- Transforms Regal Rexnord's automation portfolio into a
meaningful, global automation solutions provider, with over 70% of
its sales into markets with secular growth tailwinds
- Combines complementary power transmission portfolios to deliver
enhanced industrial powertrain solutions for customers
- Re-balances Regal Rexnord's portfolio between Motion Control
(48% of pro forma sales), Climate Solutions (15%), Commercial
Systems (15%), Automation & Specialty (13%), and Industrial
Systems (9%)
- Anticipated annualized cost synergies of $160 million by year four, plus significant
revenue cross-marketing opportunities
- Creates compelling value for Regal Rexnord shareholders, with
new growth opportunities and attractive expected financial returns,
including accretion in the first full year, double digit accretion
thereafter, and ROIC >10% by year five
- Strong pro forma free cash flow enables rapid de-levering, with
net debt/adjusted EBITDA expected to be 2.5-3.0x in 2024, and
decline to a target of 2.0-2.5x thereafter
- Accelerates R&D and new product development; enhances
digital and IIoT strategy
- Record combined backlog of ~$2.3
billion1 improves near-term visibility
- Infuses significant new talent into the organization to support
and accelerate growth and margin enhancement initiatives
- Unites aligned cultures with deep commitment to serving
customers and driving efficiencies
BELOIT,
Wis., Oct. 27, 2022 /PRNewswire/ -- Regal
Rexnord Corporation (NYSE: RRX) today announced that it has reached
a definitive agreement with Altra Industrial Motion Corp. (Nasdaq:
AIMC) providing for Regal Rexnord to acquire 100% of Altra shares
in an all cash transaction for $62.00
per share.
The transaction values Altra at $4.95
billion2, representing 13.6x LTM Adjusted EBITDA,
or 9.5x after factoring estimated run-rate cost synergies. The
transaction is subject to the receipt of regulatory approvals,
Altra shareholder approval, and the satisfaction of other customary
closing conditions. The transaction is expected to close in the
first half of 2023.
With the addition of Altra, Regal Rexnord expects 2022 pro forma
revenue of ~$7.2 billion, Adjusted
EBITDA of ~$1.5 billion, and an
Adjusted EBITDA margin of ~21%. Based on the growth and margin
outlook for the combined business, and after including $160 million in annualized run rate cost
synergies, Regal Rexnord targets 2025 pro forma revenue of
~$8.3 billion, 2025 Adjusted EBITDA
of ~$2.1 billion, and an Adjusted
EBITDA margin >25%.
Altra is a global designer and manufacturer of a wide range of
highly engineered motion control, automation, and power
transmission solutions. The transaction expands Regal Rexnord's
portfolio, customer reach, and product diversity while enabling the
creation of shareholder value through enhanced growth and
substantial cost synergies.
"This acquisition opens up many new avenues for profitable
growth. In particular, Altra's Automation & Specialty platform
transforms our existing automation portfolio – namely ModSort and
Automation Solutions (formerly Arrowhead) – into a meaningful,
global automation solutions provider. The automation business has
highly attractive growth prospects and margins, serving many
markets that have anticipated secular growth tailwinds, including
factory automation, medical, aerospace, and warehouse &
logistics," said Regal Rexnord CEO, Louis Pinkham.
"The transaction also significantly enhances our power
transmission portfolio, in particular our industrial powertrain
offering, by adding complementary products in brakes, gears, and
clutches, while extending the number of end markets in which we
actively participate."
"We believe this combination presents attractive
opportunities for all our stakeholders – our customers, our
associates, and our shareholders. We see tremendous upside from
bringing Regal Rexnord's 80/20 skillset, partnered with both
companies' continuous improvement mindset, and a disciplined
plan-do-check-act (PDCA) management approach — producing a broader
offering and higher service levels for our customers, growth
opportunities for our associates, and compelling expected financial
returns for our shareholders, including enhanced growth, cost
synergy-driven margin expansion, attractive ROIC, and earnings
accretion."
"Among the many benefits Altra brings, a particularly notable
one is the infusion of additional talent into our combined
business, to help support and guide our many growth and free cash
flow enhancement initiatives. Importantly, Regal Rexnord and
Altra are a terrific cultural fit, with a shared commitment to
integrity, customer success, and continuous improvement. We are
confident that these shared values and complementary businesses
will help facilitate a seamless transition and support our
continued success."
