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Taking the heat out of the market?

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David Robson talks to Flir about its future, following the recent acquisition of Cedip Infrared Systems

Given Flir Systems’ history of pro-active acquisitions, the purchase of Cedip Infrared Systems – possibly one of its biggest competitors in the thermal imaging market – should have caused little surprise to market experts, yet the decision still created a distinct stir at last year’s Vision Show in Stuttgart shortly after the announcement.

This may simply be because of the enormity of the move: the combination of two of the largest thermal imaging suppliers has radically changed the landscape of the market; there is also a certain amount of trepidation about where the company will head next.

The benefits of the move, which has so far taken the form of a 67.8 per cent majority shareholding, are in common with all of Flir’s recent acquisitions.

It has expanded its product portfolio (this time in the direction of scientific instrumentation); it has expanded Flir’s research and development facilities; and it improves the company’s global reach with a new base for manufacturing and distribution (this time in central Europe, with Cedip’s headquarters based in France).

‘We will use Cedip (to be renamed under the Flir banner) as a centre of excellence for science and R&D products,’ says Arne Almerfors of Flir. ‘Customers will benefit from a broadened range of products, and with our joint forces we will be better equipped to tailor our products to customer demands.’

But this is just the latest in a rapid series of acquisitions over the past 10 years in Flir’s 30-year history. The path was initially a defensive tactic to stave off approaching competition from military suppliers who hoped to penetrate the commercial and industrial thermal sectors, but it is now allowing the company to aggressively penetrate new application areas and geographical markets that would otherwise require a much slower, steady growth.

 

One of the biggest applications of Flir’s thermal imaging systems is finding areas of heat loss in buildings.

When it was founded in 1978 in Portland, Oregon, USA, the company specialised in highperformance infrared imaging systems for airborne applications, and towards the late ’80s the company began to use its expertise to provide commercial equipment. However, it would not be until the acquisition of the Swedish company Agema in 1997, and the acquisition of Boston-based Inframetrics in 1999, that Flir would transform into a company that has become synonymous with ‘forward looking infrared systems’, from which the company originally took its name.

Each entity brought its own area of specialised expertise to Flir, with Agema providing hand-held, portable thermal imaging equipment. Almerfors describes the acquisition of Inframetrics as a ‘consolidation’ that provided a broad portfolio for both commercial and government applications.

‘We saw defence companies moving into commercial industries, and we wanted to join forces and strengthen ourselves against them,’ explains Almerfors. ‘We were in full agreement about our growth, in order to have a more focused activity in these markets. We still use the same concept as when we first joined forces, by first seeing where to allocate the strength of the different entities and to grow from there.’

Since then, there has been a string of acquisitions to provide further consolidation and market penetration. In 2004 the company acquired Indigo Systems, an IR detector manufacturer based in Santa Barbara, California, that has contributed technology to Flir’s commercial and industrial systems. ‘At that time we were the biggest customer for IR detectors in the world. The acquisition allowed us to benefit from control over their development and the production costs,’ explains Almerfors. Further acquisitions included a laser manufacturer, a supplier of industrial test and measurement equipment, and finally Cedip Infrared Systems.

 

Flir’s facilities in Stockholm, Sweden.

There are now three divisions under the Flir umbrella, and roughly speaking each of these corresponds to one of the initial companies. The Government Systems division, which covers from the old Flir; the Thermography division, which covers predictive maintenance, science R&D and manufacturing, has grown from Agema; and Commercial Vision Systems division, which produces vehicle vision systems and security products, stems from Indigo.

To create a united front from so many different components has not always been easy, as Almerfors explains: ‘When we acquired Inframetrics in 1999, the integration of its products and people into Flir didn’t go as smoothly as we wanted. The revenue didn’t grow relative to all the staff we had acquired in the acquisition.’ This ultimately resulted in a change of management in 2000 and a cut in the workforce, but the company has reportedly experienced smooth growth ever since.

And while the divisions do share resources, particularly new R&D, and technology, they are still distinct entities. ‘We shouldn’t over-emphasise the similarities – they penetrate three very different market sectors,’ says Almerfors.

 

Flir’s products are used extensively in manufacturing.

According to Almerfors, Flir’s biggest market is preventative maintenance, where the thermal cameras are used to find electrical faults, and also in building maintenance to find sources of heat loss in buildings. However, a quick look at the applications section of Flir’s website demonstrates that its products are also used in manufacturing, law enforcement, security and petrochemical production, and, following the acquisition of Cedip, scientific research and development.

For the future, Flir hopes to penetrate new market sectors not traditionally associated with thermal imaging. Says Almerfors: ‘We are looking intensely at the medical market at the moment. There is the possibility that it could be used as a complementary tool to mammography for breast cancer. We are looking into different ways of approaching this, which could involve strong cooperation from a medical team.’ It is also hoped that the technology could be used to detect chronic pain, which would be reflected in a temperature pattern across the body.

Flir is also looking at developing products specifically for food safety inspection, to check that foods are stored at the correct temperature. A thermographic image would provide much more information than strategically-placed thermometers, but it may take three to five years for the prices to become affordable for widespread adoption.

It seems the success of Flir is due to a combination of trustworthy, easy-to-use products, and a ‘work global, think local’ philosophy that has helped the company to stay close to the people using its products, no matter where they are located.

‘Our products are more user-friendly. The design is easier to use and we provide better software, with 21 languages on the camera menus. ‘We also have infrared training centres to support our products – last year we trained 7,700 students around the world. We also have technical support services in several countries where we have our own subsidiaries. We have built up a trust in our products, and we are positioned on the world map in a way that none of our competitors are close to.’

To implement this global philosophy, the company establishes subsidiaries in regions of substantial growth so that it can remain close to its customers. ‘When we can see the market size potential that justifies an entrance we will set up a subsidiary, as it makes it easier to build distribution in these areas,’ says Almerfors.

Recently, the areas of biggest growth have been Asia and Latin America, and Flir established subsidiaries in Brazil in 2006 and China in 2007.

It seems further growth, and more worldwide sales bases, are likely to be concentrated in these regions.  This only partly answers the question of which direction Flir will head in the future following its acquisition of Cedip. It seems likely this will include further acquisitions (possibly in the medical sector), although the broader strategy for growth is known by no-one outside of Flir. The fact that there will be further growth into currently unexplored territories, however, seems unquestionable.