Denmark’s robotics cluster in Odense set to attract further international investments, M&A

17 August 2020 - 03:48 pm UTC


  • OnRobot seen as attractive target
  • Teradyne, Robotiq among consolidators
  • COVID-19 a short-term blip in M&A

In little more than a decade, the Odense robotics cluster has become one of the world’s leading clusters for robotics technology, especially with collaborative robots (cobots) attracting large investments from global industrial giants, a trend that is likely to continue in coming years, according to industry sources.
 
“We have only seen the beginning of what I believe will be a new industrial fairytale,” Soren Stig, CEO at Lifeline Robotics, said.
 
The Odense robotics industry is “incredibly exciting” and there will be more M&A to come, a private equity (PE) executive added.
 
Lars Frelle-Petersen, director at the Confederation of Danish Industry’s digitalisation unit pointed to the substantial interest the Odense robotics cluster generates among international investors. It has particularly attracted investors from the US, China, Germany and Japan, an M&A lawyer familiar with the space added.
 
Among them is US-based Teradyne , which completed the acquisitions of Odense-based robotics companies Universal Robots (UR) in 2015 for a cash consideration of EUR 254.3m, and Mobile Industrial Robots (MIR) in 2018 for EUR 222m.
 
Teradyne CEO Mark Jagiela told this news service in February that the company was still pursuing targets to acquire within industrial automation, including cobots, globally, including in Denmark. For Teradyne's dealmaking activity, click here. 
 
The cobots segment, where Danish companies have clearly been in the lead, is moving from start-ups to global businesses and even if it is still early in the game, the potential is significant, Jagiela told Mergermarket for this report. “Thus, I expect there will be more focus on and, probably, more consolidation, in Denmark,” he said, pointing to Odense as the focal point for M&A in years to come. The competition for the best assets in the cluster means Teradyne “just has to move faster than anybody else to stay ahead”, he added.
 
The investment activity in the Odense robotics scene has also created a whole new environment for further M&A, as sellers have become investors themselves, investing in new start-ups in the cluster, Stig and Thomas Visti, former CEO at MIR, said. For instance, Lifeline Robotics, which developed the world’s first COVID-19 automatic swab robot in just four weeks, is partly held by ReInvest Robotics, which is owned by UR co-founder Esben Hallundbak Ostergaard.
 
Hybsch Connect, the family fund of MIR founder Niels Jul Jacobsen, is also an active investor in robotics start-ups, having invested in Kobots, which has developed a voice-controlled robot to cut building materials onsite, as reported.
 
In August 2018, OnRobot, a producer of end-of-arm tooling for cobots, received an investment from US-based growth equity fund Summit Partners, and subsequently acquired Purple Robotics, a dual vacuum gripper start-up. OnRobot was founded in 2015 and had merged with US-based Perception and OpToForce in Hungary earlier in 2018, as reported.
 
“An ecosystem has emerged in Odense, where capital generated from exits is being invested in new companies. This attracts further capital and research. It is a fine symbiosis,” Stig said.
 
Access to capital has changed visibly. In the early years of the Odense robotics cluster, many companies had a hard time raising capital or even getting a small bank loan. “But today, as soon as you mention robots, investors – both local and international - are lining up,” Visti said, adding the number of players in Odense will continue to increase in the next few years. On 1 August, Visti stepped down as CEO of MIR to open VISTI UNLIMITED, an office community for innovative entrepreneurs and business owners.
 
The large transactions of UR and MIR have also helped bring attention to the cluster globally while creating a lot of optimism among cobot start-ups in Odense. “They think global from the onset, they are ahead of the curve,” Visti said.
“When you have this kind of success, it attracts new companies to enter the market,” Jurgen von Hollen, president at UR, said.
 
Strategic vs PE
Consolidation is ripe in the cobots segment and Teradyne is far from being alone in the pursuit of targets in the industry.
 
Canada-based Robotiq and US-based Soft Robotics could also consider acquisitions as they look to expand their technology capabilities, as reported. Local player OnRobot is also pursuing targets to acquire, but where it was previously looking to grow through M&A, it has now changed its strategy to focus more on self-growth and less on M&A, mainly due to the high price tags on many robotics companies, as reported.
 
OnRobot, backed by the Danish state’s investment arm Vaekstfonden and US-based growth equity firm Summit Partners among others, could, however, also be a target itself. “OnRobot is certainly an interesting company. It could be a very good candidate for a major transaction in the future,” Jakob Kristensen, head of M&A Corporate at Danish law firm Bech-Bruun said. 
 
