Parker-Hannifin (NYSE:PH) has announced a bolt-on deal which initially was welcomed by investors, as enthusiasm faded a bit after the news was priced in. I must say that I like the deal and valuation of Parker-Hannifin at large as I am looking to expand a tiny position on potential dips of this long-term value creator.
The Deal
Parker-Hannifin has reached a deal to acquire privately held Lord Corporation in a $3.67 billion cash deal. Lord is based in North Carolina and is a privately-held company which has been around for nearly a century, currently employing over 3,000 workers.
The company generates about $1.1 billion in sales from adhesives, coatings and specialty materials as well as vibration and motion control technologies. These products and technologies are used in aerospace, automotive and industrial markets.
The deal is driven by strategic benefits with the addition of complementary products in similar markets as scale and shared services should allow for synergies to be realised as well. PH is especially happy with the addition of greater exposure to the aerospace market, high-end automotive and industrial automation.
The company believes that the deal will be accretive to both organic growth and EBITDA margins, as well as cash flows and earnings per share, which sounds compelling. The real kicker has to come from cost synergies, seen at $125 million a year although the full run rate of synergies will not be achieved until 2023.
About Those Calculations
The nearly $3.7 billion deal does not come cheap at 3.3 times sales, yet the margins of the acquired business are quite solid. The purchase price comes in at 15.1 times adjusted EBITDA, suggesting that adjusted EBITDA runs at $243 million a year. The real potential comes from the targeted synergies, as full realisation of synergies should reduce the EBITDA multiple to 9.9 times which looks rather
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