South African electrical equipment supplier and manufacturer Zest WEG remains on the prowl for “synergistic” acquisitions, having recently completed a transaction to buy TSS Transformers – a deal that materially increases its local manufacturing capabilities and heralds its entry into the maintenance and repair sector of the market.
CEO Louis Meiring tells Engineering News Online that organic growth alone will be insufficient to meet the group’s expansion aspirations for Africa, which have been set in conjunction with the larger WEG Group. The Brazilian motor and controls manufacturer views internationalisation beyond the Latin American markets as critical to it becoming a $10-billion-a-year business by 2020.
But Zest WEG, which has itself grown to become a R2-billion-plus, 820-employee business, will pursue transactions only within its electrical-engineering niche, particularly those supportive of its strategy of diversifying into new market segments, such as water and renewable energy.
Such diversification is considered urgent in light of the weak mining outlook, which the company expects to persist until at least 2017. “Mining, in the past, has been between 60% and 70% of our business. But with commodity prices weakening and the mining sector being depressed in South Africa, we have to change our game plan and venture into sectors of the market where we have not been strong historically.”
Future acquisitions would also be geared, however, towards ensuring a greater balance between locally manufactured products and imports, as well as improving the group’s capacity to tackle opportunities emerging in the rest of Africa.
“We have an Africa division and we are putting a huge emphasis on upping our activity in the rest of Africa,” Meiring says, adding that African orders currently comprise about 40% of its backlog by value, having been a far smaller proportion in previous years.
The business has already nearly achieved a 50:50 ratio between domestic manufacturing and imports, but with increasing localisation demands and the weakening South African currency, Meiring says it is likely that it will further expand its manufacturing footprint through acquisitions.
Besides the TSS Transformers deal, Zest WEG has completed several other acquisitions in recent years, including those of Hawker Siddeley, now known as WEG Transformers Africa, standby generator supplier IMS, electrical and instrumentation contractor Eni Electrical and Shaw Controls, which makes motor control centres.
The TSS Transformers acquisition, which has been approved without conditions by the competition authorities, increases the range and scale of transformers on offer from the company.
Hitherto, WEG Transformers Africa has supplied mini-substations and transformers of up to 10 MVA in size. But Zest WEG will now have the capacity to supply larger transformers of up to 50 MVA in size. TSS Transformers’ 45 000 m2 facility also has the capacity to offer maintenance and repair services for utility and municipal clients.
“TSS Transformers has the skill, it has the capacity and we are now very well positioned to compete aggressively for a larger range of transformers, but also to offer maintenance and repair services,” Meiring concludes.