Stanley Black & Decker (SWK 144.683, +2.843, +2.00%) continues to move higher, extending its bounce off the 50-day simple
moving average (140.59) in reaction to the company’s acquisition of a 20% stake
in privately-held outdoor power equipment manufacturer MTD Products for $234 mln.
As a bit of background MTD had a solid 2017 with revenues in excess of $2 bln. The company manufactures and distributes lawn tractors, zero turn mowers, walk behind mowers, snow throwers, trimmers, chain saws, utility vehicles, and other outdoor power equipment for both residential and professional lawn and garden customers. Some notable brands include Cub Cadet, Troy-Bilt, and Remington.
The transaction, which is expected to close in early 2019, is subject to regulatory approvals and customary closing conditions. In connection with the transaction, Stanley Black & Decker will appoint two representatives to MTD's 11-member Board of Directors.
Beginning in 2021, should Stanley Black & Decker choose to exercise its right to acquire the remaining 80% stake, the companies have agreed to a valuation multiple based on MTD's expected 2018 EBITDA, with a sharing arrangement for any future EBITDA growth.
This deal further beefs up SWK’s lawncare and outdoor equipment business after a string of deals in the past few years. Most notably, SWK bought the Craftsman brand of tool from Sears Holdings (SHLD 1.37, -0.02, -1.4%) in early 2017. Also, in October of 2016 SWK bought Newell Brands’ (NWL 21.67, +0.21, +1.0%) tool business for $1.95 bln in cash. SWK also announced a deal about a month ago to buy the attachments division of Brazilian-based International Equipment Solutions, LLC for $690 mln.
All of these deals are expected (or have already been) modestly accretive, according to SWK. However, SWK didn’t give any such dialogue in this morning’s MTD announcement. Perhaps, in 2021 when the deal may amount to a full takeover, that sentiment may change.
For now, the deal is expected to close in early 2019, and investors will have to remain confident in the belief that SWK management’s string of deals will enhance shareholder value. That notion seems to be working out so far, as SWK has beat earnings expectations in 19 consecutive quarters and counting. The beats haven’t translated into much upside in the stock, though, as shares off SWK have actually lost 15.5% of their value in 2018 juxtaposed against the broader industrials (XLI 77.94, -0.03, -0.0%) sector which has added just shy of 3% on the year.
- OUR VIEW
- LEARNING CENTER