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WESCO Expands Presence in Electronics With Anixter Buyout

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WESCO International, Inc. (WCC - Free Report) is finally acquiring Anixter International in a transaction valued at approximately $4.5 billion. Per the deal, Anixter shareholders will receive $100 per share in cash, stock and preferred stock.

The transaction is subject to certain approvals and other customary closing conditions. 

Notably, Anixter's prior agreement to be acquired by Clayton, Dubilier & Rice, LLC had been terminated.

Anixter — a supplier of network and security, electrical and electronic plus utility power solutions — is best known for communication and security products. The consolidated company will likely be a premier electrical and data communications distribution player in North America.

WESCO International, Inc. Price and Consensus

 

Deal Rationale

The deal has immense growth opportunities for WESCO. Strategically, this deal is a perfect fit as it will make the combined entity a leading electrical distributor in North America. The buyout will expand the acquirer’s product portfolio in industrial, construction and utility areas.

This apart, the acquisition will provide WESCO with additional expertise in industrial, construction, utility and new cross-selling opportunities.

The deal will also be accretive to WESCO’s financials. Revenues of the combined company are expected to be $17 billion in 2019. In addition, the company is expected to generate approximately 12% of revenues from outside North America. This will significantly add to its top-line numbers. The revenue growth will be driven by cross-selling opportunities.

In addition, the deal will be immediately accretive to WESCO’s earnings in the first full year of ownership. Further, it is expected to expand the company’s margin and EPS growth, and generate strong free cash in the future.

Notably, WESCO expects net debt-to-EBITDA ratio to be 4.5 at the close of the deal. The company plans to use the cash flows and synergies of the combined company to reduce its leverage.

The deal will likely to aid synergies for WESCO in the electronics industry, which is riding on growing proliferation of electric components and electrical equipment in every major sector across the world. WESCO expects to realize annualized run-rate cost synergies of more than $200 million by the end of third year.

Hence, Anixter’s comprehensive product portfolio is expected to contribute significantly to WESCO’s top-line growth in the long run.

These positives might help WESCO to gain investor confidence.

Bottom Line

Acquisitions that are a strategic fit for the company have been playing an instrumental role in shaping up WESCO’s growth trajectory over the past few years.

Notably, the company’s M&A activity helped it in fortifying the product and services portfolio. Further, these tactical actions bolstered its customer reach.

In third-quarter 2019, benefits from acquisitions drove the company’s results. The latest deal is likely to expand key offerings to further add capabilities to its portfolio strength.

Zacks Rank & Stocks to Consider

Currently, WESCO carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the broader technology sector include MACOM Technology Solutions Holdings, Inc. (MTSI - Free Report) and Fiverr International Ltd. (FVRR - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings growth for MACOM Technology and Fiverr is currently projected at 15% and 44.2%, respectively.

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