Lipman Electronic Engineering Ltd (LPMA) (LPMA)

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Thu: Lipman’s tuition

A foreign acquisition is one of the hardest things an Israeli company can do, but Lipman has learned valuable lessons from its Dione experience.

Shlomo Greenberg 9 Feb 06 17:31

Lipman Electronic Engineering (Nasdaq: LPMA; TASE: LPMA) made a about-face in the fourth quarter of 2005. Those who remember what I wrote about the company at the time of its big third-quarter plunge will undoubtedly reach the same conclusion that I have -- the company’s management is good. For that reason, Lipman should be part of every wise investor’s portfolio. Its current price of $26 is definitely a price for a long-term investment. The share fell last September, following a poor quarter, preceded by a profit warning. The reason was problems created by the acquisition of British company Dione. I said at the time that acquiring an overseas company was the aspiration of every Israeli industrialist. It’s also right strategically and business-wise, if the company has something to sell.
There’s no doubt that Lipman, like other companies, performed due diligence and other measures. Anyone who has ever taken part in the acquisition of a foreign company, however, is well aware that no examination or due diligence can discover everything. What’s even worse is that, even assuming that all the cards are being laid face up on the table, the problem of mental adjustment only begins at that point. Israelis don’t mentally suit anybody, so acquiring a foreign company can be fantastic from every angle except one -- adjustment. I said that Israelis have special problems, and that’s the case. For example, every Israeli company has severe marketing problems. There are various reasons for this, but two of them are the most important. The first is that Israel doesn’t have many real marketing and sales experts. The second is that Israeli companies find it difficult to sell their products in many parts of the world because they’re Israeli.

”During the quarter we continued to address the issues in our Dione subsidiary,” Lipman president and CEO Isaac Angel said yesterday, when the company published its reports for the fourth quarter and full year. “We rationalized Dione's cost structure in order to bring it in line with Dione's goals for the coming year. We secured contracts for the sale of Dione products to customers in Mexico and Germany, countries in which Lipman did not have a presence.”

In my opinion, the acquisition of Dione was one of the best things that every happened to Lipman. True, it cost a lot, and pushed the company’s share down, but had Lipman not noticed the problems and learned from them, the damage would have been far greater. “Tuition” they would call it in the New York University International Business Area Ý Stern School of Business. Merrill Lynch was very satisfied, and wrote that Lipman had easily beaten its forecasts.

There’s no doubt that Lipman is starting out 2006 stronger, more experienced, and with enough money to make more acquisitions, should it encounter them. Keep in mind that, after the problems with Dione, the next acquisitions will be easier and cleaner to make. Who knows? This just might prove to be a homegrown Israeli multinational company. Angel certainly shows signs of ability. As far as value is concerned, according to the analysts’ consensus, at $26, Lipman is being traded at a historical p/e ratio of 20, and one of 18 for 2006. I believe that Lipman will beat the consensus, so I think the current price is very economical.

http://www.globes.co.il/serveen/globes/docview.asp?did=1000060040

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