Emerson announced a definitive agreement under which it will sell a majority stake in its Climate Technologies business to private equity funds managed by Blackstone (“Blackstone”) in a transaction valuing Climate Technologies at $14.0 billion. Emerson will receive upfront, pre-tax cash proceeds of approximately $9.5 billion while retaining a non-controlling ownership interest in a new standalone joint venture.
The standalone Climate Technologies business includes the market-leading Copeland compressor business and the entire portfolio of products and services across all HVAC and refrigeration end-markets, representing approximately $5.0 billion of fiscal 2022 sales.
The transaction marks a significant milestone in Emerson’s journey to create a higher value, cohesive industrial technology portfolio and to become a pure-play global automation company serving a diversified set of end markets. Emerson, together with AspenTech, has the industry’s most comprehensive portfolio of advanced automation technologies and software.
As a pure-play automation company, Emerson will be positioned for higher growth, with strong, differentiated capabilities to help customers pursue their sustainability and productivity objectives in process, hybrid and discrete industries. The Emerson portfolio is aligned with many of the world’s secular growth drivers, including digital transformation, sustainability and decarbonization, and nearshoring. Following completion of the transaction, Emerson is expected to have industry leading margins, strong free cash flow generation and will continue to leverage Emerson’s management process and operating discipline.
“Today’s announcement is a definitive step in the portfolio journey we embarked on when I became CEO in early 2021,” said Lal Karsanbhai, President and Chief Executive Officer of Emerson. “Over the past 18 months, the Emerson team has accelerated our portfolio transformation, divesting non-core businesses including InSinkErator and Therm-O-Disc, while investing in organic growth opportunities and important transactions including AspenTech."
"Our journey has been with clear purpose – to drive growth and significant value creation for our shareholders by creating a leading global automation company. Our differentiated capabilities in intelligent devices and software, and the focus, cohesiveness and operating agility of a pure-play company, will allow Emerson to bring our comprehensive automation products and solutions to a diverse set of end markets.”
“This transaction enables Emerson to partially monetize our Climate Technologies business at an attractive valuation and provides significant upfront cash proceeds to invest in growth, while at the same time enabling Emerson to participate in Climate Technologies’ upside potential upon exit of our non-controlling position,” continued Mr. Karsanbhai. “We are excited to partner with Blackstone given its successful history of value creation in collaboration with corporate partners. We look forward to working closely with Blackstone to ensure a smooth transition for Climate Technologies’ employees and customers.”
Climate Technologies had fiscal 2022 net sales of $5.0 billion, pre-tax earnings of $1.0 billion and EBITDA, including standalone costs, of $1.1 billion. The transaction values Climate Technologies at $14.0 billion, representing a multiple of 12.7x fiscal 2022 EBITDA, including standalone costs. Emerson will receive upfront, pre-tax cash proceeds of approximately $9.5 billion and a note of $2.25 billion at close and retain 45% common equity ownership of the standalone Climate Technologies business, which will be structured as a joint venture between Emerson and Blackstone, until its potential sale or IPO. The cash consideration will be funded by $5.5 billion of fully committed debt financing ($6.2 billion inclusive of an unfunded ABL facility) and $4.4 billion of equity contribution from Blackstone. A wholly owned subsidiary of the Abu Dhabi Investment Authority (ADIA) and GIC will invest alongside Blackstone as part of the transaction.
Emerson expects to invest the proceeds from the transaction in strategic M&A to strengthen and diversify its automation portfolio in four targeted adjacent markets, which will be discussed at Emerson’s investor conference on November 29, 2022. Emerson also expects to continue to return cash to shareholders through share repurchases, expected to be approximately $2 billion in 2023, and its dividend.
The transaction has been unanimously approved by Emerson’s Board of Directors and is expected to close in the first half of the calendar year 2023, subject to regulatory approvals and customary closing conditions.
As part of the transaction, Emerson will be right sizing its corporate and platform cost structure and will sell ownership of its St. Louis, Missouri campus to the joint venture. Emerson will enter a three-year lease on the headquarters with an option to extend a further two years. During that time, Emerson will undertake a comprehensive assessment of potential headquarters locations.
Emerson is a global technology and software company providing innovative solutions for the world’s most essential industries. Emerson is an automation leader that helps process, hybrid and discrete manufacturers optimize operations, protect personnel, reduce emissions and achieve their sustainability goals through its unmatched automation portfolio, including its majority stake in AspenTech. For more information, visit www.emerson.com.