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Sun Hydraulics Acquires Faster Group, Secures $500M Credit

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Sun Hydraulics Corporation (SNHY - Free Report) yesterday announced that it successfully completed the acquisition of Milan, Italy-based Faster Group from Capvis Equity IV LP. The deal, valued at approximately €430 million or roughly $531 million, was originally announced on Feb 20, 2018.

Also, it disclosed the news of replacing the previous credit facilities with new senior and secured credit facilities worth $500 million. These comprised revolving credit facility of $400 million and term loans of $100 million. While some portion of the credit facilities will be used for funding the Faster acquisition, the rest will be used for financing growth projects in the coming five years.

Details of the Buyout & Credit Facilities

Faster Group specializes in manufacturing quick-release couplings, especially those for hydraulics. Its products are mainly used by customers in the general industrial, agriculture and construction end markets. It manages manufacturing operations with more than 475 employees in Italy, Ohio and India while having sales offices in China, Brazil and Germany. In 2017, Faster Group generated approximately €105 million or $130 million revenues and had adjusted earnings before interest, taxes, depreciation and amortization margin of 27.5%.

As noted, Sun Hydraulics funded the acquisition with cash-in-hand, the new term loan and $258 million raised from its revolving credit facility.

The Faster Group buyout is in sync with Sun Hydraulics’ Vision 2025 and is anticipated to strengthen business portfolio and create business opportunities in the industrial goods market. Deeper penetration in the agricultural end market will also be possible. The buyout’s impact on Sun Hydraulics’ financials will be disclosed when the latter releases the first-quarter 2018 results.

Brief on Sun Hydraulics’ Vision 2025

By 2025, Sun Hydraulics aims to generate more than $1 billion in revenues and achieve high profitability. Of the revenues, the contribution from organic growth will be approximately $650 million, including $450 million from Hydraulics and $200 million from Electronics while acquired assets are predicted to generate $350 million.

Prior to the Faster buyout deal, the acquisition of Enovation Controls, LLC in December 2016 was in accordance with the company’s Vision 2025. Since added, the Enovation Controls assets have strengthened its business portfolio, especially in the power generation, marine and recreational vehicle markets.

Zacks Rank & Stocks to Consider

Despite such bright growth prospects from meaningful buyouts, Sun Hydraulics, with $1.7 billion market capitalization, currently carries a Zacks Rank #5 (Strong Sell). In the last 60 days, earnings estimates of the stock for both 2018 and 2019 were decreased by one brokerage firm. It is currently pegged at $1.88 for 2018 and $2.11 for 2019, reflecting the decline of 6.5% and 5.8% from their respective tallies, 60-days ago.

Sun Hydraulics Corporation Price and Consensus

Sun Hydraulics Corporation Price and Consensus | Sun Hydraulics Corporation Quote

Also, in the last three months, the machinery company’s shares decreased 21.9%, worse than 4.5% lost by the industry.

Some key players in the industry are DXP Enterprises, Inc. (DXPE - Free Report) , Dover Corporation (DOV - Free Report) and Kadant Inc. (KAI - Free Report) . While DXP Enterprises sports a Zacks Rank #1 (Strong Buy), both Dover and Kadant carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the last 60 days, earnings estimates for each of these stocks improved for the current year. Also, average positive earnings surprise for the last four quarters was 189.56% for DXP Enterprises, 7.26% for Dover and 18.89% for Kadant.

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