OnRobot CEO Enrico Krogh Iversen conceded OnRobot, like any other company in the space, "could be a takeover candidate", but added there were no concrete plans in place to sell the business. "There is still way too much work to do to ensure the company reaches the global position and strength we wish,” he said.
 
Strategic players, both within the robotics industry but also other manufacturing industries, from large industrial nations such as Germany, France, the US, China, Japan and South Korea, are the most obvious bidders, Kristensen said. Such trade buyers are often in a better position to roll out the product globally, faster, and together with other products, he added.
 
Traditional PE firms, however, tend to have less appetite for such businesses, though growth and niche funds may be in the mix, he said. This is due to the relatively high multiples where robotics companies trade, he said. MIR, for example, was traded at a revenue multiple of 21.3x, according to Mergermarket data.
 
“Traditional PEs are probably less likely to pay multiples of such level,” Kristensen said. These high multiples are linked to the substantial growth expectations in the sector and often a company will have a much higher value potential than may be reflected in its current performance, he added.
 
The PE executive agreed that strategic players, and possibly growth and niche venture funds, are more likely buyers in the cobots sector due to the high multiples being paid for companies that often have little earnings yet, if any. However, more mature companies in the sector with a proven business case could easily be a target for a PE at some stage, he added. 
 
Large potential further boosted by COVID-19
Although the COVID-19 pandemic is likely to affect the robotics industry in the short-term, it will not be enough to stop its growth and may even present new opportunities.
 
“COVID-19 may work as a driver for the industry and support the potential on the other side,” a second M&A lawyer familiar with the industry said. He underlined robots’ ability to work around the clock, provide stable work and help people keep a distance.
 
“We will see robots in a long series of industries in the future,” Stig said. The Odense cluster is well positioned to benefit from this trend, he said, while the coronavirus crisis may help gain more insight into the benefits of robots and lead to companies taking on new technology in the future.
 
“Today, it is primarily the manufacturing industry using robots, but other sectors such as construction, transport, and healthcare hold enormous potential, not just from a Danish point of view, but global too,” Frelle-Petersen said.
Lifeline Robotics’ newly developed COVID-19 swab robot is an example of how cobots can be applied in healthcare, taking manual, repetitive work away from healthcare workers while also protecting them by preventing the spread of the virus. Once fully commercialised, the COVID-19 automatic swab robot can be applied in various locations such as hospitals, clinics and airports, as reported.
 
Blue Ocean Robotics is another Odense-based robotics technology company that has benefitted from COVID-19. Its subsidiary UVD Robots has seen surging demand for its mobile disinfectant robots, as reported. This summer, Blue Ocean Robotics raised EUR 16.4m in funding, as reported.
 
COVID-19 may put M&A on hold in the short term, but overall, the industry is not affected because there is a very strong underlying growth trend, the PE executive said. “Short term, we may see growth rates drop to perhaps 20% instead of 30%, but it is only for a short period,” he added.
 
Automatisation and high wage costs are among the factors supporting the trend for more robots, Kristensen said. The past decades have seen high-wage countries outsource production to low-cost countries such as China. However, many low-cost countries are now seeing wages increase and for them to stay competitive, automatisation is necessary. The same applies for high-wage countries, eager to bring home production in what has become a more uncertain business and trade environment, he said.
 
“In countries such as Denmark, where wages are very high, robots can be an attractive solution to stay competitive and help keep production in the home market,” Frelle-Petersen added.
 
The Odense robotics cluster saw its beginnings in the 1980s when The University of Southern Denmark (SDU) entered a cooperation with AP Moller-Maersk’s Lindo shipyard in Odense to develop a robotic control system for complex welding tasks. Today, SDU has more than 15 Bachelor and Master of Science Programmes in Advanced Robotics.
 
Odense is home to more than 130 robotics companies and has roughly 4,000 employees.
 
“There are very few places in the world that have that kind of unique availability of talent in robotics,” Jagiela said, adding Odense is a source of talent and ideas for Teradyne.
 
Denmark’s robotics industry, primarily cobots, has annual turnover of DKK 18bn (EUR 2.35bn), expected to rise to DKK 25bn-30bn by 2025, with approximately 60% exports. In the period 2014-2018, Denmark’s exports of industrial robots grew six-fold, making it the fastest growing robotics nation in the world, according to Robotics Alliance, the Danish national industry partnership organisation. The global market for cobots is expected to grow to approximately DKK 79bn in 2027, it added.
 
by Karin Jensen, with data by Olivier Gilkinet and Thorsten Louie Pedersen