Circor (CIR 53.65, +2.38 +4.64%) stands up a bit today following news out this morning that the company would acquire Colfax’s (CFX 42.45, -0.29 -0.68%) Fluid Handling business for about $855 million including cash, newly issued CIR shares, and the assumption of pension plan liabilities linked to the CFH business.
CIR announced it signed a definitive agreement to acquire Colfax Fluid Handling (CFH) from CFX for about $855 million including cash, newly issued CIR shares, and the assumption of pension plan liabilities linked to the CFH business. The deal will expand CIRCOR’s product and service offering while strengthening its position as a leading provider of flow control solutions. The combination results in estimated pro forma combined revenues of about $1.1 billion based on the trailing 12 month results as of June 2017.
Under the terms of the agreement, CIR will pay $542 million in cash, issue about 3.3 million new CIR shares to CFX representing about $163 million in value, and assume global pension plans with a net liability of $150 million on a pre-tax basis. Upon closing of the transaction, CFX will own about 16% of CIR. CFX has agreed to certain restrictions on the transfer of shares, including a six month lock-up.
The deal is validated by CIR’s expectations to realize cost synergies of $23 million by the fourth year following the transaction close, primarily driven by improved supply chain efficiency, SG&A cost reductions, and manufacturing rationalization. The company also expects to incur about $10 million in one-time costs to achieve these synergies. Further, the deal is expected to be accretive to CIR’s cash EPS and adjusted operating margins in the first year following close, with additional margin expansion and long-term EPS growth going forward as synergies are realized.
Lastly, in connection with the transaction announcement, CIR also reaffirmed its Q3 Net Revenue and Adjusted EPS guidance originally announced on July 28, 2017. The company will announce Q3 results on October 27, 2017.