Racine-based Modine Manufacturing Co. plans to acquire Memphis, Tennessee-based Luvata Heat Transfer Solutions in a $422 million deal that will “fundamentally alter” the profile of the company, said Thomas Burke, Modine president and chief executive officer.
Burke said the deal would allow Modine to increase its revenue from industrial markets from 15 percent to about 40 percent, diversify its customer base and reduce exposure to cyclical markets.
“We have now put in place all the necessary pieces for us to successfully execute and complete the transformation strategy we have underway at Modine,” Burke said.
Modine, which manufacturers vehicle cooling and heat management systems along with building HVAC products, announced an initiative last year aimed at strengthening, diversifying and growing the business. The plan included cost reduction targets, a shift in revenue away from a reliance on vehicles and adding $100 million in incremental industrial revenue by the end of fiscal 2018.
The acquisition of Luvata HTS, a division of London-based Luvata Group, will accomplish many of those targets. Besides the increase in industrial revenue, the deal would shift Modine’s reliance on its top 10 customers from 63 percent to 47 percent.
Luvata HTS manufacturers commercial and industrial coils, coolers and related products. Burke said the company’s product lines will fit well with Modine’s vehicular and building HVAC businesses.
“They bring an innovative culture and broad product offering that are highly complementary to Modine. Further, they bring a global footprint with manufacturing facilities spread over three continents, all of which are supported by best in class sales, engineering and support teams,” Burke said.
Luvata HTS has its main manufacturing operations in Grenada, Mississippi. The division has 18 plants around the world.
Luvata HTS sales of $530 million last year, potentially giving Modine $1.9 billion in annual sales, although company executives said there are additional opportunities for increasing revenue as the two companies combine.
Modine is acquiring the division for approximately $422 million. The deal will be financed with a combination of cash, debt and $25 million in Modine common stock.
The deal is expected to close by the end of the year.
Burke said Modine was engaged in a multi-stage auction for Luvata HTS since January, but added “they were on our radar screen much earlier than that.”
Michael Lucareli, Modine vice president for finance and chief financial officer, said the company is targeting $15 million in cost savings to go with the potential revenue synergies. He said there is potential for procurement savings from both sides of the deal, elimination of costs in selling, general and administrative areas, particularly in back office functions, and through continuous improvement in manufacturing operations.
Lucareli said the potential savings will likely be realized over three or four years and will be evenly distributed among the three areas.