EnerSys ENS yesterday announced that it acquired all shares of N Holding AB from Altor Fund II. The transaction value included a cash component of $78 million and debt assumption of $104.5 million.
It is worth noting here that N Holding AB is the parent company of NorthStar, which engages in the manufacturing and distribution of batteries. NorthStar has two production facilities in Springfield, MO. Its revenues generated in the 12 months ended Aug 31, 2019, totaled $157 million while adjusted earnings before interest, tax, depreciation and amortization (EBITDA) were $14 million.
Details of Buyout
EnerSys believes that the buyout will complement its portfolio of Thin Plate Pure Lead (“TPPL”) products and will help it in boosting sales of TPPL batteries. Also, the company intends on manufacturing its products, including SBS, ODYSSEY and NexSys, at NorthStar’s factories in the coming six months.
In addition, EnerSys, which imports batteries from Europe, believes that NorthStar’s exposure in Europe will be a boon. This will help EnerSys to better deal with the impacts of risks associated with forex, freights, inventory and duty.
Furthermore, EnerSys anticipates the buyout to generate more than $40 million of annual run-rate synergies as well as boost earnings. Also, the use of available floor space at NorthStar’s facility for EnerSys’ new TPPL production line (high-speed) will help in saving about $100 million. Annualized revenue generation from the buyout is predicted to be approximately $150 million.
Subject to the fulfillment of closing conditions, EnerSys predicts the buyout to be completed in the coming 15 days.
Strengthening Portfolio Through Buyouts
We believe that the above-mentioned transaction is consistent with EnerSys’ policy of acquiring businesses to gain access to new customers, regions and product lines.
In December 2019, the company acquired Alpha Technologies Group of Companies, which has been strengthening its product portfolio across the telecom, broadband, industrial and renewable markets. EnerSys anticipates realizing annualized synergies of roughly $25 million from this buyout.
It is worth mentioning here that the Alpha acquisition boosted EnerSys’ sales by 20% in the fourth quarter of fiscal 2019 (ended Mar 31, 2019).
Zacks Rank, Estimates and Price Performance of EnerSys
The company, with approximately $2.7-billion market capitalization, currently carries a Zacks Rank #4 (Sell). It is facing headwinds from rising costs despite cost-reduction initiatives and unfavorable movements in foreign currencies. Also, a highly leveraged balance sheet can be detrimental.
In the past 60 days, earnings estimates for EnerSys have been lowered. The Zacks Consensus Estimate for its earnings is pegged at $5.39 for fiscal 2020 (ending March 2020) and $5.93 for fiscal 2021 (ending March 2021), suggesting declines of 7.2% and 6% from the respective 60-day-ago figures.
Enersys Price and Consensus
Enersys price-consensus-chart | Enersys Quote
In the past three months, the company’s share price has decreased 4.5% against 0.6% growth recorded by the industry.
Stocks That Warrant a Look
Some better-ranked stocks in the Zacks Industrial Products sector are Graham Corporation GHM, Brady Corporation BRC and Chart Industries, Inc. GTLS. All these stocks currently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
In the past 60 days, earnings estimates for these companies improved for the current year. Further, earnings surprise for the last reported quarter was 100% for Graham, 11.48% for Brady and 11.48% for Chart Industries.
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