NORBORG, Denmark—For Eaton Corp., a deal to divest the company's hydraulics business is being viewed as transformational.
For Danfoss A/S, the deal to acquire Eaton's hydraulics business also is being viewed as transformational, but in a different way.
Eaton's move to sell off the hydraulics business is part of that company's push to focus on business segments that have better earnings consistency.
Danfoss sees the $3.3 billion deal to expand its own hydraulics business in a way that's just impossible to do internally.
"We have long tried to figure out how we can become bigger in certain areas. For instance, we have not tried to get into the industrial market, that's not just something you can do just organically," said Eric Alstrom, Danfoss Power Solutions president. "You have to do it through acquisitions. We have always been interested in conveyance—hoses and fittings. But, certainly, it's nothing you can just start doing from scratch."
The transaction originally was expected to close in 2020, but Danfoss later said that would not happen until 2021.
Make no mistake, Danfoss is paying a pretty penny to take over Eaton's hydraulics business.
Eaton's $2.2 billion hydraulics business posted earnings before interest, taxes, depreciation and amortization of $250 million and has about 11,000 employees. Danfoss is paying a 13.2 earnings multiple.
While Eaton is selling off the hydraulics business, the company is keeping a rubber-related golf grips unit that has been housed in that segment. Eaton also is keeping a filtration business that was part of the unit.
Eaton CEO Craig Arnold previously said the sale "is part of the ongoing transformation of Eaton into a higher growth company with better earnings consistency. … We believe this transaction will create substantial value for our shareholders and allow our hydraulics employees to be part of a company that has a strong commitment to the hydraulics industry."
The hydraulics business includes a wide variety of equipment and systems to serve a vast array of industrial and mobile applications.
While there are many components to hydraulic systems, rubber hoses are key in helping hydraulics do their job, whatever that job might be. Those hoses must withstand high pressures that allow hydraulic fluids to create equipment movement. Other aspects of hydraulics include pumps, motors, valves, controls and cylinders.
Other deals of note
• Another big deal involving the hose industry, came together in early February, when Italy's Manuli Rubber Industries acquired a majority share in Melbourne, Australia-based Ryco Hydraulics Pty. Ltd. The combination reaches across more than 120 countries with projected hose and fittings sales of $550 million (before the pandemic took hold).
• Cooper Standard Holding Inc. sold off its rubber fluid transfer and specialty sealing businesses in Europe and most operations in India to Mutares SE & Co. KGaA. Jon Banas, Cooper Standard's chief financial officer, said the deal was consistent with a long-term strategy to exit businesses that was not covering the cost of their capital.
• Avon Rubber P.L.C. decided to exit the milking equipment business to devote all of its resources to personal protective gear, selling its milkrite|InterPuls business to DeLaval Group our of Sweden for roughly $225 million.
• EnPro Industries Inc. sold its Stemco air springs business, including the Goodyear-brand air springs business, to private equity firm Turnspire Capital Partners L.L.C. for $32 million in cash and a $7.5 million long-term promissory note.
• Right Lane Industries, a holding company with a portfolio containing numerous U.S. manufacturing and industrial service companies, bought lightweight conveyor belt maker Belt Concepts from ContiTech USA Inc. ContiTech said the lightweight PVC belts made by Belt Concepts were a niche market and not part of its core strategy.
• Specialty polymer manufacturer Kraton Corp. completed the sale of its Cariflex polyisoprene products business to Daelim Industrial Co. Ltd. for $530 million. Kraton President and CEO Kevin Fogarty said it had little revenue and cost overlap with Kraton's core polymer and chemical segments.
Daelim's Cariflex PTE Ltd. unit said it will invest $50 million in an expansion of its Paulinia, Brazil plant, allowing the company to double its production capacity of IR latex.
• Synthomer P.L.C. closed on its acquisition of Omnova Solutions Inc., bringing London-based Synthomer eight U.S. manufacturing sites and 13 locations worldwide. Synthomer paid a total of $824 million, including assumption of debt.