A.O. Smith buys Lebanon company for $418M

Milwaukee conglomerate expects big things, global growth from cash/debt deal

A big payday is coming down the line for the shareholders of one local company. Lochinvar, a high-efficiency boiler manufacturer based in Lebanon, has been purchased by A.O. Smith Corp. for an impressive $418 million. According to the announcement, the deal will not include the company’s existing debt.

A.O. Smith, which runs the 1.5 million-square-foot former State Industries plant in Ashland City, said it expects to fund the acquisition with a combination of cash and debt, which it said it expects to borrow under its $425 million revolving credit facility.

"This acquisition fits squarely within our stated strategy to expand our core product offering with new technologies, which emphasize high-efficiency products that can be applied globally," Paul Jones, A.O. Smith’s chairman and CEO.

During the last calendar year ending June 30, Lochinvar posted sales of $200 million with an adjusted EBITDA of roughly $45 million. According to the announcement released this morning, the price represents an “adjusted multiple of 7.5 times EBITDA when taking into account the estimated $80 million of tax benefits that A.O. Smith will receive as a result of treating the transaction as a purchase of assets for tax purposes.” Additionally, A.O. Smith has put in place incentives for Lochinvar shareholders to earn up to an additional $35 million if the company reaches certain revenue objectives.

The deal is expected to close in the third quarter and A.O Smith is looking to hit the ground running. In its announcement, the company said it believes the purchase will be accretive to its 2012 earnings. It also plans to take Lochinvar's high-efficiency boilers into the Chinese market, where A.O. Smith has established a strong presence. In all, that global expansion and purchasing savings are expected to generate up to $15 million for A.O. Smith.

As to whether or not this deal spells changes for the employees of Lochinvar, a representative from that company, citing the complementary nature of the two companies’ businesses. said flatly the no major changes are expected.

"We are extremely excited about the potential benefits of combining with such a logical partner like A. O. Smith and the future prospects for our employees, customers and suppliers,” said Lochinvar president and CEO William L. Vallett, Jr.

A.O. Smith shares have been up by as much as 10 percent in morning trading. At 11:45 a.m., they were changing hands for $43.33, up more than 7 percent on the day.

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