NN to Divest Life Sciences Unit, To Pay Debts With Proceeds

NN, Inc. NNBR yesterday announced that it agreed to sell its Life Sciences division for $825 million. The purchaser of the business will be affiliates of American Securities LLC. Subject to the fulfillment of customary closing conditions, the divestment is expected to be completed in fourth-quarter 2020.

Per the deal, upon the completion of the divestment, the Life Sciences division will form part of MW Industries — a constituent company of American Securities. It is worth noting here that MW Industries provides multiple products — including bellows, engineered springs, specialty fasteners and various precision components.

Discussion on Divestment

As noted, the Life Sciences division of NN primarily provides its products and services in the orthopedics and surgical end markets. In second-quarter 2020, the division’s sales declined 20.7% year over year due primarily to weakness caused by the pandemic.

The transaction value of $825 million comprises of cash component of $755 million (to be received at the closing of the deal) and earn-out of $70 million. The second component is based on the divested division’s performance in 2022.

The divestment is in sync with NN’s policy of strengthening the balance sheet, enhancing financial flexibility and improving shareholder value. The net proceeds from the divestment are expected to be $700 million. NN believes that its net leverage (post the deal closure) will be 1.8X.

Further, NN mentioned that the divestment of the Life Sciences division will enable it to concentrate on other growth-businesses, including Mobile Solutions and Power Solutions. Its diversified industrial platform will likely help it achieve annual sales of $600 million in the five years to come.

Zacks Rank, Estimate Trend and Price Performance

NN currently carries a Zacks Rank #3 (Hold). The company is to benefit from cost-saving actions and working-capital management efforts amid the present difficult environment caused by the pandemic.

In the past three months, its shares gained 30.5% compared with the industry’s growth of 22%.

Meanwhile, the Zacks Consensus Estimate for its 2020 earnings has improved from a loss of 5 cents to earnings of 2 cents in the past 30 days. Similarly, the consensus estimate for 2021 has increased from earnings of 47 cents to 50 cents during the same period.

NN, Inc. Price and Consensus

NN, Inc. price-consensus-chart | NN, Inc. Quote

Stocks to Consider

Some better-ranked stocks in the Zacks Industrial Products sector are The Timken Company TKR, TriMas Corporation TRS and Graco Inc. GGG. While Timken currently sports a Zacks Rank #1 (Strong Buy), TriMas and Graco carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 60 days, earnings estimates for these companies have improved for the current year. Further, earnings surprise for the last reported quarter was 209.09% for Timken, 34.38% for TriMas and 37.04% for Graco.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.