Rakesh Sachdev, Non-Executive
Chairman, commented, "I, and the entire Board, are extremely
excited to see Regal Rexnord take this next step in what has been a
compelling transformation journey. We are confident, given a proven
operational and M&A integration track record, the organization
is well positioned to pursue what we believe will be a highly
value-enhancing transaction – for Regal Rexnord's associates, its
customers, and its shareholders."
Key Strategic & Financial Benefits
- Creates a substantial automation and industrial power
transmission business by significantly expanding Regal
Rexnord's automation portfolio and capabilities, and enhancing its
power transmission offering, particularly in industrial brakes,
clutches and gear motor sub-systems. The combined company's
enhanced power transmission portfolio creates an even more
compelling partner for distributors, and better positions Regal
Rexnord to offer industrial powertrain solutions in a broader set
of end markets. In addition, the transaction represents an
attractive value proposition for both customers and end users
through improved service capability breadth, technology content and
domain expertise.
- Raises exposure to secular growth end markets. The pro
forma automation business, with expected sales of roughly
$1.1 billion in 2022, is anticipated
to have over 70% of its sales generated in end markets with secular
growth characteristics, including factory automation, medical,
alternative energy, aerospace, and warehouse & logistics.
- Accelerates digital strategy, better positioning Regal
Rexnord for Industry 4.0, which will be critical to future new
product development efforts.
- Expected to generate sizable cost synergies of $160 million on a full-year run rate
basis. Expected synergies to be driven by procurement, distribution
efficiencies, footprint rationalization, and SG&A savings.
Actions to realize the synergies are expected to be completed by
year four. Leveraging Regal Rexnord's competencies in 80/20 and
lean, and building on its successful integration of Rexnord PMC,
the acquisition presents an opportunity to further optimize the
combined company's global operating model, which in turn can
support greater investment in the business to drive profitable
growth. Regal Rexnord also anticipates significant cross-marketing
synergies, which it will quantify at an appropriate time after the
transaction closes.
- Path to 40% enterprise gross margins. Robust expected
cost synergies plus the growth expectations for the combined
business support a path to 40% gross margins in 2025 – up from
Regal Rexnord's prior expectation of reaching a 37% gross margin by
2025. Pro Forma Adjusted EBITDA margins are expected to rise by
approximately 500 basis points by 2025.
- Provides significant immediate and long-term value creation
and financial benefits. The transaction is expected to provide
an attractive, double digit ROIC by year 5, and is expected to be
accretive to adjusted earnings per share in the first year after
closing, with double-digit accretion anticipated thereafter as
synergies accrue and de-levering is planned to occur.
- Strong cash flows, and a rapid path to de-levering.
Building on the legacy of Regal Rexnord and Altra, the pro forma
enterprise is expected to generate substantial free cash flow,
which will support a strong pace of debt reduction. Regal Rexnord
expects to lower its net debt/adjusted EBITDA ratio to between 2.5x
and 3.0x in 2024, and below 2.5x thereafter. Pro forma free cash
flow conversion rates are expected to approximate 100%.
- Unites aligned cultures with deep commitment to 80/20 and
Lean principles. The businesses share cultures focused on
serving customers and driving operating efficiencies.
- Talent infusion into Regal Rexnord as a result of
the combination is expected to support and help propel the many
growth and margin enhancement initiatives currently underway, in
particular around 80/20, Lean, digital/e-commerce, and new product
development.
Conference Call and Investor Information
Regal Rexnord will host a conference call to discuss the
transaction at 7:30 AM CT
(8:30 AM ET) on Thursday, October 27, 2022. To listen to the live
audio and view the presentation during the call, please visit Regal
Rexnord's Investor website: https://investors.regalrexnord.com. To
listen by phone or to ask the presenters a question, dial
1-888-317-6003 (U.S. callers) or + 1-412-317-6061 (international
callers) and enter 9257636# when prompted.
A webcast replay will be available at the link above, and a
telephone replay will be available at 1-877-344-7529 (U.S. callers)
or + 1-412-317-0088 (international callers), using a replay access
code of 6418591#. Both will be accessible for three months after
the call.
A copy of the investor presentation will be made available on
Regal Rexnord's investor relations website in advance of the
conference call.
Preliminary Regal Rexnord Third Quarter Results
Given the announcement of the transaction, and its timing
relative to the planned release of Regal Rexnord's third quarter
financial results on October 31,
Regal Rexnord is pre-releasing the following select anticipated
third quarter 2022 financial measures based on currently available
information: Net sales of $1,325.3
million, adjusted diluted earnings per share of $2.66 and GAAP earnings per share of $1.80. For the full year of 2022, Regal Rexnord
now expects adjusted diluted earnings per share to be in a range of
$10.35 to $10.75, which contemplates, among other factors,
expected net interest expense of $66
million vs. $50 million
expected previously. This and other guidance from Regal Rexnord
does not reflect any costs, expenses or other effects of the
transaction.
