AMETEK Bets $5 Billion on Indicor Deal to Expand Industrial Technology Portfolio

Important Points

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• AMETEK agreed to buy Indicor’s Instrumentation businesses in a $5 billion in cashwhich executives say is a highly strategic addition to its industrial technology portfolio. The transaction is expected to close in the second half of the year, pending regulatory approval.

• The resulting portfolio produces approx $1.1 billion in annual sales and probably 50% recurring income from aftermarket sales and services, with historical growth in 6% to 7% width. AMETEK said the businesses fit well within its Electronic Instruments and Electromechanical segments.

• AMETEK expects approx 10% to 12% of sales on annual cost synergies, which is aimed at achieving that in the third year. The management also said that the agreement should be receipt of income in the first year and that profit should be manageable as the company plans to recoup soon after closing.

AMETEK (NYSE:AME) said it has entered into a definitive agreement to acquire the Instrumentation group of businesses from Indicor, LLC, for $5 billion in what management described as a highly strategic addition to its portfolio of industrial technology businesses.

Chairman and Chief Executive Officer David Zapico said in a conference call that the acquisitions businesses generate approximately $1.1 billion in annual sales and deliver “very valuable solutions” in many niche markets. AMETEK referred to the acquired portfolio as Indicor throughout the call.

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“This is a very strategic acquisition and is the result of AMETEK’s systematic approach to capital deployment,” Zapico said, calling it “a compelling and unique opportunity to acquire a portfolio of outstanding industrial technology businesses in one transaction.”

Financial Terms and Conditions

AMETEK said the total cash consideration of $5 billion represents a multiple of 14 times EBITDA. Zapico said the company expects to finance the deal through a combination of borrowings under the AMETEK credit facility and new debt issuance.

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At closing, AMETEK expects its debt-to-EBITDA ratio to be approximately 2.3 times. Executive Vice President and Chief Financial Officer Dalip Puri said the company expects to operate faster, at a pace of about 0.2 to 0.3 of the opportunity each quarter, while maintaining the ability to make additional acquisitions.

The transaction is subject to customary closing conditions and regulatory approvals. Zapico said AMETEK does not expect any regulatory problems, although approvals are required from government agencies around the world. The company expects the deal to close in the second half of the year.

Portfolio Fit and End-Market Exposure

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Zapico said Indicor’s businesses are closely aligned with AMETEK’s Electronic Instruments Group and Electromechanical Group segments. He said about 80% of the acquired businesses will fall under EIG and about 20% will be within EMG.

The acquisition includes 10 separate businesses, which Zapico said will be integrated into AMETEK’s decentralized operating structure. He said AMETEK currently has about 40 profit and loss units and will add 10 more through the transaction, bringing the total to 50. All 10 business leaders from the acquired portfolio have agreed to stay with AMETEK, he said.

Zapico cited several examples of brand equity. Struers, described as the largest business in the acquired portfolio, specializes in material preparation prior to analysis and will complement AMETEK’s material analysis activities. AMOT, which provides actuation systems and related automation products, will be integrated into AMETEK’s automation business at EMG. Zapico also said that PAC complements AMETEK’s Process and Analytical Instruments business in the energy market.

Other businesses discussed on the call include Technolog, which Zapico says is receiving capital from critical infrastructure in the United Kingdom and benefits from UK government schemes. He also said that the ADR was acquired during Indicor’s private equity ownership, while Alphasense is believed to have been part of the existing portfolio.

Recurring Income and Growth Profile

AMETEK emphasized Indicor’s sustainable revenue base, with approximately 50% of sales coming from aftermarket sales and services. Zapico said its recurring revenue profile is supported by strong intellectual property and embedded customer relationships and should help buffer the portfolio during weak industry cycles.

Asked about historical growth, Zapico said Indicor’s businesses have grown in the 6% to 7% range in recent years, while AMETEK uses a more conservative 6% assumption in its model. He characterized businesses as mid- to single-digit investors, typically in the 5% to 7% range.

Zapico said the portfolio has grown well globally, including in China, and described its geographic exposure as balanced. He said businesses are benefiting from a number of industry trends, including energy transitions and data center capabilities.

Synergy objectives and integration plans

AMETEK expects annual synergies of 10% to 12% of sales, which management says is in line with its typical deal acquisition rates. Zapico later clarified that this figure refers to cost integration and said that AMETEK expects to achieve that level in the third year.

Zapico said AMETEK will apply its operating model to Indicor’s businesses, including global availability, shared services and international infrastructure. He said there has never been a large amount of spending on acquired businesses, which has created opportunities for AMETEK’s world-class service organization. He also pointed to approximately 130 sales and service offices across the portfolio and said AMETEK expects to use its existing model of shared international facilities.

“Integration is our secret sauce,” Zapico said, adding that AMETEK has identified opportunities to improve growth, profitability, cash flow and return on investment through integration.

He also said that Indicor’s gross margin is greater than 50%, describing the portfolio as “a premium business with premium gross margins.” AMETEK expects the transaction to be accretive to earnings in the first year and to have a solid return on capital.

Management’s Commentary on Strategy

Zapico said the acquisition was not all of Indicor, but rather the businesses AMETEK viewed as the best strategic fit. He said this decision shows AMETEK’s discipline of procurement.

In response to analyst questions about investment levels, Zapico said he expects post-closing capital expenditure requirements or research and development to be “very small,” although he said AMETEK sees an opportunity to improve new product viability. He said the New Product Vitality Index of acquired businesses is “much lower” than that of AMETEK.

Zapico said the deal was made because the owner of Indicor, whom he described as an independent private company, knew that AMETEK was a reasonable buyer. He said that AMETEK has the management capacity and the ability of the balance sheet to carry out this project.

“When you combine the premium assets, the well-run businesses that we acquire through our growth model, and the collaborative capabilities that we have, it’s a financial exercise,” said Zapico.

About AMETEK (NYSE:AME)

AMETEK, Inc is a global manufacturer of electronic instruments and electromechanical devices serving a wide range of industries. Headquartered in Berwyn, Pennsylvania, the company designs and manufactures precision instruments, electronic measuring devices, specialty sensors, and electric motors and motion control systems. Its product portfolio includes analysis and monitoring tools, measurement equipment, power supplies, embedded electronics, and industrial motors and drives used in critical applications.

The company operates through two main business areas – an electronic instrumentation group that focuses on analysis, testing and measurement and sensor products, and an electromechanical group that provides motors, actuators, and related power and motion solutions.

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