A 109-year-old Minnesota company that once made heaters for Twin Cities streetcars will soon be acquired for its hot-performing products in the global solar energy industry.
Illinois Tool Works, a publicly held industrial manufacturer, is expected to officially announce Monday that it will acquire Despatch Industries of Lakeville, a manufacturer of high-tech ovens used for making solar cells. Most of Despatch's ovens are bought by companies in China and Europe.
Privately held Despatch, which has annual sales of about $200 million, has caught fire since 2007 thanks largely to fast-growing solar-cell manufacturing markets. Despatch has more than doubled its Minnesota employment to 400 over the last three years.
Terms of the deal are not expected to be disclosed. Illinois Tool Works had 2010 revenue of $15.9 billion and earnings of $1.5 billion.
In an interview Friday, Despatch CEO Patrick Peyton said Despatch is Illinois Tool's entryway to the "clean tech" arena and that Despatch will be the foundation for what's expected to be a $1 billion company within several years through organic growth and otherwise.
Despatch was born in northeast Minneapolis in 1902 as a maker of heaters for Twin City Lines streetcars, evolving to a maker of thermal ovens for the manufacture of semiconductors.
"They want to bolt on additional acquisitions and grow us and leverage our brand and market space," Peyton said. "Despatch's strong market presence and proven technology, coupled with ITW's global breadth and [financial] strength, will facilitate expansion of technology advancements and next-generation tools."
As recently as 2003, Despatch was struggling with layoffs and revenue dipping below $75 million. In the aftermath of the technology-company bust in 2001-02, Despatch was selling fewer high-test curing ovens to the pharmaceutical and semiconductor industries. The company had sold its flagship northeast Minneapolis plant and shuttered a California plant in order to consolidate in the newer, larger Lakeville facility.
Peyton and his engineers saw the solar industry beginning to take off in Europe and China, which is the global leader in the manufacture of photovoltaic cells for domestic consumption and export.
Despatch exports about 75 percent of its products. The company also makes ovens for the carbon-fiber industry, which makes lightweight, super-strong skins for the aviation and auto industries. The design, engineering and manufacturing is done in Minnesota to protect Despatch's intellectual property. Peyton also has credited Despatch's manufacturing workers with producing the highest-quality ovens in the world.
The company has sold several hundred solar-cell thermal ovens at prices that can top $1 million apiece to Chinese, European and American customers.
The deal with Illinois Tool Works closed Friday afternoon, and Peyton addressed his employees shortly thereafter.
ITW is expected to officially announce the acquisition just before its quarterly earnings release Monday morning.
"We are excited about this acquisition [because Despatch's] core thermal technology aligns well with certain of our other existing electronics equipment businesses," Steve Martindale, an ITW executive vice president, said in a statement. "As a leader in thermal processing, Despatch provides us with immediate access to attractive and high growth industries such as solar and carbon fiber as well as the opportunity to extend sales of certain of our existing products into these new markets."
Despatch was acquired in 2007 from its founding family by a partnership led by insurance broker Jim Hays, CEO of Hays Cos., and Peyton. The pair own the majority of Despatch's shares. Peyton and his management team plan to remain in place.
This is the second time in recent months that ITW has made headlines in Minnesota. In April, Illinois Tool announced that it was selling its industrial coatings business for $650 million to Graco Inc., the Minneapolis-based maker of pumps and spraying equipment.
Analysts polled by Thomson Financial expect ITW to earn about $3.95 per share this year on revenue of about $16.5 billion. Its stock closed Friday at $56.97, up a penny.
Neal St. Anthony • 612-673-7144