National Instruments, a maker of hardware and software used in telecommunications, smart vehicles, medical devices, and other industries, is stockpiling cash and restructuring its leadership team as it looks to the possibility of buying smaller competitors to fuel growth.
National Instruments is Austin’s largest publicly traded company as measured by market capitalization. Its headquarters in Austin, located off Mopac, focuses on research and development, while most manufacturing takes place at a plant in Debrecen, Hungary.
The company’s free cash flow has grown every year since 2015, rising from $128 million that year to $194 million in 2017, according to the company’s annual financial reports. The trend accelerated in 2018 with $160 million in free cash flow over the first three quarters, half of it during the third quarter alone. By October, the company had racked up nearly a half billion dollars in cash and short-term investments, with no debt.
“We’re really happy with our cash position right now. $482 million is a great place to be,” said Chief Financial Officer Karen Rapp on a recent investor conference call. Not since 2014, ahead of a $108 million deal for French company Micropress, had NI built up such a large reserve.
‘By October, the company had racked up nearly a half billion dollars in cash and short-term investments.’
CEO Alexander Davern, speaking on the same call, highlighted “the use of M&A” – mergers and acquisitions – “as a strategy accelerator.” Since October, Davern has handed over some day-to-day management responsibilities to a new Chief Operating Officer, Eric Starkloff, to enable the CEO to focus on broad-strokes strategy, including prospective acquisitions.
Starkloff’s appointment “allows Alex Davern, who has served as CEO since January 2017, to focus on the long-term strategic direction of the company to drive accelerated growth both organically and inorganically,” according to an October 25 press release. “Driving accelerated growth – both organically and inorganically – will require increased strategic focus,” Davern commented.
National Instruments has not named any specific prospects for acquisition, but the CEO did hint at areas where it would like to see further growth: “We have an aspiration and an ambition to be the leader in software-defined automated test, automated measurement systems [and] that implies scale.”
Davern added, “Certainly, we value organic growth incredibly highly. That is our primary strategy. But as we focused our strategy [and increased profitability], it’s given us much more of an opportunity to consider tuck-in acquisitions or others as a way to accelerate our achievement of that strategy.”
“Tuck-in acquisitions” refers to relatively small deals like the $108 million takeover of Micropress in 2015, while the reference to “other” acquisitions hints at the possibility of a larger, more transformative merger or takeover deal that could involve raising additional capital from debt markets.
Davern did not respond directly to a question from an investor analyst about which kind of deal he would prefer, but he did refer negatively to some smaller deals that the company had made in the past. National Instruments’ press relations team declined to elaborate further.
The company’s Austin headquarters has recently advertised a vacancy for a “Strategy Associate” whose functions include studying “competitors and partners” and “providing recommendations to support investment portfolio decisions.”
NI’s fourth quarter earnings release is expected on January 28th.
