Sensors and electrical controls maker Sensata Technologies Holding NV said it would buy Schrader International to meet growing demand for sensors to monitor car-tire pressure.
Sensata, whose shares rose as much as 6.6 percent on Monday morning, will purchase Schrader from private equity firm Madison Dearborn Partners LLC for an enterprise value of $1 billion.
Denver-headquartered Schrader makes tire-pressure monitoring sensors (TPMS) that alert drivers when a tire is under-inflated.
The technology, fitted on all cars in North America, is being rolled out in Europe to meet a new regulation that requires all passenger vehicles to have it installed this year, the company said.
Similar regulations are expected in China in the next four to five years, Chief Executive Martha Sullivan said on a conference call.
"(The deal) would be a good earnings driver next year," Cross Research analyst Steven Fox said.
Netherlands-based Sensata said it expects the deal to add 18-21 cents per share to earnings in 2015. It also expects to add another 18-22 cents per share to earnings when China adopts the systems.
China represents an extremely large growth opportunity for TPMS, Steve Beringhause, head of Sensata's global sensors business, said.
"With over 23 million light vehicles expected to be built there this year ... with four (tires) per vehicle that is nearly a 100 million sensor opportunity."
In South Korea the mandate begins next year, he said.
Schrader, which has about half of the TPMS market share in North America, also sells in the United Kingdom, Germany, China, Japan and South Korea. It is expected to generate $550 million in revenue this year, Sensata said.
The company expects the deal to hit earnings by 13-16 cents per share this year. It had forecast full-year adjusted earnings of $2.39-$2.45 per share in July.
Barclays Bank Plc and Morgan Stanley Senior Funding Inc have committed to finance the deal, expected to close in the fourth quarter.
Centerview Partners advised Sensata, while Barclays, Citigroup and Guggenheim Securities advised Schrader.
Sensata shares were up 6.3 percent at $49.08, after touching a high of $48.57, on the New York Stock Exchange on Monday morning.
(Reporting by Mridhula Raghavan in Bangalore; Editing by Joyjeet Das)