Enerpac Tool Group NYSE: EPAC said its fiscal third quarter showed mid-single-digit growth in its core product business and improving sequential trends in services, while management highlighted a planned acquisition that would expand the company’s exposure to power generation, defense, semiconductors and data centers.
On the company’s fiscal third-quarter earnings call, President and CEO Paul Sternlieb said Enerpac “delivered on” its plan for mid-single-digit product growth and improving service operations, though results faced “a greater than anticipated headwind” from the protracted conflict in the Middle East.
The most significant update was Enerpac’s definitive agreement to acquire Specialized Fabrication Equipment Group, or SFE Group, a provider of specialized fabrication and industrial tool solutions. The company expects the transaction to close in the first quarter of fiscal 2027, subject to regulatory approvals and customary closing conditions.
SFE deal expected to expand addressable market
Sternlieb said SFE Group fits Enerpac’s stated acquisition criteria, including premium brands, strong margins and strategic alignment. He said SFE offers products across pipe beveling and on-site machining, orbital welding and cutting, and tools and lifting equipment.
Enerpac expects the acquisition to expand its addressable market by roughly $1 billion, increasing the company’s total addressable market from about $4.5 billion to $5.5 billion. Sternlieb said the deal would strengthen Enerpac’s position in “attractive high-growth verticals,” including defense, power generation, semiconductors and data centers.
“With SFE Group’s reputation for quality, durability, reliability, and innovation, we believe the acquisition will enhance our portfolio and create additional opportunities to leverage our global scale, distribution network, and technical and applications expertise,” Sternlieb said.
Management also pointed to international expansion as a key revenue opportunity. Sternlieb said about 70% of SFE Group’s sales are in the U.S., creating a potential opportunity for Enerpac to use its international distribution network to accelerate growth outside the United States. He also said Enerpac’s U.S. national account relationships could help drive further penetration.
Purchase price values SFE at 10.6 times adjusted EBITDA
CFO Darren Kozik said SFE Group generated approximately $170 million in trailing 12-month sales through March 31, 2026, and about $44 million in adjusted EBITDA. Enerpac agreed to a purchase price of approximately $472 million, translating to 10.6 times trailing adjusted EBITDA.
Kozik said Enerpac plans to fund the acquisition through borrowings under its revolving credit facility and by activating about $225 million under the accordion feature of its senior credit agreement. Upon closing, Enerpac expects net debt leverage of approximately 2.8 times adjusted EBITDA.
Based on expected cash flow from the combined businesses, Kozik said Enerpac anticipates reducing leverage to about 2.2 times within 12 months after closing, mostly in the back half of fiscal 2027. He said that would place the company within its target leverage range of 1.5 times to 2.5 times.
Enerpac expects the acquisition to be accretive to adjusted earnings per share in fiscal 2027. Kozik said the company’s near-term model assumes minimal cost synergies because management views SFE as a strong standalone business. However, by year three, Enerpac anticipates $4 million to $6 million in adjusted EBITDA synergies from expected revenue and cost benefits.
Product sales rise, services improve sequentially
For the third quarter, Kozik said Industrial Tools & Services product sales increased 5% organically. That strength was partially offset by an 8% decline in the IT&S services business.
Enerpac had previously announced actions to address a market slowdown in its EMEA services business, as well as a new five-year service contract with a major U.K. North Sea oil and gas company. Kozik said the initial benefits of those actions helped services revenue improve 17% sequentially and contributed to better quarter-over-quarter profitability.
In the company’s Cortland business, reported in the “other” segment, organic growth was 25% in the third quarter. Kozik attributed that performance to continued success in generating new customers and projects.
By region, IT&S revenue in the Americas grew 6% year over year, including a 10% increase in product revenue. Kozik said strength was broad-based, with power generation standing out, including Enerpac’s Heavy Lifting Technology business, which supports heavy lifting and moving solutions for data center and infrastructure build-outs.
