Transaction expected to close in fourth quarter of 2016
Xylem Inc. announced that it has signed a definitive agreement to acquire Sensus for approximately $1.7 billion in cash.
Sensus, owned by investment funds affiliated with the Jordan Company and GS Capital Partners 2000, has more than 80 million metering devices installed globally. Its FlexNet communications network technology uses licensed spectrum in the U.S. and other geographies and provides secure connectivity solutions that support multiple applications.
Sensus generated $837 million in adjusted revenue and $159 million in adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) in fiscal 2016, which ended March 31, 2016. The $1.7 billion cash purchase price is 10.7x Sensus’ fiscal year 2016 adjusted EBITDA. Xylem expects to achieve at least $50 million in annual cost synergies to be substantially realized within three years of closing as Xylem extends its proven global procurement and continuous improvement initiatives into this business, with significant additional revenue synergy potential. The transaction is expected to be accretive to Xylem’s adjusted earnings in 2017.
“With Sensus, we will acquire a strategically valuable asset that will accelerate our ability to bring systems intelligence solutions to customers across the water and energy industries, establish a foundation for future growth, and create significant shareholder value,” said Patrick Decker, Xylem president and CEO. “This will be an important milestone in our strategy to move Xylem’s portfolio of solutions up the technology curve. The combination of Xylem’s world-class brands and products with Sensus’ leading-edge, smart technologies will create a differentiated offering that will better meet our customers’ evolving needs, including greater energy efficiency, water conservation and improved life-cycle costs.
“Sensus has a very broad product portfolio in metering and is well positioned in the advanced metering infrastructure (AMI) segment,” Decker said. “The AMI segment is growing at nearly twice the rate of the total metering space, driven in part by regulations and customers’ growing need for real-time data and reduced operational costs. Our expansive customer relationships will be able to extend the reach of Sensus’ products and technologies to new markets globally, particularly in emerging markets. As a combined company, we expect Xylem to grow faster and be more profitable.
“This move will also advance the innovation strategy we outlined at our Investor Day last year. Combining the advanced technology and R&D expertise and capabilities of both companies, we anticipate accelerating our delivery of innovative solutions to our customers, particularly in the area of advanced analytics across the water, wastewater and outdoor water sectors. Sensus’ network platform, FlexNet, can support many of Xylem’s connected product offerings and enable expansion into adjacent Internet of Things markets. We also see natural opportunities to extend the company’s advanced data analytics platform, which provides actionable insights for customers, to Xylem products. Both platforms provide a powerful foundation for future organic and inorganic growth opportunities.”
In addition to its presence in the smart water sector, Sensus generates approximately 24% of its revenues from sales to electric and gas utilities. The projected growth rate of smart metering, particularly AMI, is even higher in these sectors than in water, and Sensus is well positioned to capture that growth with its network-enabled solutions.
“We are very pleased with the opportunity to add the world-class talent of Sensus to Xylem,” Decker said. “As a unified company, we look forward to providing customers with an even more compelling offering that will add measurable value to their operations and create significant incremental value for our shareholders.”
Randy Bays, president of Sensus, added: “Xylem is a highly respected company and we are confident that, together, we will have the resources and scale to continue advancing differentiated technology and delivering innovative solutions to our customers around the world. We look forward to working with the Xylem team to ensure a smooth transition and completing the combination as quickly as possible.”
“This is an excellent transaction and we are enthusiastic about the future combination of these two companies,” said Xylem Chairman Markos I. Tambakeras. “We have full confidence in the management team’s ability to execute a smooth integration and significantly enhance shareholder value.”
Sensus has approximately 3,300 employees and major locations in the U.S., U.K., Germany, Slovakia and China. Nearly 70% of 2016 revenues were generated in the U.S.
Xylem will finance the all-cash transaction with the deployment of approximately $400 million of Xylem’s non-U.S. cash, new and existing credit facilities, and a combination of short- and long-term debt. There is no change to Xylem’s full-year 2016 adjusted earnings outlook. Xylem expects to maintain quarterly dividend payments to shareholders.
The transaction is subject to customary closing conditions and regulatory review, including approval by the Federal Communications Commission of the transfer of certain spectrum licenses. The transaction is expected to close in the fourth quarter of 2016. Supplemental information on Xylem’s definitive agreement to acquire Sensus and reconciliations for non-GAAP items are posted at http://investors.xyleminc.com.
Lazard is serving as financial advisor to Xylem, and Gibson, Dunn & Crutcher LLP is serving as legal counsel. Credit Suisse and Goldman, Sachs & Co. are serving as financial advisors, and Mayer Brown LLP is serving as legal advisor to Sensus.
Xylem management will host a conference call with investors to discuss the proposed acquisition of Sensus Monday, Aug. 15, at 8:30 a.m. ET. The call can be accessed by calling 973.935.2945 (ID #65483412) or by visiting http://investors.xyleminc.com. A replay of the briefing will be available on http://investors.xyleminc.com and via telephone until Monday, Aug. 29, 2016, at 11:30 p.m. ET. The telephone replay will be available at 800.585.8367 or 404.537.3406 (ID #65483412).