Recent growth has Generac thinking of bigger acquisitions

Generac's headquarters in Waukesha.

Last updated on February 17th, 2020 at 11:03 am

Things have been trending in a positive direction for Waukesha-based Generac Holdings Inc.

The maker of home standby generators and energy storage equipment saw its stock more than double in value last year and continue on an upward trend to start this year. Net sales in 2019 increased 8.9% to $2.2 billion as the company’s entry into clean energy markets and its traditional standby business benefited from increased interest in wildfire-ravaged California.

Net income increased 5.7% to $252 million while earnings improved from $3.54 to $4.03 per share. The company also generated a record $250.7 million in free cash flow while also amending its term loan credit agreement to push its maturity out from May 2023 to December 2026. Generac also paid down $49 million in debt as part of the deal.

With a number of metrics pointing in a positive direction, analysts on Thursday asked Generac president and chief executive officer Aaron Jagdfeld if the company had interest in pursuing larger acquisitions.

“It’s something we’re talking a lot about,” Jagdfeld said, before adding he wouldn’t comment specifically on the company’s acquisitions funnel. “We’re looking at a lot of things in the funnel that I would say are different than what we would have looked at historically.”

Generac is no stranger to acquiring other companies, having done at least 10 deals since 2014. Most recently, the company acquired Vancouver-based Neurio Technology in March and Maine-based Pika Energy Inc. in April. Those deals helped launch Generac’s clean and distributed energy strategy and added around $7.6 million to domestic sales in the fourth quarter.

Domestic sales were up $33.8 million to $470.1 million in the quarter, boosted by public safety power shut-offs in California, which has boosted interest in Generac’s home standby generators.

“It’s changed our gaze if you will, in terms of where we look and the size of the things we look at,” Jagdfeld said.

He noted the company is now evaluating bigger potential deals and emphasizing the clean energy space, although he added Generac would still look to do bolt-on acquisitions where it makes sense.

“I’m excited about the future and I’m excited that we’re in a position where we can capitalize on that future,” Jagdfeld said.

Analysts specifically asked Jagdfeld if he’d be willing to do deals that would potentially cut into Generac’s margins. He noted the company’s margins are fairly high so it would be hard to find something that wouldn’t harm them initially.

“Dilution doesn’t scare me because long-term, I know what our capabilities are,” he said.

York Ragen, Generac chief financial officer, noted that slightly lower margins aren’t as concerning “if we have a path to improved margins over time.”

“You have to have that,” Jagdfeld said. “Obviously you have to have that.”

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Arthur Thomas
Arthur covers manufacturing for BizTimes. He previously was managing editor at The Waukesha Freeman. He is a graduate of Carroll University and did graduate coursework at Marquette. A native of southeastern Wisconsin, he is also a nationally certified gymnastics judge and enjoys golf on the weekends.