Milwaukee-based A. O. Smith Corp. signed a definitive agreement to acquire Lochinvar Corp. of Lebanon, Tenn., for $418 million.
With the acquisition, A.O. Smith will not assume Lochinvar’s existing debt.
Privately held Lochinvar is a leading manufacturer of high-efficiency boilers used in commercial and residential hydronic heating and hot water applications.
The transaction is expected to close in the third quarter of 2011, subject to customary closing conditions and regulatory review.
"This acquisition fits squarely within our stated strategy to expand our core product offering with new technologies, which emphasize high-efficiency products that can be applied globally," said Paul Jones, chairman and chief executive officer of A.O. Smith. "This is a significant first step in growing our diversified global water heating platform and the beginning of the redeployment of the proceeds from the sale of our Electrical Products Company."
For the 12 months ended June 30, 2011, Lochinvar recorded sales of approximately $200 million and adjusted EBITDA of approximately $45 million. The purchase price represents an adjusted multiple of 7.5 times EBITDA when taking into account the estimated $80 million of tax benefits that A. O. Smith will receive as a result of treating the transaction as a purchase of assets for tax purposes.
A.O. Smith expects to achieve approximately $10 to $15 million of annual synergies over the next few years from purchasing economies and potential global expansion opportunities.
"The addition of Lochinvar expands our product offering and gives us access to proven high-efficiency boiler technology," said Ajita Rajendra, president of A. O. Smith Water Products Company. "The $1.1 billion North American boiler industry is in the midst of a transition to the new high-efficiency condensing technology, which we believe is growing several times faster than GDP," he continued. "We expect high-efficiency boiler products to continue to grow at an accelerated rate for the foreseeable future."
William Vallett Jr., chief executive officer and president of Lochinvar, said, "We are extremely excited about the potential benefits of combining with such a logical partner like A. O. Smith and the future prospects for our employees, customers and suppliers."
A.O. Smith also reported second quarter net earnings of $50.3 million, or $1.08 per share, up from $16.6 million, or 36 cents per share, in the same period a year ago.
