Benzinga | Jul 26, 2021 07:31AM EDT

RBC Bearings To Acquire ABB's DODGE Mechanical Power Transmission Business For $2.9B In Cash

* Transaction creates a leading manufacturer with strong brand recognition for premium performance critical bearing and motion control products sold to both OEMs and the industrial aftermarket doubling ROLL's revenue and EBITDA scale

* The DODGE brand, a well-known premium choice for bearings, mechanical components and systems, is produced primarily with world class U.S. centric manufacturing capabilities

* Substantially increases scale, product depth and reach in the important market of industrial distribution where over 60% of revenues are consistently achieved

* Extensive population of existing products used throughout industry and installed over decades where like-for-like replacement dictates purchasing preference

* Strong synergies across all aspects of the business enterprise capable of reaching $70 million to $100 million annually by the fifth year

* Approximately 40% to 60% accretive to cash EPS in the first full fiscal year

* Strong cash flow of the combined business expecting to pay down debt within 5 years

RBC Bearings Incorporated (NASDAQ:ROLL), a leading international manufacturer of highly engineered precision bearings and components for the industrial, defense and aerospace industries, today announced that it has entered into a definitive agreement to acquire the DODGE mechanical power transmission division ("DODGE") of Asea Brown Boveri Ltd ("ABB") for $2.9 billion in cash. The purchase price represents 16.7x DODGE's adjusted EBITDA for the 12 months ended June 30, 2021, or 10.6x to 11.9x adjusted EBITDA when including estimated run-rate synergies.

With headquarters in Greenville, South Carolina, DODGE is a leading manufacturer of mounted bearings and mechanical products with market-leading brand recognition. DODGE manufactures a complete line of mounted bearings, enclosed gearing and power transmission components across a diverse set of industrial end markets. DODGE primarily operates across the construction and mining aftermarket, food & beverage, warehousing and general machinery verticals, with sales predominately in the Americas. DODGE generated revenue of approximately $617 million and adjusted EBITDA of approximately $174 million, representing an adjusted EBITDA margin of 28%, for the 12 months ended June 30, 2021.

RBC Bearings Chairman, President and Chief Executive Officer, Dr. Michael J. Hartnett, said, "Today we are very pleased to announce the execution of an agreement between ABB and RBC Bearings to acquire DODGE. The combination will enhance RBC Bearings' capabilities, footprint, and customer base while increasing our access to DODGE's attractive end markets. Our businesses are highly complementary, with DODGE bringing new offerings, new end markets, and more scale to the combined organization. The combined company will have an attractive position in the Aerospace, Defense and Industrial markets with a diversified client base and expansive geographic footprint. We look forward to welcoming DODGE's talented team to RBC Bearings."

"We are delighted that DODGE has found an excellent new home with RBC Bearings, where it can continue its exciting growth story," said ABB CEO Bj?rn Rosengren. "This transaction further strengthens ABB's balance sheet. In line with our capital allocation priorities, we plan to first use the proceeds from the transaction to fund organic growth, pay a rising sustainable dividend per share and make value-creating acquisitions."

The acquisition is anticipated to be immediately accretive to RBC Bearings' cash EPS (excluding amortization of intangibles, deferred financing fees, and one-time deal costs associated with this transaction) by approximately 40% to 60% in the first full fiscal year after close. We expect cash EPS to be in the range of $7.00 to $8.00 per share in the first full fiscal year. The acquisition is expected to generate annual pre-tax run-rate synergies of approximately $70 million to $100 million by fiscal year 2026.

The acquisition is supported by a fully committed bridge facility. Permanent financing is expected to include an appropriate mix of debt and equity, with strong deleveraging expected post-closing. The transaction is expected to close in the fourth calendar quarter of 2021 (our fiscal 2022 third quarter), subject to customary closing conditions, including regulatory review.