Acquisition of Leader in Differentiated Pump
Technology Enhances Ability to Deliver Complete Flow Control
Solutions
Expected to be Accretive to Earnings and
Margins within the First Year
Company to Hold Conference Call at 9:00 a.m.
ET this Morning
CIRCOR International, Inc. (NYSE: CIR), a leading provider of
flow control solutions and other highly engineered products for
markets including oil & gas, aerospace, power, process, and
general industrial, today announced that it has signed a definitive
agreement to acquire Colfax Fluid Handling (CFH) from Colfax
Corporation (NYSE: CFX) for approximately $855 million including
cash, newly issued CIRCOR shares, and the assumption of pension
plan liabilities linked to the CFH business. The acquisition will
expand CIRCOR’s product and service offering while strengthening
its position as a leading provider of flow control solutions. The
combination results in estimated pro forma combined revenues of
approximately $1.1 billion based on the trailing 12 month results
as of June 2017.
Under the terms of the agreement, CIRCOR will pay $542 million
in cash, issue approximately 3.3 million new CIRCOR shares to
Colfax representing approximately $163 million in value, and assume
global pension plans with a net liability of $150 million on a
pre-tax basis. Upon closing of the transaction, Colfax will own
approximately 16% of CIRCOR. Colfax has agreed to certain
restrictions on the transfer of shares, including a six month
lock-up.
CFH is a world leader in the engineering, development‚
manufacturing‚ distribution‚ service and support of fluid handling
systems. With a history dating back to 1860‚ CFH is the leading
supplier of screw pumps for high demand, severe service
applications across a range of markets including general industry,
commercial marine, defense, and oil & gas. CFH leverages
differentiated technology, and provides critical aftermarket
customer support, to maintain leading positions in high demand
niche markets.
“CFH’s differentiated product offering enhances our ability to
provide critical flow control solutions, and expands our presence
into new markets,” said Scott Buckhout, President and Chief
Executive Officer of CIRCOR. “CFH’s compelling growth and margin
characteristics, combined with attractive synergy opportunities,
are expected to make this transaction accretive in the first year
and generate strong returns for our shareholders. CFH and its
strong team are an excellent addition to the CIRCOR family.”
Compelling Strategic Benefits
- Complementary and Differentiated
Portfolio. CFH’s differentiated product portfolio, recognized
brands, and large installed base enhance CIRCOR’s ability to
deliver more comprehensive flow control solutions into existing and
new end markets.
- Diversified End Markets. The
combination enhances CIRCOR’s position in the industrial, defense,
and oil & gas end markets while expanding CIRCOR’s reach into
commercial marine.
- Significant Aftermarket
Exposure. CFH’s extensive installed base and related
aftermarket business provide a complementary source of growth and
margin expansion.
- Increased Scale. On a pro forma
basis, the combined company had approximately $1.1 billion in
revenue based on the trailing 12 months ended June 2017. The
combination provides a more diverse product portfolio serving a
broader range of end markets. CIRCOR expects to capture additional
revenue opportunities over time as it realizes the benefits of
cross selling.
Robust Financial Drivers
- Defined Operating Synergies.
CIRCOR expects to realize cost synergies of $23 million by the
fourth year following the transaction close, primarily driven by
improved supply chain efficiency, SG&A cost reductions, and
manufacturing rationalization. The company expects to incur
approximately $10 million in one-time costs to achieve these
synergies.
- Accretive Financial Impact. The
acquisition is expected to be accretive to CIRCOR’s cash EPS and
adjusted operating margins in the first year following close, with
additional margin expansion and long-term EPS growth going forward
as synergies are realized.
- Compelling Valuation. The
purchase price represents a multiple of 8.3X adjusted EBITDA for
the trailing twelve months ended June 30, 2017, including the
benefit of synergies and the net present value of acquired and
pension tax benefits. Excluding synergies and tax benefits, the
purchase price represents a multiple of 12.3X adjusted EBITDA.
- Strong Return Profile. The
transaction is expected to generate a return on invested capital
that exceeds CIRCOR’s cost of capital by year four.
Additional Transaction DetailsCIRCOR’s Board of Directors
has unanimously approved the transaction, which is subject to
regulatory approvals and other customary closing conditions, and is
expected to close by the end of 2017. Following the close of the
transaction, the CFH portfolio of brands will remain in place and
the majority of the business will operate as a separate segment
within CIRCOR.
Upon closing, CIRCOR expects to have a net debt-to-EBITDA ratio
of 5.0X. CIRCOR expects to reduce its net debt-to-EBITDA ratio to
below 4.0X by the end of 2018 and to approximately 3.0X by the end
of 2019.
Third Quarter 2017 GuidanceIn connection with today’s
transaction announcement, CIRCOR also reaffirmed its third quarter
2017 Net Revenue and Adjusted EPS guidance originally announced on
July 28, 2017. The Company will announce third quarter results on
October 27, 2017.
Conference CallCIRCOR will host a conference call to
discuss the transaction today at 9:00 a.m. EDT. To listen to the
live conference call and view the accompanying presentation slides,
please visit “Webcasts & Presentations” within the “Investors”
portion of CIRCOR’s website. The live call can also be accessed by
dialing (877) 407-5790 or (201) 689-8328. The webcast will be
archived on the Company’s website for one year.
Deutsche Bank acted as financial advisor and WilmerHale acted as
legal counsel to CIRCOR. Deutsche Bank and SunTrust Robinson
Humphrey are committed to providing the financing. Cahill Gordon
& Reindel LLP acted as legal counsel to the financing
sources.
