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Halma, Crowcon Detection Instruments, & HLMA Process Safety Sector

Former Director at Crowcon Detection Instruments, a Halma Company

Halma PLC

Why is this company interesting?

Halma is a UK-listed serial acquirer of niche highly engineered industrial or medical products that dominate their respective small markets.The company was founded by David Barber who pioneered the model of rolling up and integrating industrial businesses that have strong market power and durable earnings. Barber’s philosophy, which still underpins Halma’s culture today, is best explained in this short speech.

Today, Halma is structured into three sectors with 50 operating companies: Safety, Medical, and Environmental and Analysis. Each sector has ~20%+ net margin and the group aims for 16% growth in profit before tax every year, half from organic growth and half driven by acquisitions. Halma aims to acquire 15-20 profitable, high quality companies each year and between 2003-13 the company paid on average ~8x EBIT.

The 20-year FCF CAGR is 15% and the 33-year dividend per share CAGR is 5%. This has led Halma to become one of the top performing UK businesses over the last 40 years.

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Executive Bio

Phil Saxton

Former Director at Crowcon Detection Instruments, a Halma Company

Phil has over 25 years experience in the gas hazard and detection industry and enjoyed over 15 years at Crowcon Detections Instruments, a Halma operating company in the Process Safety sector. Phil spent over 10 years running Sales for the UK before opening and running Crowcon's US division. He joined Draeger, a Crowcon competitor for 5 years before returning to Crowcon just as Halma was moving to sector-based teams.Read more

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Interview Transcript

Disclaimer: This interview is for informational purposes only and should not be relied upon as a basis for investment decisions. In Practise is an independent publisher and all opinions expressed by guests are solely their own opinions and do not reflect the opinion of In Practise.

Can you describe the history of Crowcon?

Crowcon was started as a gas detection manufacturer. A guy called Bob Conway, who was involved with a larger more established gas detection company, decided he could do a better job himself, and set up in his garage in a back street in Oxford making gas detectors. The business started to grow and, by the time the company had reached four or five people, Halma became interested and bought the company from Bob Conway. They relocated the business to a modern business park in Abingdon and pumped money and resources into the company which grew very quickly until quite recently.

Why did Bob sell it to Halma?

It was a generous offer and a good opportunity for him at the time to retire. He wasn't in his first flush of youth by the time Halma came calling, so it was a good opportunity for him to move on.

How do Halma find these companies? If it was only four or five people, very niche, and they had no previous exposure to the gas detection business, what was the story behind Bob meeting Halma or Halma finding Bob?

Halma has an active acquisitions organization and the core business is a small organization. It owns a lot of “independent” companies, but the Halma organization itself is a business predicated upon finding and acquiring new businesses, then helping them get over the first developmental hump of becoming a bigger business. They employ several people to find these businesses across the whole sector. They operate in different divisions but the business is predicated on unique technology, if possible.

What made them so interested in Crowcon and Bob's products?

At the time, gas detection was a developing technology. Historically, people had used things like Davy Lamps and canaries to detect gases, and the electronic detection of gases only started in the mid-70s. The development of electrochemical gas detection sensors started a change in the overall marketplace and it meant more gases could be detected. That is what would have interested them. There were relatively few players in the market, of which Crowcon was a minor player with a lot of potential, which is exactly what Halma looks for.

Crowcon was the first time they moved specifically into gas detection, David Barber was running the company then and it seems like a risky but intelligent way for Halma to enter a new adjacent end market?

There is a risk element to it and sometimes it works, sometimes it doesn't. If you look at the history of Halma with gas sensing rather than gas detection, I draw a distinction between doing gas analysis or measurement and what Crowcon is primarily involved with which is gas safety; in other words, providing an alarm to a gas hazard. Halma has had at least three other gas detection gas safety gas analysis companies in its portfolio through its history since acquiring Crowcon, all of which it has ultimately ended up folding into Crowcon because they were not successful on their own. The potential for the growth never materialized, but at the point of acquisition, they looked on paper as though potentially it could have done.

Did they fold those acquisitions into the Crowcon brand and integrate their product portfolio with Crowcon?

Yes; the first acquisition they took after Crowcon was Detection Instruments, which was immediately merged into Crowcon because they were synergistic. Crowcon was primarily dealing with portable gas detection and relatively small fixed systems – detection instruments wise – dealing with the larger more complex fixed gas fire and gas shut down systems. The two were in the same business area without being competitors in the same field. Bringing the two together made a lot of sense, but within the company when they were merged, the Detection Instruments business was much harder to create the growth Halma looks for. The majority of the overall portfolio of Crowcon Detection Instruments was small to medium sized systems and portables, and the very top end complex stuff started to disappear.

Did they spin those out and sell those assets or keep them in the portfolio?

They kept them as part of the portfolio. The development money spent and the projects that were developed, within Crowcon, to move forward, simply neglected that area. These are areas where you need very high integrity adhering to SIL2 regulations, primarily aimed at the oil and gas industry which has a very demanding requirement for safety integrity. That part of the market is price competitive, particularly the initial project development.

When you win a project, the price margin point can be quite low. The business model that people follow tends to be that they would take a contract at an initially low margin, but the additional pieces, which inevitably come from a project like that, are where they make their money. There are organizations which are better structured to do that than Crowcon would be able to under Halma, who are very demanding of the margin point at the original point of sale. They are not as comfortable making up the difference speculatively as they go through the project. That part did not fit with the Halma model and was allowed to die naturally within Crowcon.

Which is seen as a failed acquisition by Halma, in hindsight?

Yes, it is. Halma look to acquire businesses where they can invest time, money and expertise and grow the business rapidly; their aim is more than 10% annual profit growth. If you find the right technology with the right markets, you can do that, but if you get it wrong, obviously it is much harder. That example of Detection Instruments within Crowcon would be one of Halma getting it wrong. There was never the potential to make that kind of growth.

Could you describe the portable gas detectors which Crowcon offer?

Portable gas detectors typically come in two formats. They are either what we would call a single gas detector, which is a device which is worn and will detect a single type of gas. That might be an explosive gas like methane, hydrogen sulfide – which is toxic – or oxygen or a multitude of other variants. The point being that it is a single sensor device. Then there are multi-sensor devices, in which a combination of sensors are put together. The most common of those is a device which has flammable gas, oxygen, hydrogen sulfide and carbon monoxide sensors. They are colloquially known in the industry as a 4-gas, and are the staple device for use in confined space entry and underground working. That device is an industry standard combination.

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Halma, Crowcon Detection Instruments, & HLMA Process Safety Sector

December 16, 2021

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