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Kimball Holders Approve Sale; HNI Closes Acquisition

Before market open on June 1, HNI Corporation announced the completion of its acquisition of Kimball International. Kimball shareholder approval, the last hurdle to the deal, was obtained on May 29. Click here for Kimball’s press release. Deal terms included Kimball shareholders receiving 0.1301 shares of HNI common stock and $9.00 in cash for each KBAL owned. Using data from Kimball’s recent registration (p.109), ~$32 million in net debt, deal terms, and the $25.62 closing price, we peg the acquisition value at ~$490 million. HNI will fold Kimball’s operating results inside its Workplace Furnishings segment. In an earlier note, we articulated that the combination makes sense culturally and strategically, and fits management’s Stronger Together Theme. From a broader view, consolidation in the mature commercial/contract furniture industry makes sense. The businesses are more complementary than competitive. In its release, management avers that the combined entity will have $3 billion in revenues and $305 million in adjusted EBITDA, including $25 million in efficiencies over the next three years. Combined, the companies reported about $280 million in TTM-adjusted EBITDA. The EBITDA expectation excludes top-line growth or margin expansion. Short term, we expect the combination to have a flat impact on HNI’s adjusted EPS. In an earlier note (5/10/23), we hypothesized post-deal dilution for 3Q23 and potential accretion in 4Q23. We are leaving our published HNI EPS estimates unchanged, awaiting further insight to rebuild our economic model. Not atypically, the deal attracted five lawsuits. We take note merely to avoid “burying our heads in the sand.” We suspect the suits lack merit and will be dispatched expeditiously.