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Dover Sells Multitest and ECT Biz

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Dover Corporation (DOV - Free Report) has entered into an agreement to sell its Multitest and Everett Charles Technologies (ECT) businesses to LTX-Credence Corporation for $93.5 million. LTX-Credence is a Norwood, Mass.-based semiconductor test equipment maker.

Impact on Shares

The news was not a surprise for investors and thus it hardly made an impact on Dover’s shares. The market had already factored the sale in the share price. Dover had announced its plan to divest Everett Charles Technologies (including the Multitest business) at the time of releasing its fourth quarter 2012 results. The business was classified as discontinued operations since then.

However, shares of LTX-Credence surged as much as 38% on Sep 6 to close at $5.79. The surge came on the back of expected benefits from the acquisition. The acquisition will position LTX- Credence as the only provider of comprehensive test solutions and services for the semiconductor and printed circuit board markets. It was among the top 10 percentage gainers on Nasdaq at the close of trading on Sep 6.

Rationale Behind the Sale: Focus on Core Growth

In line with Dover’s long-term focus on strengthening its portfolio and intention to focus on its five key growth spaces -- communication components, energy, fluids, refrigeration and food equipment, and product identification -- Dover had been searching for buyers for its two non-core businesses serving the electronic assembly and test markets.

These include Everett Charles Technologies, including the Multitest business, (ECT) and DEK International (DEK). Although these businesses have been solid performers, they addressed highly volatile end-markets and thus the sale should improve the consistency of Dover’s future results.

In a similar move, Dover had announced in May the spin-off of certain part of its communication technologies businesses into a standalone, publicly-traded company (Knowles) in order to concentrate on its core industrial business.

Financial Terms

Of the total purchase price of $93.5 million, LTX-Credence will pay $73.5 million in cash and the balance $20.0 million will be paid by the issuance of promissory notes. The deal is expected to close by the end of this year, pursuant to satisfaction of customary closing conditions.

About Multitest and Everett Charles Technologies (ECT)

Everett Charles Technologies commands a leadership role since 1965 in the development of advanced technology board test products and holds over 100 patents. It came under the umbrella of Dover in November 1996. Founded in 1980, Multitest is the world’s leading producer of equipment and interfaces for the final testing of electronic components.  In 2001, it became part of Everett Charles.

The businesses were part of Dover’s Printing & Identification segment. The Printing & Identification segment is a worldwide supplier of precision marking and coding, printing, dispensing, soldering and coating equipment and related consumables and services.

The segment currently serves two global end-markets: Fast Moving Consumer Goods (FMCG) and Industrial. The segment generated $1 billion in sales in 2012, 12% of Dover’s total revenue and $0.5 billion in the first half of fiscal 2013, or 11% of total revenue.

Win-Win Situation for LTX-Credence

From LTX-Credence’s viewpoint, the acquisition is a win-win situation considering its manifold benefits. The combined entity will have trailing 12-month pro-forma revenues of approximately $420.0 million.

The acquisition will also increase its access to the electronics manufacturing industry. To be more precise, the company’s total addressable market will double to $5 billion from the current $2.5 billion. LTX-Credence will also be able to diversify into vertical markets, such as PCB (Printed Circuit Board) and PCBA (Printed Circuit Board Assembly) testing.

Following the acquisition, LTX-Credence is expected to enjoy annual recurring revenues of approximately $240.0 million (more than $152 million of revenues earned in fiscal 2013 ended Jul 2013) and approximately $15.0 million in synergies. The acquisition will be immediately accretive to its earnings.

Our Take

The $93.5-million deal is comparatively a smaller deal for Dover, which boasts a market capitalization of $15 billion. It is more of a game changer for LTX-Credence, which has a market capitalization of $275 million. It will reduce Dover’s exposure to cyclical markets.

Dover will continue to benefit from its acquisitions and focus on its key growth areas. However, the Printing & Identification segment is likely to be affected given its above-average exposure to Europe, while a lower North American rig count will constrain growth in the Energy segment.

Dover currently retains a Zacks Rank #3 (Hold), while LTX-Credence carries a Zacks Rank #4 (Sell). Other stocks in the same industry as Dover with a favorable Zacks rank include Gorman-Rupp Co. , with Zacks Rank # 1 (Strong Buy), while LTX-Credence’s peer Nova Measuring Instruments Ltd. (NVMI - Free Report) retains a Zacks Rank #2 (Buy).

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