AMETEK NYSE: AME said it has entered into a definitive agreement to acquire the Instrumentation group of businesses from Indicor, LLC, in a $5 billion cash transaction that management described as a highly strategic addition to its portfolio of niche industrial technology businesses.
Chairman and Chief Executive Officer David Zapico said on a conference call that the businesses being acquired generate approximately $1.1 billion in annual sales and bring “highly differentiated mission-critical solutions” across a range of niche markets. AMETEK referred to the acquired portfolio as Indicor throughout the call.
“This is a highly strategic acquisition and is a result of AMETEK’s disciplined approach to capital deployment,” Zapico said, calling it “a compelling and unique opportunity to acquire a portfolio of outstanding industrial technology businesses in one transaction.”
Deal Terms and Financing
AMETEK said the total cash consideration of $5 billion represents an approximate 14 times multiple of EBITDA. Zapico said the company expects to fund the deal through a combination of borrowings under AMETEK’s credit facility and new debt issuance.
At closing, AMETEK expects its debt-to-EBITDA ratio to be roughly 2.3 times. Executive Vice President and Chief Financial Officer Dalip Puri said the company expects to delever quickly, at a pace of about 0.2 to 0.3 of a turn each quarter, while maintaining capacity for additional acquisitions.
The transaction is subject to customary closing conditions and regulatory approvals. Zapico said AMETEK does not anticipate regulatory issues, though approvals are needed from government agencies around the world. The company expects the deal to close in the second half of the year.
Portfolio Fit and End-Market Exposure
Zapico said the Indicor businesses align closely with AMETEK’s existing Electronic Instruments Group and Electromechanical Group segments. He said roughly 80% of the acquired businesses will fall within EIG and about 20% within EMG.
The acquisition includes 10 separate businesses, which Zapico said will be integrated into AMETEK’s decentralized operating structure. He said AMETEK currently has about 40 profit-and-loss units and will add 10 more through the transaction, bringing the total to about 50. All 10 business leaders from the acquired portfolio have agreed to remain with AMETEK, he said.
Zapico cited several examples of product fit. Struers, described as the largest business in the acquired portfolio, focuses on material preparation before analysis and will complement AMETEK’s materials analysis operations. AMOT, which provides actuation systems and related process automation products, will be placed within AMETEK’s automation business in EMG. Zapico also said PAC is complementary to AMETEK’s Process and Analytical Instruments business in the energy market.
Other businesses discussed on the call included Technolog, which Zapico said derives significant revenue from critical infrastructure in the United Kingdom and benefits from U.K. government programs. He also said ADR had been acquired during Indicor’s period of private equity ownership, while Alphasense was believed to have been part of the existing portfolio.
Recurring Revenue and Growth Profile
AMETEK emphasized Indicor’s recurring revenue base, with approximately 50% of sales coming from proprietary aftermarket sales and services. Zapico said that recurring revenue profile is supported by strong intellectual property and embedded customer relationships and should help buffer the portfolio during weaker industrial cycles.
Asked about historical growth, Zapico said the Indicor businesses have grown in the 6% to 7% range in recent years, while AMETEK is using a more conservative 6% assumption in its model. He characterized the businesses as mid-single-digit growers, generally in a 5% to 7% range.
Zapico said the portfolio has grown well globally, including in China, and described its geographic exposure as balanced. He said the businesses benefit from several industrial themes, including energy transition and data center power.
Synergy Targets and Integration Plans
AMETEK expects annualized synergies of 10% to 12% of sales, which management said is consistent with its typical acquisition synergy levels. Zapico later clarified that this figure refers to cost synergies and said AMETEK expects to achieve that level by year three.
Zapico said AMETEK will apply its operating model to the Indicor businesses, including global sourcing, shared services and international infrastructure. He said there had not been much aggregation of spending across the acquired businesses, creating opportunities for AMETEK’s global sourcing organization. He also pointed to approximately 130 sales and service offices across the portfolio and said AMETEK expects to apply its existing model of shared international facilities.
“Integration is our secret sauce,” Zapico said, adding that AMETEK has identified opportunities to improve growth, profitability, cash flow and returns on capital through the integration.
He also said Indicor’s gross margins are greater than 50%, describing the portfolio as “a premium business with premium gross margins.” AMETEK expects the transaction to be accretive to cash earnings in the first year and to generate solid returns on capital.
Management Commentary on Strategy
Zapico said the acquisition was not of all of Indicor, but rather the businesses AMETEK viewed as the best strategic fit. He said the decision reflected AMETEK’s acquisition discipline.
In response to analyst questions about investment levels, Zapico said he expects post-closing needs around capital expenditures or research and development to be “pretty minor,” though he said AMETEK sees an opportunity to improve new product vitality. He said the acquired businesses’ New Product Vitality Index is “much lower” than AMETEK’s.
Zapico said the deal came together because Indicor’s owner, described by him as a premier private equity firm, knew AMETEK was a logical buyer. He said AMETEK had the management capability and balance sheet capacity to execute the transaction.
“When you combine the premier assets, the well-run businesses that we’re acquiring with our growth model, with the synergy capability that we have, it’s a financial home run,” Zapico said.
About AMETEK NYSE: AME
AMETEK, Inc is a global manufacturer of electronic instruments and electromechanical devices that serves a broad range of industries. Headquartered in Berwyn, Pennsylvania, the company designs and produces precision instruments, electronic measurement devices, specialty sensors, and electric motors and motion control systems. Its product portfolio includes analytical and monitoring instruments, calibration equipment, power supplies, embedded electronics, and industrial motors and drives used for critical applications.
The company operates through two primary business platforms — an electronic instruments group focused on analytical, test and measurement and sensor products, and an electromechanical group that supplies motors, actuators, and related power and motion solutions.
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