Altra Industrial Motion Corp.AIMC , on Oct 1, announced the completion of the combination of its business operations with four companies of Automation and Specialty ("A&S") business of Fortive Corporation FTV . This news came in within a week of Fortive announcing the split-off ratio for its A&S business. It seems to have played a key role in increasing the company's price by 1.5% yesterday.
It's worth mentioning here that the business combination agreement between Altra Industrial and Fortive was signed on Mar 7, 2018.
Fortive's A&S business is a platform for its Industrial Technologies segment. With brands like Kollmorgen, Dynapar, Thomson, Portescap, Hengstler and Jacobs Vehicle Systems, Fortive A&S engages in supplying equipment for use in robotics, medical devices, industrial automation and precision control end markets.
Details of Business Collaboration
As part of this business collaboration, Altra Industrial directly bought certain assets of Fortive while the other part of the transaction was executed as a Reverse Morris Trust. Under the Reverse Morris Trust, shares of new Fortive subsidiary - Stevens Holding Company, Inc., formed with Fortive A&S assets - was distributed to Fortive's shareholders. This new Fortive subsidiary was then merged with a subsidiary of Altra Industrial, in lieu of 35 million shares of Altra Industrial.
Currently, Altra Industrial is the owner of Kollmorgyen, Thomson, Portescap and Jacobs Vehicle Systems businesses of Fortive A&S. In 2017, these assets generated combined revenues of roughly $907 million and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $220 million.
The business collaboration - structured as a tax-free transaction for shareholders of both Altra Industrial and Fortive - has been valued at $2.9 billion. Altra Industrial funded the transaction value with available cash, debt instruments and issuance of 35 million common shares to shareholders of Fortive.
Benefits of Business Collaboration
Headquartered in Braintree, MA, the combined company has retained Altra Industrial's name. As disclosed earlier, the company will now operate with 52 manufacturing facilities, 25 service centers and an employee base of 9,300. Of the total shareholding, roughly 54% is with shareholders of Fortive. For 12 months ended Jun 30, 2018, the combined company's revenues (proforma) were roughly $1.9 billion.
This global leader in motion control and power transmission will have greater access to end markets, solid product offering for customers and better technological expertise. Earnings per share accretion are anticipated immediately. Free cash flow generation will likely exceed $1 billion in five years of the business collaboration while annual cost synergies of $46 million and revenue synergies of $6 million from business expansion in new markets will be realized by the fourth year.
Zacks Rank & Other Stocks to Consider
With a market capitalization of nearly $1.2 billion, Altra Industrial currently sports a Zacks Rank #1 (Strong Buy).
In the past 60 days, the Zacks Consensus Estimate for earnings on the stock remained stable at $2.54 per share for 2018 and $3.06 for 2019. On a year-over-year basis, these estimates represent growth of 23.9% for 2018 and 20.5% for 2019.
Altra Industrial Motion Corp. Price and Consensus
In the past month, shares of Altra Industrial Motion have rallied 9.2%, outperforming 2.3% growth recorded by the industry .
Two key players in the industry, sporting a Zacks Rank #1, are Colfax Corporation CFX and DXP Enterprises, Inc. DXPE . You can see the complete list of today's Zacks #1 Rank stocks here .
In the past 60 days, earnings estimates for both the stocks have improved for the current year and the next. The average positive earnings surprise for the last four quarters was 7.91% for Colfax and 101.32% for DXP Enterprises.
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