Signify has announced that it has entered into a definitive agreement with Eaton to acquire Cooper Lighting Solutions for $1.4bn in cash. Closing is subject to regulatory approvals and other customary conditions and is expected to take place in the first quarter of 2020.
Cooper Lighting Solutions, headquartered in Peachtree City, GA, United States, is a provider of professional lighting, lighting controls, and connected lighting. The business offers a large breadth of products and applications, both in the indoor and outdoor segments, sold under brands in North America including Corelite, Halo, McGraw-Edison, Metalux.
The company sells its lighting portfolio through a strong agent network and has direct relationships with retailers, distributors and other end-user customers. The business generated $1.7bn of sales in 2018, of which 84% were LED-based, a reported EBITDA of $187m and free cash flow of $143m.
“Today’s announcement confirms the strategic importance of the North American market for Signify. This acquisition will substantially strengthen our position in this attractive market,” said Eric Rondolat, CEO of Signify. “We look forward to welcoming the team from Cooper Lighting. They have built a high-performance company based on professionalism, truly innovative offers and a long and strong relationship with their customers.
“We share a genuine passion and single focus for Lighting and a successful track record in innovation. We will join forces to further develop connected lighting and provide our customers with the highest level of service while optimizing operational efficiencies.”
This acquisition is fully in line with Signify’s strategy to expand in attractive markets, enhancing Signify’s position in the North American market and improving the business mix.
Together, the two businesses will be better positioned to benefit from the growing $12bn professional lighting market in North America, driven by the continued conversion to LED and the increased demand for connected lighting systems and controls.
Signify and Cooper Lighting will maintain separate front offices: sales forces, agent networks, product and brand portfolios, marketing and product development teams. Both businesses will be able to strengthen their respective product portfolios, benefiting from an increased power of innovation as well as more competitive and cost-efficient offerings.
The transaction is expected to generate substantial cost synergies of more than $60m per year, largely to be achieved in the first three years. These tangible and well-identified cost synergies will stem from savings in the bill of materials as well as from supply chain and sourcing optimization.
Signify will acquire Cooper Lighting Solutions for a cash consideration of $1.4bn on a cash and debt-free basis. The enterprise value of the transaction net of the present value of tax benefits will be $1,313m, representing a multiple of 7.0x the expected 2018 EBITDA excluding synergies, and 5.3x including run-rate synergies.
The acquisition is expected to result in mid-teens EPS accretion in year one and the transaction ROIC is expected to exceed Signify’s WACC after year one.
Upon closing of the acquisition, Signify will generate over 50% of its sales in the Professional segment, increasing the revenue base for its growing profit engines from €4.9bn to €6.4bn. The proportion of sales generated in the Americas increases from 28% to 40%. Once the full synergy potential is achieved, Cooper Lighting is expected to deliver an adjusted EBITA margin in the low- to mid-teens.
The acquisition is fully financed with debt, with committed bridge financing arranged. Signify intends to replace the bridge loan and the existing term loan debt obtained at IPO with a new financing structure before or shortly after the closing of this transaction.
Signify intends to maintain a robust capital structure and continues to aim towards a financing structure that is compatible with an investment grade profile. Following the transaction, the company will prioritize deleveraging with strong free cash flows expected to drive down the company’s net leverage ratio from around 2x at closing to below 1x net debt/EBITDA within three years.
The company plans to continue to pay a stable to increased dividend per share. While Signify will focus on deleveraging, it will continue to invest in R&D and other organic growth opportunities. As Signify will focus on integrating Cooper Lighting and on delivering synergies, M&A will have a lower priority.