(Reuters) - Pump and valve maker Pentair Plc (PNR.N) agreed to buy fastening products maker Erico Global Co for $1.8 billion in cash, weeks after activist investor Nelson Peltz asked the company to bulk up through deals.
Buying Erico, which sells fixing and fastening products under brands such as Caddy and Lenton, allows Pentair to broaden its offerings, the company said in a statement.
Peltz’s Trian Fund Management reported a 7.2 percent stake in Pentair in June, becoming the company’s third largest shareholder. While activist shareholders such as Peltz often push companies to sell or pare divisions, Peltz has pressed Pentair to consolidate within the fragmented pump and valve industry.
Pentair Chief Executive Officer Randall Hogan, who first joined the company in 1998, said he has viewed Erico as a Pentair acquisition target as far back as fifteen years ago.
“This deal is probably twice the size of what people thought we’d do,” Hogan told Reuters. “We were able to take on more debt than we may have otherwise, and we’re taking a little bit more balance sheet risk.”
Hogan said the deal puts Pentair’s debt at more than three times its equity, and that the company hopes to bring it below three by the end of 2016.
Solon, Ohio-based Erico, originally formed to supply welding equipment to railway and mining companies, makes and sells electrical and fastening products for electrical, mechanical and civil applications.
Shares of Pentair rose as much as 3 percent on Monday, before paring gains to $62.57, up 1.5 percent. Up to Friday’s close, Pentair’s shares had fallen about 7 percent this year.
The deal is expected to add more than 40 cents per share to 2016 adjusted earnings, Pentair said. (bit.ly/1IXTEVI)
Analysts, on average, expected 2016 earnings of $4.23 per share, according to Thomson Reuters I/B/E/S.
Hogan, said the company, which is based in the U.K., would focus on bolt-on acquisitions in the water quality systems space.
“Not on an immediate basis (but) we are keeping our ear to the ground,” said Hogan, who is based in the company’s Minneapolis corporate headquarters.
Goldman Sachs is Pentair’s financial adviser, while JP Morgan advised Erico.
Foley & Lardner LLP provided legal counsel to Pentair and Jones Day to Erico.
Reporting by Michael Flaherty in New York and Arunima Banerjee in Bangalore; Editing by Sriraj Kalluvila and Jeffrey Benkoe