Safe Harbor StatementThis press release contains
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These statements may
often be identified by the use of words such as “anticipate,”
“believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,”
“predict,” “project,” “should,” “will,” “potential,” and similar
terms and expressions. Reliance should not be placed on
forward-looking statements because they involve unknown risks,
uncertainties and other factors, which are, in some cases, beyond
the control of CIRCOR. Any statements in this press release that
are not statements of historical fact are forward-looking
statements, including, but not limited to, statements regarding the
benefits and synergies of the proposed acquisition of CFH,
including the effect of the transaction on revenue, cost savings,
earnings and operating margin; the expected timing for completing
the transaction; CIRCOR’s expected product offerings, market
position and market opportunities; the availability of debt
financing for the transaction; and CIRCOR’s guidance for the third
quarter of the fiscal year ending December 31, 2017. The following
important factors and uncertainties, among others, could cause
actual events, performance or results to differ materially from the
anticipated events, performance or results expressed or implied by
such forward-looking statements: the ability to satisfy the
conditions to closing of the proposed transaction, on the expected
timing or at all; the ability to obtain required regulatory
approvals for the proposed transaction, on the expected timing or
at all; the occurrence of any event that could give rise to the
termination of the acquisition agreement; higher than expected or
unexpected costs associated with or relating to the transaction;
the risk that expected benefits, synergies and growth prospects of
the transaction may not be achieved in a timely manner, or at all;
the risk that CFH may not be successfully integrated with CIRCOR’s
business following the closing; the risk that CIRCOR will be unable
to retain and hire key personnel; and the risk that disruption from
the transaction may adversely affect CIRCOR’s business and
relationships with its customers, suppliers or employees. For
additional information about factors that could cause actual
results to differ materially from those described in the
forward-looking statements, please refer to our filings with the
Securities and Exchange Commission, including the risk factors
contained in our most recent Annual Report on Form 10-K and
subsequent Quarterly Reports on Form 10-Q. We undertake no
obligation to publicly update or revise any forward-looking
statement, whether as a result of new information, future events or
otherwise.
Use of Non-GAAP Financial MeasuresAdjusted operating
income, Adjusted operating margin, Adjusted net income, Adjusted
earnings per share (diluted), EBITDA, Adjusted EBITDA, Adjusted
EBITDA margin, pro forma combined figures, net debt, net leverage
and free cash flow are non-GAAP financial measures. These non-GAAP
financial measures are used by management in our financial and
operating decision making because we believe they better reflect
our ongoing business and allow for meaningful period-to-period
comparisons. We believe these non-GAAP financial measures provide
useful information to investors and others in understanding and
evaluating the Company’s current operating performance and future
prospects in the same manner as management does, if they so choose.
These non-GAAP financial measures also allow investors and others
to compare the Company’s current financial results with the
Company’s past financial results in a consistent manner. For
example:
- We exclude costs and tax effects
associated with restructuring activities, such as reducing overhead
and consolidating facilities. We believe that the costs related to
these restructuring activities are not indicative of our normal
operating costs.
- We exclude certain acquisition-related
costs, including significant transaction costs and amortization of
inventory step-ups and the related tax effects. We exclude these
costs because we do not believe they are indicative of our normal
operating costs.
- We exclude the expense and tax effects
associated with the non-cash amortization of acquisition-related
intangible assets because a significant portion of the purchase
price for acquisitions may be allocated to intangible assets that
have lives of 5 to 20 years. Exclusion of the non-cash amortization
expense allows comparisons of operating results that are consistent
over time for both our newly acquired and long-held businesses and
with both acquisitive and non-acquisitive peer companies.
- We also exclude certain gains/losses
and related tax effects, which are either isolated or cannot be
expected to occur again with any predictability, and that we
believe are not indicative of our normal operating gains and
losses. For example, we exclude gains/losses from items such as the
sale of a business, significant litigation-related matters and
lump-sum pension plan settlements.
CIRCOR’s management uses these non-GAAP measures, in addition to
GAAP financial measures, as the basis for measuring the Company’s
operating performance and comparing such performance to that of
prior periods and to the performance of our competitors. We use
such measures when publicly providing our business outlook,
assessing future earnings potential, evaluating potential
acquisitions and dispositions and in our financial and operating
decision-making process, including for compensation purposes.
Investors should recognize that these non-GAAP measures might
not be comparable to similarly titled measures of other companies.
These measures should be considered in addition and not as a
substitute for or superior to, any measure of performance, cash
flow or liquidity prepared in accordance with accounting principles
generally accepted in the United States. Reconciliations of
forward-looking non-GAAP measures, including net debt-to-EBITDA
ratio, to their most directly comparable GAAP measures are not
being provided in this release because future operating results,
cash flows and debt levels cannot be reasonably calculated or
predicted at this time. Accordingly, such reconciliations are not
available without unreasonable effort.
About CIRCOR International, Inc.CIRCOR International,
Inc. designs, manufactures and markets highly engineered products
and sub-systems for markets including oil & gas, power
generation and aerospace & defense. CIRCOR has a diversified
product portfolio with recognized, market-leading brands that
fulfill its customers’ unique application needs. The Company’s
strategy is to grow organically and through complementary
acquisitions; simplify CIRCOR’s operations; achieve world class
operational excellence; and attract and retain top industry talent.
For more information, visit the Company’s investor relations
website at http://investors.circor.com.
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version on businesswire.com: http://www.businesswire.com/news/home/20170925005606/en/
CIRCOR International, Inc.Rajeev Bhalla, 781-270-1210Executive
Vice President and Chief Financial Officer
CIRCOR (NYSE:CIR)
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