Coffin maker Hillenbrand Inc (HI.N) will buy Coperion Capital GmbH, a German maker of material handling equipment, for 408 million euros ($528 million) in its biggest acquisition yet, moving further away from its core business.
The transformation of Hillenbrand to an industrial equipment maker will add more than 20 cents per share to its earnings, excluding one-time costs, in the first year, Chief Financial Officer Cynthia Lucchese told Reuters in an interview.
Hillenbrand, known for its Batesville caskets and other funeral-related products, has diversified into material handling in recent years through acquisitions, as the casket business has taken a hit with more people opting for cremation.
The company, which currently gets two-thirds of its revenue from making caskets, will now get two-thirds of its revenue from industrial equipment, Lucchese said.
Coperion makes compounding and bulk material handling equipment for the chemical, food processing, mineral and pharmaceutical industries. The deal value includes debt and pension liabilities.
"Their strategy is to use the cash flow from the casket business to diversify and grow into other niche industrial businesses with a higher growth profile," said Daniel Moore, an analyst with CJS Securities.
The acquisition will make Hillenbrand's business more cyclical but will also significantly increase their growth potential, Moore said.
However, Standard and Poor's downgraded the company's credit rating saying the acquisition adds business and financial risk with increased exposure to cyclical markets and higher leverage.
The company's process equipment segment will generate revenue of over $1 billion after the Coperion acquisition, and grow at more than a 30 percent compounded annual growth rate over the next few years, CEO Kenneth Camp said on a conference call with analysts.
Hillenbrand is actively looking at more acquisitions, but will not make a big one in the short term as it digests the Coperion acquisition, Camp added.
Hillenbrand is buying the Stuttgart, Germany-based company, which had revenue of 520 million euros ($672.67 million) for the year ended September, from venture capital firm Deutsche Beteiligungs AG DBAG.DE.
It expects to fund the deal with cash on hand and its revolving credit facility. The deal is expected to close in December or January.
P&M Corporate Finance LLC advised Hillenbrand in the transaction.
Shares of Hillenbrand, valued at about $1.2 billion, were up 4 percent at $19.40 on Tuesday on the New York Stock Exchange.
($1 = 0.7730 euros)
(Additional reporting by Arpita Mukherjee in Bangalore; Editing Sreejiraj Eluvangal, Roshni Menon)