A. O. Smith Corp. announced it completed the purchase of Texas-based Aquasana Inc. from consumer-focused private equity firm L Catterton for $87 million in cash on a debt/cash-free basis. The purchase price is subject to a customary networking capital adjustment.
Aquasana designs, assembles and markets water treatment products, including whole-house treatment systems, drinking water solutions for at home and on-the-go, and shower filters. Aquasana sells its products directly and primarily to U.S. consumers through a website, as well as through retail outlets and distributors.
A. O. Smith expects the acquisition to be neutral to earnings per share in 2016, excluding one-time after-tax purchase accounting charges and professional fees related to the acquisition of approximately $1 million.
"This acquisition fits squarely within our stated strategy to expand our core product offerings to new geographies that present growth opportunities,” said Ajita G. Rajendra, A. O. Smith chairman and CEO. “We believe the water quality needs for U.S. consumers are evolving as aging water infrastructure and consumer awareness highlight the increasing number of unhealthy drinking water situations. Aquasana's products today address a full range of water quality issues and acquiring Aquasana is a significant first step to bringing our industry-leading reverse osmosis water treatment technology and innovative product development capabilities to the large and growing U.S. market."
Aquasana 2016 sales are expected to be approximately $44 million, including approximately 35% comprised of consumable water treatment filters. The purchase price represents a multiple of two times expected 2016 sales. A. O. Smith expects to achieve approximately $25 to $30 million of annual revenue synergies over the next two to three years driven by the strength of the combined product lines and by leveraging all of the distribution channels of the combined organization.
"Our acquisition of Aquasana expands our growing global water treatment business, with expected combined proforma 2016 revenues of approximately $200 million," Rajendra said. "A. O. Smith brings its global presence, manufacturing expertise, and retail/wholesale relationships to Aquasana's experienced management team, direct-to-consumer selling competencies and premium water treatment brand in the U.S.”
The transaction includes access to the approximately $2-billion, U.S. residential water treatment market composed of softeners and filters. It also offers value creation and synergy opportunities. A. O. Smith expects annual revenue synergies from cross-selling and global expansion opportunities to be $25 to $30 million in the next two to three years. Aquasana's products, including point-of-use carbon filtration and whole-house water treatment systems, are complementary to A. O. Smith's line of reverse osmosis products.
In terms of financing and financial targets, A. O. Smith used available borrowing capacity on its $400 million revolving credit facility to fund the $87 million debt-free acquisition. A. O. Smith believes Aquasana's organic revenue, including synergies, could reach $100 million in 2019. Aquasana’s trailing three-year revenue compound annual growth rate (CAGR) is approximately 19%. The transaction is expected to achieve a return in excess of A. O. Smith's cost of capital in the third year after completing the acquisition. As a result of the acquisition, the company modified its previously stated share repurchase target and now expects to repurchase approximately $135 million of its shares in 2016.
"We are extremely excited about the benefits of combining with such a compelling partner like A. O. Smith,” said Todd Bartee, Aquasana CEO. “This combination will enhance Aquasana's reach to a much broader base of customers and extend our healthy living brand, as well as enhance the positive future prospects for our employees, customers and suppliers."
Aquasana's executive and marketing team operate out of Austin, Texas, and the company's sales, customer service and operations hub is located in Haltom City, Texas.
Source: A. O. Smith Corp.
