A. O. Smith to Acquire Lochinvar Corporation for $418M

A. O. Smith Corporation AOS today announced it has signed a definitive agreement to acquire Lochinvar Corporation of Lebanon, Tenn., for $418 million and will not assume Lochinvar's existing debt. Privately held Lochinvar is a leading manufacturer of high-efficiency boilers used in commercial and residential hydronic heating and hot water applications. A. O. Smith expects the acquisition to be accretive to earnings per share in the amount of approximately $.10 in the fourth quarter of 2011, excluding one-time purchase accounting charges and professional fees related to the acquisition, and in the range of $.40 to $.50 per share in 2012. The transaction is expected to close in the third quarter of 2011, subject to customary closing conditions and regulatory review. "This acquisition fits squarely within our stated strategy to expand our core product offering with new technologies, which emphasize high-efficiency products that can be applied globally," Paul W. Jones, chairman and chief executive officer, observed. "This is a significant first step in growing our diversified global water heating platform and the beginning of the redeployment of the proceeds from the sale of our Electrical Products Company." For the 12 months ended June 30, 2011, Lochinvar recorded sales of approximately $200 million and adjusted EBITDA of approximately $45 million. The purchase price represents an adjusted multiple of 7.5 times EBITDA when taking into account the estimated $80 million of tax benefits that A. O. Smith will receive as a result of treating the transaction as a purchase of assets for tax purposes. In addition to the fixed purchase price, privately held Lochinvar's shareholders could earn up to an additional $35 million if certain revenue objectives are achieved by November 2012. A.O. Smith expects to achieve approximately $10 to $15 million of annual synergies over the next few years from purchasing economies and potential global expansion opportunities.