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Textron Inc. acquires Montreal-based SIM firm Mechtronix

Nov. 25, 2013, Montreal - A remarkable Montreal business success story passed into U.S. hands Friday when Textron Inc. acquired Mechtronix Inc., a Saint-Laurent maker of flight simulators and pilot training services.


November 25, 2013
By The Montreal Gazette

Textron, which also owns Bell
Helicopter Textron Canada’s Mirabel plant, bought the firm founded in
1987 and which employs an estimated 220 people in Montreal in civil
aircraft simulation and training. At last count, it employed another 130
people in Toulouse, France and China.

 

The
Textron acquisition includes another flight simulation firm, OPINICUS
Corp, located in Lutz, Fla., which is focused more on military aircraft
simulation.

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Textron spokesperson David
Sylvestre said from headquarters in Providence, R.I., that combined with
Textron’s own military simulation division, the new entity would rack
up annual sales of over $100 million U.S.

 

He
wouldn’t say how much Textron paid for either firm, but analyst Benoit
Poirier of Montreal brokerage Desjardins Securities in a note to clients
pegged the deal at “less than $125 million U.S. for both companies.”

 

Sylvestre
would not segment out the purchase price for each, but noted that
Mechtronix is “significantly bigger. But I can’t give you the totals.”
He added that he doesn’t expect to cut staff in Montreal or ask
employees to relocate “at this time.”

 

“Right now, there’s an excellent team in Montreal and that’s where we’re going to operate the business.”

 

None
of the five top executives of Mechtronix, including four co-founders,
returned calls Friday.

 

Longtime president Xavier Hervé, who left the
company in 2011, declined to comment.

 

The new
Textron entity regrouping the three firms will have about 300 employees,
said Sylvestre, who expects the deal to be approved by regulators by
year’s end.

 

“Textron has many, many locations
all around the world with 33,000 employees. So we’re very accustomed to
operating businesses that have numerous locations within the same
business. So at this time, there’s no thought to changing the locations
of OPINICUS or Mechtronix.”

 

“It’s more of a branding consolidation … so no, there’s no thought to moving that out of Montreal.”

 

“In
the high-tech industry, when you make an acquisition, for the most
part, what you’re really buying is the talent of those individuals —
extremely knowledgeable people in a highly specialized industry. So we
have to be very conscious of keeping them and that’s our intention.”

 

“We intend to grow the business in North America and internationally.”

 

Sylvestre
said the management team is staying in place, including co-founders
Fernando Petruzziello — the CEO — Joaquim Frazao, Thom Allen and Marco
Petruzziello. But he could not specify the duration of their contracts.

 

Mechtronix
grew out of a project by five engineering students at Concordia
University who decided in 1987 to pursue business opportunities in the
simulation and training field.

 

Nathalie
Bourque, spokesperson for CAE Inc., a neighbour of Mechtronix on
Côte-de-Liesse Blvd. in Saint-Laurent and a staunch rival, conceded that
competition “will go up a notch.”

 

But she noted that CAE is already having its best year ever, with 33 simulators sold so far, climbing to 40 by year’s end.

 

Bourque also said that this is not the first time a huge aviation company buys a CAE competitor.

 

“We
went through this when Lockheed Martin bought Sim Industries, and to
date, we still have very good results. I believe Mechtronix sold
(simulators) in the very low single digits this year.”

 

“Like
all competition, we’re taking this seriously, but we think we have a
good track record. We’ve been in our market for 65 years and we have a
75-per-cent market share (of full flight simulators). We have long-term
relationships with our clients — 20 years with Emirates (Airlines),
we’ve had centres in India since 1971. These relationships are worth a
lot of goodwill.”

 

A large investor, Winnipeg’s
Richardson Capital Ltd., which pumped $39 million into Mechtronix in
2008, considered it “the Apple to CAE’s IBM.” President David Brown did
not return calls seeking comments.

 

The analogy,
however, is faulty: unlike IBM’s computer market share, CAE is the
worldwide leader in the flight simulation market for the civil market.
It’s also a leading pilot-training firm with centres around the world.

 

Still,
Mechtronix’s success has been exceptional, starting with a workshop
that produced primitive training devices and catering to lower-tier
airlines. It expanded its reach gradually, to the point where much of
its technology is now considered on par with that of CAE, a venerable
firm that dates from post-Second World War.

 

In
October 2010, Mechtronix received $18.6 million in federal loans for a
$60-million program to develop a next-generation system.

 

Hervé told The Gazette in 2005 that “it’s inevitable” that CAE and his firm would eventually become direct competitors.

 

Poirier
said that he expects “CAE to be under pressure today as a result of
this announcement. At first glance, we view this … as negative for CAE
as the competitive landscape in the civil market becomes more
challenging with ongoing industry consolidation (L-3 buying Thales,
Lockheed buying Sim Industries, Rockwell Collins buying NLX and now
Textron buying Mechtronix and OPINICUS).”

 

“Although
CAE has been successful so far, we believe some investors will question
its ability to maintain its 75-per-cent market share target … without
penalizing margins over the long term as we understand Mechtronix can
produce (high technology simulators) at a low cost.”

 

“On
the positive side, … CAE is still an attractive takeover target,
although it is difficult to predict whether a transaction is likely.”