Acquisitions to Carry Legrand, GE Deeper into Fast-Growing Data Center Market

Thanks in part to the ongoing shift to cloud computing, as well as the more general surge of data use, transfer and storage, the market to provide power, enclosures, racking, energy management and greater efficiency in data centers is one of the bright spots of the sluggish economy. Just the past two weeks have brought announcements of new acquisitions by General Electric and Legrand North America that will expand those electrical manufacturers' roles in the data center market.

Legrand, from its U.S. base in West Hartford, Conn., announced on Jan. 7 that it will acquire Electrorack Products Co., Anaheim, Calif., a maker of custom cabinets and enclosures for IT markets. Terms of the deal were not disclosed.

The acquisition will enhance Legrand's manufacturing, engineering and product offerings for the commercial data communications market, the company said. Demand for cabinets and accessories in data centers as well as the broadcast and broadband, industrial and military/aerospace/shipboard markets also served by Electrorack are expected to expand by 10 percent a year in the United States over the next few years, Legrand said.

Electrorack's product range is expected to fit well with Legrand's Ortronics lines, enabling Legrand to accelerate its growth in the “buoyant” market for voice, data and imaging (VDI) equipment in the U.S. Legrand intends to make Electrorack a “center of excellence” for manufacturing and engineering of cabinets, cooling and power products.

By joining with Legrand, Electrorack gains financial, intellectual property and design support to help accelerate its growth. Electrorack's expertise in design and built-to-order customer-specific solutions expands Legrand's capability to provide a greater scope of offering to its customers.

The Electrorack management team, led by Scott Shew, will remain in place and report to Mark Panico, president of the Data Communications division of Legrand, North America.

GE, meanwhile, announced on Jan. 13 that it will acquire Lineage Power, Plano, Texas, a privately held maker of power conversion products, from The Gores Group LLC, for an estimated $520 million. The deal is expected to close in the first quarter, GE said.

Lineage Power, with 2,300 employees and annual revenues of about $450 million, is a global provider of high-efficiency power conversion infrastructure technology and services for the telecommunications and data center industries. It has manufacturing plants in China, Mexico and India. The deal will open the door for GE Energy technology to be deployed in the $20 billion per year power conversion market that is critical for data centers.

GE said the Lineage Power acquisition will also give it a boost in the smartphone market which it says is expected to see continued massive growth over the next several years.

“According to recent studies, there will be 1.1 billion smartphones sold globally by 2013,” said Dan Heintzelman, president and CEO of GE Energy Services. “Every new mobile device plugs into an infrastructure that requires an ever increasing amount of high-quality power. The growth in high-bandwidth mobile internet applications and cloud computing is accelerating that demand. A globally networked planet needs a lot of power to keep spinning. Customers want efficient, reliable means to manage that power.”

Heintzelman adds, “As the data-driven economy grows, the addition of Lineage Power's business platform continues the expansion of GE Energy's offerings from the electric grid to datacenters, cell towers, routers, servers and circuit board electronics.”

Lineage Power CEO Craig Witsoe, who was brought in by The Gores Group when it acquired Lineage three years ago, said, “Joining GE will enhance our company's resources to provide best-in-class energy technologies to our telecommunications and data communications customers. Our leadership in high-efficiency power conversion solutions has positioned us to serve the explosive growth in mobile internet demand driven by 3G and 4G/LTE wireless networks.”

“We are also bringing to GE exciting new solutions for high-efficiency data-center architecture, data storage and cloud computing,” Witsoe added.

Deutsche Bank was the exclusive financial advisor to GE on the transaction. Morgan Stanley acted as exclusive financial advisor to Lineage Power and The Gores Group.

Heavy emphasis on improving the energy efficiency of data centers is also driving business in that market. The U.S. Environmental Protection Agency has created an Energy Star rating program for data center energy efficiency. Most of the efficiency gains to be made come on the heating-and-cooling side of data-center operations, but energy-management software, uninterruptible power supplies, inverters and DC power systems also play a significant role.

Data center investment in more efficient systems is expected to grow rapidly over the next five years, according to Pike Research, increasing from $7.5 billion globally in 2010 to $41.4 billion by 2015.

Network equipment for the data center market overall was estimated to have grown 67 percent in 2010 over 2009 levels with $7.6 billion worldwide, according to Infonetics Research, which expects to see it reach $10.4 billion by 2014.

The worldwide data-center infrastructure market for power distribution units (PDUs), uninterruptible power supplies (UPS), cooling and racks made a significant rebound in the second quarter of 2010 with revenues and shipments expanding 6.9% and 3.6%, respectively, over the first quarter of 2010. According to the latest Worldwide Quarterly Datacenter Infrastructure QView from International Data Corp. (IDC), Framingham, Mass., data-center infrastructure revenues fought back losses and were down just 1.8% while shipments were up 2.6% year over year.

GE and Legrand are hardly the only ones to notice the opportunity in data center growth. IDC noted that Schneider Electric's APC unit holds a leading share of the data center PDU market and Eaton Corp. has the leading share of the data center UPS market.