Asia Pacific revenue was flat, with management citing impacts from the Middle East conflict. Kozik said oil and gas refineries delayed shutdowns to maximize production, pushing out orders. He also said inflation was causing some end customers to economize by delaying purchases. Australia, Japan and South Korea were described as strong within the region.
In EMEA, third-quarter revenue was also flat, as product revenue gains were offset by a decline in services. Kozik said the region was affected by the Middle East conflict, including a $3 million service project for a long-term customer that was scheduled for the third quarter but delayed due to the conflict.
Guidance lowered on Middle East delays and mix
Enerpac recognized a $6 million net benefit in the quarter from the expected refund of IEEPA tariffs. Excluding that tariff recovery, Kozik said gross margins were negatively affected by mix, including higher growth in Heavy Lifting Technology and continued dilution from the services business.
Adjusted selling, general and administrative expense increased by 90 basis points as a percentage of revenue. Kozik said Enerpac continued to invest in the business through higher research and development spending and expenses tied to new product launches, including six products launched at CONEXPO.
Adjusted earnings were $0.60 per share in the third quarter, including $0.08 related to the tariff recovery, compared with $0.51 per share in the year-ago period. Year-to-date cash flow from operations was $69 million, compared with $56 million a year earlier. Free cash flow increased by $20 million to $60 million for the first nine months of fiscal 2026. Enerpac also repurchased about $15 million of shares during the quarter.
The company revised its full-year fiscal 2026 outlook and now expects organic growth of 1% to 2%, adjusted EBITDA of $151 million to $156 million, and adjusted EPS of $1.84 to $1.89. Free cash flow guidance was unchanged.
Kozik said the delayed service revenue in the Middle East has an outsized margin impact because of the high fixed-cost nature of the services business. He also cited a margin impact from mix, as Heavy Lifting Technology carries slightly lower margins.
Management highlights data centers, defense and innovation
Sternlieb said Enerpac is seeing strong activity in power generation and data centers, particularly through Heavy Lifting Technology in the Americas. He said marketing efforts targeting data center customers have contributed to commercial activity, a growing funnel and an expanding backlog.
The company also announced a contract with a major European military contractor worth nearly $5 million to provide specialized lifting systems for maintenance activities on a key vehicle. Sternlieb said Enerpac expects to ship the “vast majority” of that project in fiscal 2027.
Enerpac has introduced eight new products so far in fiscal 2026 and remains on track to deliver 10 for the full year, which Sternlieb said would be double the pace achieved in fiscal 2025. Recent launches include the LU-Series Lightweight Torque Wrench Pump and a Dual Machine Skate set that combines Heavy Lifting Technology with DTA’s moving and positioning technology.
During the question-and-answer session, Sternlieb said SFE’s organic growth has been in the high-single digits or better in recent years. He described the acquisition as proprietary and said SFE’s owner, Gladstone, was not running a sale process.
Asked about additional acquisitions after the SFE deal, Kozik said deleveraging would be a focus over the next 12 months, but Enerpac would still have flexibility for tuck-in M&A or potentially share repurchases. Sternlieb added that SFE brings an existing funnel of smaller inorganic opportunities, though he said Enerpac would not be looking for anything “outsized” until leverage is back to a more comfortable level.
About Enerpac Tool Group NYSE: EPAC
Enerpac Tool Group Corp. NYSE: EPAC is a global provider of high-pressure hydraulic tools, controlled force products and precision positioning equipment. The company's products and solutions enable customers in manufacturing, energy, infrastructure, transportation and construction to lift, move, position and secure heavy loads with safety and accuracy. Enerpac's core portfolio includes hydraulic pumps, cylinders, torque wrenches, torque multipliers, flange spreaders, tensioners and portable bolting tools, complemented by electric and pneumatic tools for a wide range of industrial applications.
In addition to its extensive product lines, Enerpac offers integrated systems and services such as engineered lifting solutions, custom skidding and spreader beam assemblies, mobile bolting units and digital monitoring platforms.
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