Parker Hannifin Corp. is expanding its engineered materials business significantly as the result of a deal to buy privately held adhesives, coatings and materials company Lord Corp. of Cary, N.C., for $3.675 billion in cash.
Mayfield Heights, Ohio-based Parker, a maker of motion and control technologies, said in an April 29 news release that the deal is expected to be completed within four to six months. The transaction has been approved by the boards of each company and is subject to customary closing conditions, including receipt of regulatory approvals, Parker said in the release.
Upon closing of the transaction, LORD will be combined with Parker's Engineered Materials Group.
Lord, founded in 1924, makes products that are used in the aerospace, automotive and industrial markets, including additives used in liquid silicone rubber. Its annual sales are about $1.1 billion. Lord has 3,100 employees at 17 manufacturing and 15 research and development operations worldwide.
The acquisition comes about a month after Lord began construction at a $15.8 million site in Hueckelhoven, Germany, on a 35,000-square-foot expansion to make materials for the electric vehicle market.
Lord already employs 70 at the site, which spans about 70,000 square feet on about 119,000 square feet of land and has been in operation since 1897.
Lord said the space will be used to add production for gap fillers, potting and encapsulants, and thermal adhesives sold under its CoolTherm brand. The products fall under Lord's Thermal Management business and are formulated to help reduce heat build-up in electronic components. According to the company's website, CoolTherm products can be customized for epoxies, silicones, urethanes and acrylics, depending on performance needs and cost targets, and are primarily used in battery packs, chargers, inductors, motors and power electronics.
"Historically Lord's been successful at growing our core business in elastomer bonding and coatings for quieter vehicles or structural adhesives for bonding," said Doug Lorenz, president of Lord's global performance materials business.
"The pull from our customers and the success we've been having is what's driving these investments around the world. Germany is kind of the center of the automotive electric vehicle revolution in Europe and is certainly a region with a strong history of engineering and automotive innovation."
The acquisition "will reinforce our stated objective to invest in attractive margin, growth businesses, such as engineered materials, that accelerate us towards top-quartile financial performance," said Tom Williams, chairman and CEO of Parker, in a statement. He added that Lord "will significantly expand our materials science capabilities with complementary products, better positioning us to serve customers in growth industries and capitalize on emerging trends such as electrification and lightweighting."
Williams said the deal "is expected to drive significant value for Parker shareholders and be accretive to organic growth, EBITDA margins, cash flow and EPS, excluding one-time costs and deal related amortization."
Parker said it plans to finance the acquisition with new debt. Following completion of the transaction, Parker said, it "expects to maintain a high investment grade credit profile."
The transaction "is not expected to impact Parker's dividend payout target averaging approximately 30-35 percent of net income over a five-year period, while maintaining its record of annual dividend increases," the company said in the release.
Parker said in the release that it "expects to realize approximately $125 million in pre-tax run-rate cost synergies by full-year 2023. The cumulative cost to achieve these synergies is expected to be approximately $80 million. Synergies are expected to come from implementation of ... initiatives such as supply chain and lean productivity, and SG&A (selling, general and administrative expenses). Cross-selling opportunities and global market distribution are expected to provide incremental revenue synergies over time."
MarketWatch noted that Parker's stock, which closed April 26, at $183 per share, has risen 11.3 percent during the past 12 months, besting the performance of the S&P 500, which has gained 10.1 percent over the time period.
Parker employs about 58,000 people globally. Its revenues last year topped $14.5 billion.
Chris Sweeney of Rubber & Plastics News contributed to this report.