UK’s Spirax-Sarco to buy Chromalox for US$415m

Reuters

Sat, May 27, 2017 - Page 10

Britain’s Spirax-Sarco Engineering PLC said it had agreed to buy Pittsburgh-based thermal technology company Chromalox Inc from private equity firm Irving Place Capital for US$415 million on a cash-free, debt-free basis.

Spirax-Sarco, which makes steam traps and pumps for industries such as the food and beverage, healthcare, chemical and power generation sectors, said the purchase consideration would be financed from new debt facilities supplied by its existing banks.

Spirax shares were up 5.6 percent at £56.05 at 7:09am local time, making the stock the second-largest gainer on London’s Midcap Index

The acquisition of Chromalox, which has five manufacturing facilities across North America, France and China, is to add to Spirax’s earnings this year, it said.

Liberum Capital Ltd analysts, rating Spirax at “hold,” wrote in a note that at first look, this deal would add 13 percent to this year’s earnings per share, assuming no growth in the underlying business.

Chromalox earns about 18 percent of its sales from the oil and gas market where firms are cautious on spending as the industry recovers from a multiyear commodity price slump.

However, order intake levels and market activity have shown improving prospects for Chromalox, Spirax said, adding that its estimates sales of US$190 million in the current year ending in September.

Analysts at Jefferies Group LLC, who have a “hold” rating on Spirax, said Chromalox looks to be a “highly complementary business” and a “very sensible and interesting deal.”

The price tag of US$415 million makes this Spirax’s largest buy since the downturn of 2008.

Spirax last month said it would buy German firm Gestra AG, which makes valves and control systems for heat and fluid control, for 186 million euros (US$208.8 million).

Chromalox is to bring thermal energy management solutions to Spirax’s customers, the British firm said, adding that it would expand Spirax’s total addressable market by £2.1 billion to £7.9 billion (US$2.7 billion to US$10.2 billion).

“We will invest in Chromalox to strengthen its direct sales channels globally; leverage our worldwide footprint to grow Chromalox’s presence outside of its core markets in the USA,” Spirax-Sarco said in a statement yesterday.

Completion of the deal is subject to a nod from the US merger control authority, Spirax said, adding that the conditions are expected to be satisfied during this quarter.