Pentair Plc, Pump and valve maker, agreed to buy Erico Global Co for $1.8 billion in cash, after activist investor Nelson Peltz has pressed Pentair to consolidate within the fragmented pump and valve industry.
Peltz’s Trian Fund Management holds 7.2 percent stake in Pentair, the company’s third largest shareholder.
Buying Erico, fastening products maker, 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.
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The deal is expected to add more than 40 cents per share to 2016 adjusted earnings, Pentair said.
Pentair Chief Executive Officer Randall Hogan, said “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.
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.
