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On January 18th Intermec Technologies, a leading supplier of rugged mobile computers, bar code label printing solutions and other AIDC-centric technologies, announced its plans to acquire Vocollect, the leading supplier of voice-centric solutions for mobile workers in distribution and warehouse environments, for $190 million in cash. The deal is expected to close in Q1 2011.
Vocollect has established itself as the clear benchmark when it comes to voice solutions for mobile workers in warehouses and distribution centers. Its Talkman wearable computing appliance and associated software is considered best in class in the industry for a variety of warehouse operations such as high speed picking. In fact, VDC estimates that Vocollect's share of wearable computers used in warehouse environments at more than 50%.
Intermec, with its rugged handheld and forklift mounted computers, similarly has a strong position in the warehouse/DC segment. In fact, this market represents one of Intermec's four key target markets. VDC estimates Intermec's rugged handheld share in the warehouse market at approximately 17% and its forklift mounted computer share at 11%.
Why the Deal Makes Sense
One leading trend in the warehouse market has been towards a more multi-modal adoption of AIDC technologies. It is not linear barcodes vs. matrix symbologies. It is not voice technologies vs. RFID. Rather it is a mapping of specific workflows and identification of which technology best suits that process. I.e. pallet picking requirements are vastly different to those of case picking. In this scenario a combined Intermec and Vocollect - in addition to the voice optimized solutions we will likely see from Intermec in the future - make for a compelling proposition.
From a sales execution and business development perspective, Vocollect stands to benefit from Intermec's footprint and vice versa. While overlap exists, Intermec's warehouse position is strongest in the industrial sector whereas Vocollect has a strong foundation in CPG, retail and food/beverage. Moreover, one of Vocollect's more recent issues has been scaling the business - both regionally and from an industry and application perspective. Leveraging Intermec's growing partner network should facilitate that expansion.
Beyond core warehouse solutions, Vocollect's solution could be applied in a variety of Intermec's existing target markets, including Direct Store Delivery (DSD) and Intermec's existing AIT business with the DoD. Moreover, Vocollect's AccuNurse division may represent the avenue through which Intermec can more consistently pursue the healthcare segment. (Through the VA Intermec has some experience in the healthcare market. However, it is not currently considered one of their 'top four' target markets).
The greatest potential issue surrounding this transaction is perhaps the future direction of voice solutions in the warehouse segment. Although Vocollect's Talkman solution remains the best in class solution, its cost of adoption is high and end users have indicated increased demand for a decoupled solution whereby a voice client is ported onto a multi-mode computer (such as Intermec's CK3). Voice solution providers - including Vocollect - have responded to these requests (some even transitioned to a software only business model) and are partner with companies such as Intermec and its peers to offer voice capabilities on a variety of handheld and wearable computing devices used in the warehouse.
However, these multi-modal solutions have yet to be fully embraced and when presented the option, potential users frequently (if not almost entirely) opt for the purpose built solution. While Vocollect has been the primary beneficiary, the issue is that there remains a clear performance gap between purpose built solutions (such as the Talkman) and multi-modal solutions. For the voice market to scale beyond the 15-20% penetration experienced today a key success requirement will be a narrowing of that performance gap and the introduction of a more segmented solutions portfolio that better meet the needs of small, mid-sized and larger operations.
Another concern - as with any transaction of this scale - relates to Intermec's ability to integrate Vocollect while maintaining/leveraging its strong brand. Intermec appears content to operate Vocollect as a separate division in the near term with Joe Pajer - Vocollect's President and CEO - leading the Intermec Voice Solutions Business and reporting directly to Intermec President and CEO Patrick Byrne. Intermec has existing relationships with Vocollect competitors while Vocollect has similar relationships with Intermec competitors. These will get addressed to the extent they need to. What is more critical is the cross training required among Intermec's and Vocollects sales teams and their partners. One of the major hurdles for voice solutions is education and awareness among not only end users but also the broader AIDC system integrator and reseller community.
As the rugged mobile computing and AIDC markets continue to mature, consolidation is and will continue to be a consistent theme. This transaction in particular is interesting because it is largely complimentary and it directly addresses a number of key gaps/needs for Intermec, including:
1. Strengthening/expanding its position in the warehouse/DC market
2. Expanding its solutions portfolio for its partners - including the potential for voice optimized Intermec hardware
3. Driving innovation in other core Intermec market segments
4. Expanding Intermec's software solutions portfolio
Overall, this appears to be a mutually beneficial transaction for both organizations, its partners and customers.