Quarterly report pursuant to Section 13 or 15(d)

Business Acquisitions

v2.4.0.6
Business Acquisitions
3 Months Ended
Dec. 31, 2012
Business Acquisitions  
Business Acquisitions

3.              Business Acquisitions

 

We completed the acquisition of Coperion on December 1, 2012, in a transaction valued at $540.7.  The aggregate purchase consideration consisted of $269.1 of cash, net of cash acquired, and the assumption of $146.0 of debt and $125.6 of pension liabilities.  We utilized $426.3 of borrowings under our revolving credit facility and cash on hand to finance the acquisition, including the repayment of the $146.0 of debt outstanding under Coperion’s prior financing arrangements.

 

Based in Stuttgart, Germany, Coperion is a global leader in the manufacture of compounding, extrusion, and bulk material handling equipment used in a broad range of industries, including plastics, chemicals, food processing, pharmaceutical, and aluminum.  Coperion has been in business since 1879, currently with nine manufacturing sites in Germany, the United States (“U.S.”), China, and India, and sales offices in approximately thirty locations in the Americas, Europe, and Asia.  Coperion had approximately two thousand employees worldwide as of December 31, 2012.  Approximately 30% of Coperion’s revenue is derived from replacement parts and service, generating a large portion of recurring business due to its well-positioned service network and active installed base of machines across the world.

 

Coperion revenues consist of large system sales, equipment, components, replacement parts, and service.  Large system sales are fulfilled over twelve to eighteen months on average, whereby customers generally pay a deposit and make progress payments in advance of delivery.  These progress payments allow Coperion to operate its business at attractive working capital levels.  System sales include many components, including those manufactured by Coperion as well as materials manufactured by third-parties.  The proportion of third-party-sourced materials (that yield lower margins than materials produced internally) in system sales is greater than that of our other Process Equipment Group businesses.  As a result, we expect gross profit margins in the Process Equipment Group to be lower following the Coperion acquisition.  However, we believe that providing complete system sales gives the Process Equipment Group a distinct competitive advantage, as many customers prefer doing business with one trusted vendor that can provide a complete system.

 

This acquisition is the largest in the Company’s history and is an important step in our strategic plans to further diversify Hillenbrand and accelerate the growth of the Process Equipment Group business platform.  The integration of Coperion with the Process Equipment Group will be a key initiative for the next 18 to 24 months.  Combining our product offerings to provide a more complete system solution is the highest priority from an integration perspective.  In addition, we believe leveraging Coperion’s global infrastructure will enable the existing businesses within the Process Equipment Group platform to enter new global markets more quickly.  Likewise, we expect the Process Equipment Group’s existing strong U.S. sales network will enhance Coperion’s expansion in North America.  Finally, the application of the Company’s lean tools and principles to Coperion’s operations is expected to contribute to improved margins and increased customer satisfaction.

 

The following table summarizes preliminary estimates of fair values of the assets acquired and liabilities assumed for the Coperion acquisition:

 

 

 

December 1,
2012

 

Cash and cash equivalents

 

$

32.8

 

Inventory

 

109.1

 

Current assets, excluding cash and cash equivalents and inventory

 

164.2

 

Property, plant, and equipment

 

54.4

 

Identifiable intangible assets

 

292.4

 

Goodwill

 

233.4

 

Other assets

 

2.1

 

Total assets acquired

 

888.4

 

 

 

 

 

Current liabilities

 

268.3

 

Accrued pension obligations

 

125.6

 

Deferred income taxes

 

33.4

 

Other long-term liabilities

 

6.7

 

Total liabilities assumed

 

434.0

 

 

 

 

 

Noncontrolling interest assumed

 

6.5

 

 

 

 

 

Aggregate purchase price

 

$

447.9

 

 

The estimation of fair value of Coperion’s assets and liabilities is preliminary and subject to adjustment based on finalization of the closing balance sheet, including deferred tax balances.

 

Goodwill is not deductible for tax purposes and was allocated entirely to our Process Equipment Group.  The remaining change in goodwill during the period ended December 31, 2012, was related to the change in foreign currency.

 

Fair value amounts assigned to identifiable definite-lived intangible assets are being amortized on a straight-line basis over their estimated useful lives. The amounts assigned at the time of acquisition and their useful lives were:

 

 

 

Fair Values

 

Estimated
Useful Lives

(years)

 

Trade names

 

$

55.6

 

Indefinite

 

Customer relationships

 

158.3

 

20

 

Technology, including patents

 

44.2

 

12

 

Backlog

 

34.3

 

<1

 

Total identifiable intangible assets

 

$

292.4

 

 

 

 

The unaudited pro forma information for the periods set forth below gives effect to the Coperion acquisition as if it had occurred at the beginning of the earliest period presented. It includes adjustments for additional interest expense, depreciation, and amortization. The unaudited pro forma information for the three months ended December 31, 2011, includes acquisition costs of $8.2 and backlog amortization and inventory step-up costs of $20.9; such amounts are excluded from the period ended December 31, 2012. The unaudited pro forma information is presented for informational purposes only and does not necessarily reflect the results of operations that would actually have been achieved had the acquisition been consummated as of that time.

 

 

 

Three Months Ended
December 31,

 

 

 

2012

 

2012

 

Pro forma net revenue

 

$

420.4

 

$

434.6

 

Pro forma net income attributable to common shareholders

 

28.3

 

14.0

 

Pro forma basic and diluted earnings per share

 

$

0.46

 

$

0.24

 

 

We incurred $8.2 of net business acquisition costs associated with the acquisition during the three months ended December 31, 2012.  These costs consist of $9.0 of operating expenses partially offset by $0.8 of other income (see Note 11).

 

In connection with our Coperion acquisition, we acquired less than 100% ownership in certain Coperion subsidiaries.  Following the acquisition date, 100% of Coperion’s results was consolidated into our Process Equipment Group. The portion of the business that is not owned by the Company is presented as noncontrolling interests within equity in the Consolidated Balance Sheets. Income attributable to the noncontrolling interests is separately reported within the Consolidated Statements of Income, and is also excluded from total Hillenbrand Shareholder’s Equity.