Editor's note: This is a developing news story and has been updated with additional deal details and analyst commentary.
Ingersoll Rand Inc. entered into a definitive agreement to acquire Howden Roots LLC’s compression business from Chart Industries Inc. in an all-cash deal valued at approximately $300 million, the company said in a June 12 news release.
The sale comes nearly three months after Chart Industries completed the acquisition of industrial toolmaker Howden from KPS Capital Partners LP for $4.4 billion cash.
Ingersoll said the deal was made at a “low teens” adjusted EBITDA purchase multiple that is expected to be reduced to mid-single digits within three years. Ingersoll, a provider of industrial equipment including oil and gas products, said the deal adds low-pressure compression and vacuum technologies to the company’s portfolio.
The Howden Roots business will enhance the company’s ability to serve high-growth, sustainable end markets including green steel, the company said.
For Chart Industries, the deal backs up management’s commentary that the company will divest $500 million in assets to reduce debt, according to a June 12 Jefferies commentary.
Chart Industries provides highly engineered equipment servicing multiple applications in the clean energy and industrial gas markets, according to Jefferies.
Ingersoll Rand “is a strategic buyer that can self-fund a cash deal, and the sale was announced before the end of 2Q,” said Sam Burwell, Jefferies equity analyst. “Note that the company expects to execute $500 [million] of total divestitures, implying that the smaller package should be ~$200 [million]; that sale is expected to be announced by early 3Q.”
The announcement likely addresses two factors putting pressure on Chart’s multiples: leverage and management credibility, Burwell wrote in the research note.
“The proceeds materially delever the balance sheet immediately, and execution of the large asset sale to a strategic buyer within the guided time frame should (at the margin at least) increase the market's willingness to move EBITDA/FCF consensus closer to guidance and capitalize that consensus at a stronger valuation.”
Roots, founded in 1854, generates approximately $115 million in revenue. The business has an established, installed base that supports a strong aftermarket business model, Ingersoll said. Burwell said the business’ EBITDA is an estimated $25 million.
“We have long admired Roots and are thrilled to add this iconic brand to our portfolio. This complementary acquisition expands our low-pressure compression and vacuum product offerings and adds centrifugal compression capabilities,” said Vicente Reynal, chairman and CEO of Ingersoll Rand. “Additionally, Roots’ focus on enabling critical applications to advance a more sustainable world aligns with Ingersoll Rand’s commitment to Make Life Better. I am especially excited about Roots’ differentiated expertise in green steel and the opportunities that creates for other parts of our business.”
Reynal said the acquisition further demonstrates our ability to execute on our robust M&A funnel. We expect the strong strategic fit and the deployment of Ingersoll Rand execution excellence (IRX) to yield adjusted EBITDA margins greater than 30% by year 3.”
The acquisition is expected to close in third-quarter 2023 upon obtaining required regulatory approvals. Upon close, Roots will join Ingersoll Rand’s industrial technologies and services segment, which is managed through three regional business units, Americas, Asia Pacific and Europe, Middle East, India and Africa.
"Ingersoll Rand is an excellent home for Roots," said Jill Evanko, president and CEO of Chart Industries. "Ingersoll Rand’s multi-channel, multi-brand strategy ensures continuation of the Roots brand and their ownership mindset and model will benefit the Roots employees."
Citi is serving as financial adviser and Simpson Thacher & Bartlett LLP is serving as legal counsel to Ingersoll Rand.
For Chart Industries, BofA Securities is serving as financial adviser and Winston & Strawn LLP is serving as legal counsel.
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