Third Quarter Earnings Announcement
Regal Rexnord is scheduled to announce its Third Quarter
earnings after market close on Monday,
October 31st and host an earnings conference call
to discuss the results at 9:00 AM CT
(10:00 AM ET) on Tuesday, November 1st. Details of
these calls will be found in a separate earnings announcement press
release and on the Regal Rexnord investor relations website.
Advisors
J.P. Morgan and Incentrum Group are serving as financial
advisors to Regal Rexnord, and Sidley Austin LLP is serving as
legal counsel. J.P. Morgan is also providing Regal Rexnord with
committed bridge financing for the transaction.
About Regal Rexnord
Regal Rexnord Corporation is a global leader in the engineering
and manufacturing of industrial powertrain solutions, power
transmission components, electric motors and electronic controls,
air moving products, and specialty electrical components and
systems, serving customers around the world. Through longstanding
technology leadership and an intentional focus on producing more
energy-efficient products and systems, Regal Rexnord helps create a
better tomorrow – for its customers and for the planet.
Regal Rexnord is comprised of four operating segments: Motion
Control Solutions, Climate Solutions, Commercial Systems and
Industrial Systems. Regal Rexnord is headquartered in Beloit, Wisconsin and has manufacturing,
sales, and service facilities worldwide. For more information,
visit RegalRexnord.com.
Forward Looking Statements
This release contains forward-looking statements, within the
meaning of Section 21E of the Securities Exchange Act of 1934, as
amended, which reflect Regal Rexnord's current estimates,
expectations and projections about Regal Rexnord's future results,
performance, prospects and opportunities. Such forward-looking
statements may include, among other things, statements about the
proposed acquisition of Altra, the benefits and synergies of the
proposed acquisition, future opportunities for Regal Rexnord and
the combined company, and any other statements regarding Regal
Rexnord's, Altra's and the combined company's future operations,
anticipated economic activity, business levels, credit ratings,
future earnings, planned activities, anticipated growth, market
opportunities, strategies, competition and other expectations and
estimates for future periods. Forward-looking statements include
statements that are not historical facts and can be identified by
forward-looking words such as "anticipate," "believe," "confident,"
"estimate," "expect," "intend," "plan," "target," "may," "will,"
"project," "forecast," "would," "could," "should," and similar
expressions. These forward-looking statements are based upon
information currently available to Regal Rexnord and are subject to
a number of risks, uncertainties, and other factors that could
cause actual results, performance, prospects or opportunities to
differ materially from those expressed in, or implied by, these
forward-looking statements. Important factors that could cause
Regal Rexnord's, Altra's or the combined company's actual results
to differ materially from the results referred to in the
forward-looking statements Regal Rexnord makes in this release
include: the possibility that the conditions to the consummation of
the proposed acquisition of Altra (the "Proposed Acquisition") will
not be satisfied on the terms or timeline expected, or at all;
failure to obtain, or delays in obtaining, or adverse conditions
related to obtaining shareholder or regulatory approvals sought in
connection with the Proposed Acquisition; failure to achieve the
proposed debt financing necessary for the Proposed Acquisition on
the desired terms, or at all; Regal Rexnord's substantial
indebtedness as a result of the Proposed Acquisition and the
effects of such indebtedness on the combined company's financial
flexibility after the Proposed Acquisition; Regal Rexnord's ability
to achieve its objectives on reducing its indebtedness on the
desired timeline; dependence on key suppliers and the potential
effects of supply disruptions; fluctuations in commodity prices and
raw material costs; any unforeseen changes to or the effects on
liabilities, future capital expenditures, revenue, expenses,
synergies, indebtedness, financial condition, losses and future
prospects; the possibility that Regal Rexnord may be unable to
achieve expected benefits, synergies and operating efficiencies in
connection with the acquisition of Altra, the merger with Rexnord
Process & Motion Control business (the "Rexnord PMC business")
and the acquisition of Arrowhead Systems, LLC ("Arrowhead")
(together with the Proposed Acquisition and the merger with the
Rexnord PMC business, the "Transactions") within the expected
time-frames or at all and to successfully integrate Altra, the
Rexnord PMC business and Arrowhead; Regal Rexnord's ability to
identify and execute on future M&A opportunities, including
significant M&A transactions; the impact of any such M&A
