Actuant to Sell EC&S Unit to One Rock Capital, Updates View

Actuant Corporation ATU yesterday announced that it reached a Securities Purchase Agreement with One Rock Capital Partners, LLC’s affiliate to sell its Engineered Components & Systems (“EC&S”) segment to the latter for $214.5 million. The deal has been approved by Actuant’s board of directors.

This move is in sync with the company’s intention of building its industrial tools and services business and will help in enhancing shareholders’ value.

Based in New York, One Rock Capital Partners primarily engages in making acquisitions in multiple industries. A few prime investment areas of the company are healthcare products, specialty manufacturing, chemical industry, food manufacturing, environmental services and others. The firm has a capital base of roughly $1.4 billion.

Details of the Deal

Actuant’s EC&S segment primarily engages in providing industrial components, cables, high-performance ropes, motion control systems and other products. Prime end-markets served include agriculture, medical, on-highway, energy, off-highway and construction. It generated roughly 43.5% of the company’s revenues in third-quarter fiscal 2019 (ended May 31, 2019).

As noted, Actuant will sell the entire EC&S segment — including Elliott Manufacturing, Weasler Engineering, Power-Packer, Maximatecc, CrossControl and Gits Manufacturing. However, the to-be-divested business will exclude the company’s Cortland U.S. business.

The transaction value has been fixed at $214.5 million, of which $3 million will be paid after the deal completion in four installments (quarterly). Actuant intends on using the sale proceeds for boosting growth opportunities in the Enerpac Tools and Services platform, repurchasing shares, making acquisitions and repaying debts.

Subject to the receipt of approval from regulatory authorities and receipt of other approvals, Actuant anticipates the transaction to close in the last quarter of calendar year 2019.

Revision in Projections Following the Sale Agreement

The company noted that EC&S segment, minus the Cortland U.S. business, will be presented as discontinued operations from the fourth quarter of fiscal 2019 (ending August 2019). Projections, provided on Jun 26, 2019, have been updated after excluding the impact of discontinued operations of the EC&S segment.

For fiscal 2019, the company anticipates adjusted earnings per share to be 71-75 cents (the previous projection was $1.15-$1.21). Sales are now expected to be $664-669 million (the earlier forecast was $1.125-$1.135 billion). Adjusted earnings before interest, tax, depreciation and amortization (“EBITDA”) are predicted to be $99-$102 million (previous projection was $151-$155 million) and free cash flow will likely be $62-$70 million (same as the previous).

For the fiscal fourth quarter, adjusted earnings are anticipated to be 16-20 cents per share (versus the previous guidance of 25-31 cents) and sales are likely to be $167-$173 million (previous projection was $265-$275 million). Adjusted EBITDA is predicted to be $26-$30 million (previous projection was $38-$42 million).

The company predicts divestiture charge and non-cash impairment charge to be roughly $300 million. This will be recorded in the fourth quarter of fiscal 2019.

With a market capitalization of nearly $1.5 billion, Actuant currently carries a Zacks Rank #3 (Hold). The company anticipates gaining from the focus on product development, improving operational efficiency, strengthening industrial tools business and acquired assets. However, tariffs, high taxes and forex woes are concerning.

In the past three months, Actuant's shares have moved down 10.3% compared with the industry's decline of 3.5%.

In the past 30 days, earnings estimates for the company have been revised upward for fiscal 2019 (ending August 2019) and downward for fiscal 2020 (ending August 2020). Currently, the Zacks Consensus Estimate for its earnings is pegged at $1.19 for fiscal 2019 and $1.35 for fiscal 2020, reflecting growth of 1.7% and decline of 2.2% from the respective 60-day-ago figures.

Actuant Corporation Price and Consensus

 

Actuant Corporation Price and Consensus

Actuant Corporation price-consensus-chart | Actuant Corporation Quote

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