppliers, who are no doubt reflecting on the Invensys Rail deal, fear the impact of consolidation on their long-term prospects.