transactions on Regal Rexnord's results, operations and financial
condition, including the impact from costs to execute and finance
any such transactions; expected or targeted future financial and
operating performance and results; operating costs, customer loss
and business disruption (including, without limitation,
difficulties in maintaining relationships with employees,
customers, clients or suppliers) being greater than expected
following the Transactions; Regal Rexnord's ability to retain key
executives and employees; the possibility that the information
currently available to Regal Rexnord in estimating its preliminary
third quarter 2022 financial measures discussed in this release may
not accurately reflect the results of Regal Rexnord's business for
such period; the continued financial and operational impacts of and
uncertainties relating to the COVID-19 pandemic on customers and
suppliers and the geographies in which they operate; uncertainties
regarding the ability to execute restructuring plans within
expected costs and timing; challenges to the tax treatment that was
elected with respect to the acquisition of the Rexnord PMC business
and related transactions; requirements to abide by potentially
significant restrictions with respect to the tax treatment of the
Rexnord PMC business which could limit Regal Rexnord's ability to
undertake certain corporate actions that otherwise could be
advantageous; actions taken by competitors and their ability to
effectively compete in the increasingly competitive global electric
motor, drives and controls, power generation and power transmission
industries; the ability to develop new products based on
technological innovation, such as the Internet of Things, and
marketplace acceptance of new and existing products, including
products related to technology not yet adopted or utilized in
geographic locations in which Regal Rexnord does business;
dependence on significant customers; seasonal impact on sales of
products into HVAC systems and other residential applications;
risks associated with global manufacturing, including public health
crises and political, societal or economic instability, including
instability caused by the conflict between Russia and Ukraine; issues and costs arising from the
integration of acquired companies and businesses and the timing and
impact of purchase accounting adjustments; Regal Rexnord's overall
debt levels and its ability to repay principal and interest on its
outstanding debt; prolonged declines in one or more markets, such
as heating, ventilation, air conditioning, refrigeration, power
generation, oil and gas, unit material handling, water heating and
aerospace; economic changes in global markets, such as reduced
demand for products, currency exchange rates, inflation rates,
interest rates, recession, government policies, including policy
changes affecting taxation, trade, tariffs, immigration, customs,
border actions and the like, and other external factors that Regal
Rexnord cannot control; product liability, asbestos and other
litigation, or claims by end users, government agencies or others
that products or customers' applications failed to perform as
anticipated, particularly in high volume applications or where such
failures are alleged to be the cause of property or casualty
claims; unanticipated liabilities of acquired businesses;
unanticipated adverse effects or liabilities from business exits or
divestitures; unanticipated costs or expenses that may be incurred
related to product warranty issues; infringement of intellectual
property by third parties, challenges to intellectual property, and
claims of infringement on third party technologies; effects on
earnings of any significant impairment of goodwill; losses from
failures, breaches, attacks or disclosures involving information
technology infrastructure and data; cyclical downturns affecting
the global market for capital goods; and other risks and
uncertainties including, but not limited, to those described in the
section entitled "Risk Factors" in Regal Rexnord's Annual Report on
Form 10-K on file with the SEC and from time to time in other filed
reports including Regal Rexnord's Quarterly Reports on Form 10-Q.
For a more detailed description of the risk factors associated with
Regal Rexnord, please refer to Part I, Item 1A in the Regal Rexnord
Annual Report on Form 10-K for the fiscal year ended January 1, 2022 on file with the SEC and
subsequent SEC filings. Shareholders, potential investors, and
other readers are urged to consider these factors in evaluating the
forward-looking statements and are cautioned not to place undue
reliance on such forward-looking statements. The forward-looking
statements included in this release are made only as of the date of
this release and Regal Rexnord undertakes no obligation to update
any forward-looking information contained in this release or with
respect to the announcements described herein to reflect subsequent
events or circumstances.
