BLOOMFIELD, Conn.—Kaman Corp. will sell its distribution segment to affiliates of Littlejohn & Co. L.L.C. for total cash consideration of $700 million.
The transaction, which is subject to customary closing conditions and working capital adjustments as well as regulatory approvals, is expected to close in the third quarter of 2019, according to a Kaman news release. The deal is not subject to shareholder approval.
The total price is worth a value of 10.4 times trailing 12-month segment-adjusted EBITDA for the distribution segment, Kaman said. The segment reported GAAP operating income of $12.7 million for the quarter-to-date ending March 29 and $52.4 million for the trailing 12-month period, which also ended March 29.
Kaman expects its remaining aerospace segment to generate between $730 million and $760 million in revenue in 2019, it said. It will continue to design and manufacture critical components, structures and systems for commercial and military customers from its 14 global facilities, which support about 3,000 employees.
Kaman plans to receive about $600 million in net proceeds from the transaction, and will allocate about $100 million in proceeds to pay down debt and accelerate new product developments, it said. The firm also will pursue strategic acquisitions in engineered product end markets. It also plans on returning capital to shareholders through its quarterly cash dividend and share repurchase programs. Kaman will provide more details about capital allocation with its second quarter 2019 results in August.
Going forward, Kaman will evaluate its cost structure for efficiencies, and expects annualized savings of $15 million to $20 million, according to a presentation made during a company investors conference call.
The distribution segment operates about 220 locations across the U.S. and Puerto Rico, with about 2,200 employees, Kaman said. It generated about $1.1 billion in net revenue in 2018.
The segment covers more than 6 million items in applications including electro-chemical, bearings and power transmission, among others. It also provides engineering, design and support for automation, electrical, linear, hydraulic and pneumatic systems. The group also offers belting and rubber fabrication, customized mechanical services, hose assemblies, repair, fluid analysis and motor management.
The sale will create a competitive, differentiated company focused on engineered products and increase its margin profile, according to the conference call presentation. Current market conditions create favorable timing for the sale, and it provides flexibility to pursue both growth opportunities and increases of scale of the company's engineered product business.
"For Kaman, this transaction represents an important milestone in our portfolio transformation and the culmination of a thorough strategic review undertaken by our board of directors," Neal Keating, Kaman chairman, CEO and president, said in a statement. Strengthening the balance sheet will better position the company to invest.
"Kaman Distribution builds upon Littlejohn's deep expertise investing in the distribution and industrial sectors," Littlejohn Managing Director Tony Miranda said in a statement.
Based in Greenwich, Conn., Littlejohn is an investment firm that focuses on middle market companies. The company said it looks forward to investing in the distribution business to drive growth both organically and through acquisition.
Robert W. Baird & Co. and J.P. Morgan Securities are serving as financial advisers to Kaman, and K&L Gates L.L.P. is serving as its lead legal adviser for the transaction. Jefferies, Antares Capital, and Bank of Montreal provided debt financing commitments in support of the acquisition.
Gibson, Dunn and Crutcher L.L.P. is serving as Littlejohn's legal adviser for the transaction.