FCX Performance Should be Nicely Accretive in FY19
- Applied is acquiring FCX Performance, the leader in precision flow control products, for $768 million (Applied’s largest-ever acquisition), or 1.4x sales and 11.3x EBITDA projected over the next 12 months;
- FCX will make Applied the leader in precision flow control, a natural adjacency with its own leadership in fluid power;
- The acquisition will be funded with cash and debt, resulting in a debt-to-EBITDA ratio of 3.65x (3.3x on a net basis), which Applied plans to reduce to less than 3x at the end of year two of the deal;
- FCX is expected to be dilutive to Applied’s EPS by 17-to-24 cents in FY18 due to one-time transaction costs (nominally accretive excluding these costs), and accretive beginning in FY19;
- We are holding our EPS projections until the acquisition closes (expected the later of January 31st or two days following Hart-Scott-Rodino approval), but we estimate FCX could add 3 cents to FY18 and 20-to-30 cents to FY19.
Applied Industrial Technologies is a distributor of bearings, power transmission products, fluid power components and systems, specialty flow control solutions, and other industrial supplies, operating in North America, Australia, New Zealand, and Singapore. In addition, the company provides engineering, design, and systems integration for industrial, fluid power, and flow control applications, as well as customized mechanical, fabricated rubber, fluid power, and flow control shop services. The company has two reportable segments: service center based distribution; and fluid power and flow control.
Great Lakes Review is located in Cleveland, Ohio, was founded in 1981 and became a division of Wellington Shields & Co. LLC in 2011. Great Lakes Review is a research boutique focused on the fundamentally-oriented investor seeking companies that dominate their respective specialty niche regardless of industry. The objective is to make money for the long-term by gradually accumulating a diversified portfolio from a universe of no more than 30 companies. Although short-term-oriented accounts will be alerted to trading opportunities, aggressive sell recommendations are triggered only by a deterioration in long-term fundamentals, not by short-term blips or investor fancy. Coverage of those names that lose their earnings momentum or earnings predictability may be dropped and replaced with more vital candidates.
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