Ingersoll-Rand plc (IR - Free Report) announced that it entered an agreement to acquire Precision Flow Systems (“PFS”) for $1.45 billion. The other parties to the transaction will be funds managed by BC Partners Advisors L.P. and The Carlyle Group L.P. (CG - Free Report) .
It is worth mentioning here that the company’s stock price has increased roughly 0.6% at the close of the trading session on Feb 11, 2019. The closing price on that day was $102.51.
PFS is primarily engaged in providing pump and flow management systems for use in process, agriculture, water, pharmaceuticals, food, and beverage markets. Some of its leading product brands are Haskel, Milton Roy, Williams and others. Notably, PFS generated revenues of $400 million in 2018.
Details of Buyout
Ingersoll-Rand intends to fund the transaction value through available cash and debt. Upon completion, the company will integrate PFS assets with its Industrial segment’s (accounted for 22.9% of net revenues in the fourth quarter of 2018) fluid management business.
Notably, through the fluid management business, Ingersoll-Rand is engaged in designing and developing pumps for fluid handling purposes. Marketing of products is mainly done under the ARO brand.
Ingersoll-Rand perceives that the PFS buyout will strengthen its existing fluid management business through technical expertise as well as addition of nearly 1,000 employees, a strong management team and manufacturing units. Also, the buyout will strengthen margins and prove accretive to earnings in the first year of the completion.
The completion of the transaction, currently subjected to the receipt of regulatory approvals, is anticipated to take place in mid-2019.
Snapshot of Ingersoll-Rand’s Inorganic Initiatives
We believe that the above-mentioned transaction is consistent with Ingersoll-Rand’s policy of acquiring businesses to gain access to new customers, regions and product lines.
Prior to this buyout agreement, Ingersoll-Rand added ICS Group Holdings Limited to its portfolio in January 2018. Since then, ICS Group has been strengthening Ingersoll-Rand’s commercial Heating, Ventilation and Air Conditioning (HVAC) business. Also, Ingersoll-Rand formed a 50-50 joint venture with Mitsubishi Electric Corporation in May 2018.
In 2018, Ingersoll-Rand used approximately $263.8 million for making acquisitions and investments. Further, acquired assets boosted the Climate segment’s fourth-quarter sales by 1%.
Zacks Rank & Stocks to Consider
With a market capitalization of nearly $25 billion, Ingersoll-Rand currently carries a Zacks Rank #3 (Hold). The company is poised to gain from innovation of products, robust end-market demand, solid backlog and improved productivity. However, inflation in material costs and tariffs can be major hurdles.
In the past 30 days, Ingersoll-Rand’s earnings estimates for 2019 and 2020 have been revised downward. Currently, the Zacks Consensus Estimate is pegged at $6.30 for 2019 and $6.95 for 2020, reflecting declines of 0.2% and 0.7% from the respective tallies 60 days ago.
Ingersoll-Rand PLC (Ireland) Price and Consensus