H₂ Fuel Systems Firm Acquires Design and Assembly Company

23 November 2004

Quantum Fuel Systems Technologies, a provider of  hydrogen fuel systems and storage for both ICE and fuel cell vehicles, is acquiring Starcraft Corporation in a stock-for-stock deal valued at approximately $185 million. (Earlier posts on Quantum here and here.)

Starcraft is an interesting acquisition for Quantum. Starcraft is a supplier of after-market parts (wheel and tire assemblies, that sort of thing), but, through its Tecstar subsidiary, it is also a second-stage engineering design and integration firm.  As a result of its work creating specialty cars and enhancing conventional models, the company has engineering capabilities focused on powertrain projects and complete vehicle concepts, such as high-performance and racing engines for cars, boats and motorcycles, and complete race cars.

By picking up Starcraft, Quantum now has expanded resources for vehicle system design, powertrain engineering, systems integration, validation, and second stage manufacturing and assembly for its future alternative fuel and fuel cell vehicle programs.

Merging the two companies will allow the combined company to expand its current OEM capabilities while positioning itself as a major player in the early stage development and production of fuel cell vehicles. The Starcraft product portfolio coupled with its service and assembly capabilities will position Quantum as a specialty vehicle designer, integrator and assembler for low-volume programs with the military and growing OEM customer base.

—Alan Niedzwiecki, Quantum’s CEO

The market didn’t seem to like the announced deal all that much—Quantum stock dropped 11% on the news. Mergers usually are very tricky in the best of circumstances. Companies tend to become inwardly focused on their structures and plans and working out the details rather than steadfastly focusing outward on their customers and the market. (Been there, done that.) Mergers in which a company tries to move outside of its core area of competence are doubly risky.

That said, if this works, (as in, viable company, good products, growing revenue) it will give the development of hydrogen ICE and fuel cell vehicles a boost. It won’t hurt to have another strong designer and low-volume assembler focused on alternative platforms.  The question Quantum will have to answer to its shareholders over time, though, is whether or not it would have been better to acquire that capability another way.