STOCKHOLM Sweden's SKF (SKFb.ST), the world's biggest bearings maker, said on Thursday it had agreed to buy U.S.-based Kaydon Corporation KDN.N in an all-cash $1.25 billion deal.
SKF, which competes with U.S. group Timken (TKR.N) and Germany's Schaeffler AG, said the deal included $95 million of net debt and would be paid with cash on hand, boosting the group's earnings in the first year after the transaction.
With 62 percent its sales in North America, the acquisition of Kaydon, offers SKF an opportunity to leverage its strong balance sheet to chip away at its reliance on its European home market that still accounts for almost half its sales.
"We have followed the development of Kaydon for a long time. They have a strong product portfolio, strong management and a solid financial performance," SKF Chief Executive Tom Johnstone said in a statement.
The offer of $35.5 per Kaydon share represented a 22 percent premium on the closing price on Wednesday and had been unanimously recommended by the company's shareholders, SKF said.
The deal valued Kaydon at 12.7 times adjusted earnings before interest, tax, depreciation and amortization (EBITDA), against a multiple of around 10 for SKF itself, and was expected to be closed in the fourth quarter.
Kaydon is diversified industrial manufacturer, making products such as bearings, spring and shock absorbers, and has 2,100 employees. Last year, sales totaled $475 million with an adjusted operating profit margin of around 16 percent, SKF said.
"In particular this acquisition, combined with our other activities, investments and acquisitions in the last few years, shows our strong commitment to the North American market," the Swedish company said.
SKF said it expected the acquisition to result in annual cost savings of $30 million while sales synergies, such as being able to offer Kaydon products through the group's vaster distribution network, were seen at $50 million.
JP Morgan acted as sole financial advisor in the deal.