NON-GAAP MEASURES AND OTHER DEFINITIONS
In this news release, we disclose the following non-GAAP
financial measures: adjusted EBITDA, adjusted EBITDA margin, return
on invested capital (ROIC), adjusted diluted earnings per share
(EPS), and net debt. We believe that these non-GAAP financial
measures are useful measures for providing investors with
additional information for helping investors understand and compare
our operating results across accounting periods and compared to our
peers. Our management primarily uses adjusted EBITDA, adjusted
EBITDA margin, ROIC, adjusted diluted earnings per share and net
debt to help us evaluate our business and forecast our future
results. Accordingly, we believe disclosing and reconciling each of
these measures helps investors evaluate our business in the same
manner as management. This additional information is not meant to
be considered in isolation or as a substitute for results of
operations prepared and presented in accordance with GAAP. For
forward-looking non-GAAP measures (as used in this press release,
adjusted EBITDA, adjusted EBITDA margin, net debt/adjusted EBITDA,
free cash flow and ROIC), other than in respect of Regal's 2022
updated guidance for adjusted diluted EPS, we are unable to provide
a reconciliation to the most comparable GAAP financial
measure. Information needed to reconcile these measures is
dependent upon future events, many of which are outside of
management's control as described above. Additionally, estimating
such GAAP measures and providing a meaningful reconciliation
consistent with our accounting policies for future periods is
extremely difficult and requires a level of precision that is
unavailable for these future periods and cannot be accomplished
without unreasonable effort. Forward-looking non-GAAP measures are
estimated consistent with our historical practice.
Disclosures Related To Preliminary Regal Rexnord Third Quarter
Results
Regal Rexnord's consolidated financial statements for the third
quarter 2022 are not yet complete. Accordingly, Regal Rexnord is
presenting certain preliminary anticipated operating results for
the third quarter 2022 based on information available as of the
date of this release. These anticipated results are not a
comprehensive statement of Regal Rexnord's results for such period,
and Regal Rexnord's actual results may differ from these
preliminary estimated results. These anticipated results are
preliminary and unaudited and are inherently uncertain and subject
to change as Regal Rexnord completes the preparation of its
consolidated financial statements for the third quarter 2022.
During the course of the preparation of Regal Rexnord's
consolidated financial statements and related notes, and completion
of Regal Rexnord's financial close procedures for the third quarter
2022, adjustments to the anticipated results may be identified, and
such adjustments may be material. These anticipated results should
not be viewed as a substitute for full financial statements
prepared in accordance with GAAP, and they should not be viewed as
indicative of Regal Rexnord's results for any future period.
Therefore, you should not place undue reliance upon this
information. Regal Rexnord's independent registered accounting firm
has not audited, reviewed, compiled or performed any procedures
with respect to this preliminary estimated financial information
and, accordingly, does not express an opinion or any other form of
assurance with respect thereto.
ADJUSTED DILUTED
EARNINGS PER SHARE
|
|
Three Months
Ended
|
|
|
September 30,
2022
|
|
October 2,
2021
|
GAAP Diluted Earnings
Per Share
|
|
$
1.80
|
|
$
1.95
|
Restructuring and
Related Costs
|
|
0.29
|
|
0.05
|
Transaction and Related
Costs
|
|
-
|
|
0.59
|
Inventory Step Up
Adjustment
|
|
(0.04)
|
|
-
|
Intangible
Amortization
|
|
0.51
|
|
0.20
|
Share-Based
Compensation Expense
|
|
0.08
|
|
0.07
|
Gain on Sale of
Assets
|
|
-
|
|
(0.03)
|
Loss on Businesses
Divested and Assets to be Exited
|
|
-
|
|
0.05
|
Discrete Tax
Items
|
|
0.02
|
|
-
|
Adjusted Diluted
Earnings Per Share
|
|
$
2.66
|
|
$
2.88
|
2022 ADJUSTED ANNUAL
GUIDANCE
|
|
Minimum
|
|
Maximum
|
2022 Diluted EPS Annual
Guidance
|
|
$ 7.15
|
|
$ 7.55
|
Restructuring and
Related Costs
|
|
0.72
|
|
0.72
|
Intangible
Amortization
|
|
2.08
|
|
2.08
|
Share-Based
Compensation Expense
|
|
0.30
|
|
0.30
|
Transaction and Related
Costs
|
|
0.06
|
|
0.06
|
Inventory Step Up
Adjustment
|
|
0.06
|
|
0.06
|
Gain on Sales of
Assets
|
|
(0.04)
|
|
(0.04)
|
Discrete Tax
Items
|
|
0.02
|
|
0.02
|
2022 Adjusted Diluted
EPS Annual Guidance
|
|
$
10.35
|
|
$
10.75
|
1 As of June 30,
2022.
2 Includes an equity valuation of $4.09 billion or $62.00 per Altra share and the assumption of
$860 million of net debt.
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SOURCE Regal Rexnord Corporation