Milwaukee-based Zurn Water Solutions plans to acquire Elkay Manufacturing, a maker of water bottle fillers and sinks used in commercial settings, in a stock deal valued at $1.56 billion.
The current shareholders of Elkay, a family-owned business based in Downers Grove, Illinois, will receive up to 52.5 million shares of Zurn stock, giving them around 29% ownership in the combined company.
Zurn will maintain its headquarters in Milwaukee after the deal closes and will maintain a presence in the Chicago-area where Elkay is based. Zurn’s name will change to Zurn Elkay Water Solutions and its board will expand to 11 members with the addition of two current Elkay directors. The Elkay business will continue to be run by Ted Hamilton, currently the company’s president.
Zurn’s stock closed at $29.79 on Friday, valuing the deal at $1.56 billion. The company’s stock climbed to a high of $33.16 on Monday morning.
Todd Adams, chairman and chief executive officer of Zurn, said the deal only came together because of the long-term perspective of the Elkay shareholders and their willingness to be long-term shareholders in Zurn. A majority of the family shareholders of Elkay have agreed to 18-month lock up periods for their Zurn stock.
“We knew we could increase our long-term competitive position by combining with another complementary brand,” stated Ron Katz, senior member of the founding family. “We were pleased to find a well-respected partner in Zurn Water Solutions, with their strong, people-centric midwestern values and deep commitment to quality, ethics, and customer satisfaction that mirrors our own.”
The deal is the second major transaction Zurn has announced in the past year. In February 2021, the company, then known as Rexnord, announced plans to spin-off its process and motion control business and merge it into Regal Beloit.
After the deal, which closed in the fall, Rexnord’s name changed to Zurn and the company emerged as a business focused on the water business. While Zurn planned to grow both organically and through acquisitions, Adams acknowledged getting to the next big deal happened sooner than anticipated.
“Things don’t always happen on the exact timeline of our choosing,” he said.
The acquisition of Elkay will only intensify the combined business’ focus on water solutions, especially in institutional and commercial settings.
“The word transformative is usually just a little cliché for my linking but in this case I think it’s appropriate,” Adams said.
Elkay will add around $700 million to Zurn’s roughly $1 billion in annual net sales. It will also give the company a more balanced sales mix between new construction settings and retrofit opportunities with the latter growing from 35% to 45%.
Adams highlighted Elkay’s presence in the market for bottle filling stations that have grown in popularity as a replacement for water fountains, “or as we say in Wisconsin, we’re replacing bubblers,” Adams joked.
He noted that water is growing as a beverage choice for many people and there are 8 million water fountains in the market that could be replaced. Additionally, the bottle fillers have a three- to five-year replacement cycle for some components or even the entire unit. There also filtration and chilling elements replaced more regularly.
Zurn estimates it can realize $50 million in synergies from the deal, including opportunities in supply chain, business and functional efficiencies, cross marketing, and a combined sales rep network.
In addition to its water business, Elkay also owns Elkay Interior Systems, a Milwaukee-based business the provides design, branding, manufacturing and installation for restaurants, retail and other settings. The EIS business will be spun-off from water business and will continue to be owned by current Elkay shareholders. It is not part of the Zurn acquisition.