Thermon Group Holdings, Inc. (THR - Free Report) recently agreed to acquire 100% equity stake in CCI Thermal Technologies Inc. (CCI Thermal). In addition, the buyout will add some related real estate assets to the company’s portfolio. Buyout consideration has been fixed at CAD$258 million.
CCI Thermal manufactures engineered heating and filtration solutions for use in the energy, petrochemical, electrical distribution, power, transit and industrial end markets. Prime North American brands include Cata-Dyne, Ruffneck, Norseman, Caloritech, 3L Filters and Fastrax. It has five facilities for manufacturing and fabrication in Canada and the United States, providing employment to nearly 375 people. Notably, CCI Thermal generated revenues of CAD$ 95 million in the fiscal year ended Jul 31, 2017.
Details of the Buyout
Complying with the terms of the buyout agreement, Thermon Group’s subsidiary, especially formed for this deal, will acquire CCI Thermal and its related assets. The transaction has received a go-ahead from the board of directors of both the companies. Also, it does not require any regulatory approvals.
The buyout consideration will be financed with available cash and a new senior secured debt facility. Upon completion, Thermon Group’s net leverage is expected to be approximately 3.4x. Also, the company will incur acquisition-related costs of $5.5 million in fiscal 2018 (ending Mar 31, 2018).
Thermon Group anticipates closing the acquisition in the third quarter of fiscal 2018 (ending December 2017).
Synergistic Benefits From CCI Thermal Buyout
Post the completion of the CCI Thermal buyout, Thermon Group will become a leader in industrial process heating platform, with addressable market worth $2.3 billion. The company will have enhanced engineering and technological capabilities to leverage benefits from future growth opportunities.
Thermon Group anticipates realizing annualized run-rate cost synergies of CAD$2.4 million in fiscal 2019. Also, the acquired assets are anticipated to boost operating margins, free cash flow and GAAP earnings per share in fiscal 2019.
In the last month, Thermon Group’s shares have yielded 22.9% return, outperforming 10.6% gain of the industry.
Zacks Rank & Stocks to Consider
With a market capitalization of nearly $671 million, Thermon Group currently carries a Zacks Rank #4 (Sell). Based on weak top-line performance (down 18% year over year) and low bookings in the first quarter of fiscal 2018, the company predicts low-to-mid single digit decline in revenues in fiscal 2018.
Thermon Group Holdings, Inc. Price and Consensus