Regulatory News:
Legrand (Paris:LR) today announced that it has signed an
agreement to purchase1 US company Milestone AV Technologies LLC
(“Milestone”), a frontrunner in Audio Video (AV) infrastructure and
power, a high-value segment of the digital infrastructure
market.
Highlights:
Milestone – Strong leading positions in
high-value segments
- Attractive business driven by
megatrends (100% of Milestone sales are in new business
segments2);
- Strong market positions, with over 75%
of Milestone sales made with products #1 or #2 in their
market;
- Well known, trusted and innovative
brands with a best-in-class customer-centric approach;
- A knowledgeable and experienced
management team;
- Highly complementary to Legrand’s
existing positions in AV in the US (Middle Atlantic Products
brand);
- In 2016, sales of $464m, adjusted3
operating4 margin of 21% and free cash flow4 at 12.5% of
sales.
A synergetic move with Legrand
- Mid-term sales synergies through
leverage of customer coverage and development of AV infrastructure
and power business in other distribution channels and
geographies;
- Short and mid-term cost synergies in
purchasing, production and administrative areas.
Financial rationale
- Legrand’s financial criteria all met
based on an EV (Enterprise Value) of $950m, net of a discounted5
tax benefit6 of $250m:
- 2016 EV/EBITDA4 of around 9.0x;
- Mid to high single-digit accretion on
EPS before PPA7;
- Value creation within 3 to 5
years.
- Financed by new debt; post-deal robust
balance sheet; net debt/EBITDA8 expected at less than 2.
Gilles Schnepp, Chairman and CEO of Legrand, commented:
“The acquisition1 of Milestone allows Legrand to pursue its ongoing
reinforcement in digital infrastructure, more specifically in the
high-value AV infrastructure and power segment in the United States
where Legrand is already #1 in AV enclosures with its Middle
Atlantic Products brand. Milestone will bring Legrand leading
positions in commercial and residential AV mounts, as well as in
projector screens enabling the Group to provide AV customers with
scalable, end-to-end offerings.
Milestone’s robust leading positions, well-known brands,
businesses supported by strong social and technological megatrends,
customer-centric approach, ongoing innovation, and active CSR9
policy are key assets which make this acquisition a highly valuable
move that ‘ticks all the boxes’ of Legrand fundamentals.”
1 Subject to standard conditions precedent.2 Digital
infrastructure, energy efficiency, assisted living and home
systems.3 Adjusted Legrand definition: adjusted for amortization
and depreciation of revaluation of assets at the time of
acquisitions and for other P&L impacts relating to acquisitions
and, where applicable, for impairment of goodwill.4 Excluding
non-recurring items.5 Discounted at a rate of 7.0% over the period
of goodwill amortization (15 years).6 US tax benefit resulting from
standard goodwill amortization starting in 2017. Gross price paid
of $1,200m less a $400m cash tax benefit discounted to $250m.7
Purchase Price Allocation.8 Including Milestone’s EBITDA on a full
year basis.9 Corporate Social Responsibility.
Milestone – Strong leading positions in high-value
segments
The global AV infrastructure and power market accounts for more
than $5bn of Legrand’s total digital infrastructure market of over
$15bn1.
Milestone, which is a frontrunner in the US AV infrastructure
and power business, has built its success on disciplined
acquisitions of leading well-known brands: Chief, #1 in commercial
AV mounts; Sanus #1 in residential AV mounts; and Da-Lite, #1 in
projector screens. Over 75% of Milestone sales are generated by
products that rank #1 or #2 on their markets. Combined with
Legrand’s #1 positions in AV enclosures in the US under the Middle
Atlantic Products brand, Milestone will enable the Group to provide
US customers with scalable, end-to-end offerings on a market driven
by both social megatrends (communication, security, distance and
collaborative working etc.) and technological megatrends
(digitalization, new display technologies, streaming technologies
etc.).
Ongoing R&D efforts (more than 100 professionals in
engineering and product development, over 360 patents and more than
5,000 SKUs) focusing on AV integrators’ needs – safety, ease of
installation, reliability – and a customer-centric approach (100
direct sales & technical support and 90 dedicated customer care
personnel, digital best customer training, excellent delivery
service) have helped develop strong customer loyalty and made
Milestone’s brands the “preferred partner” for about 80% of the
SCN2 top 50 AV integrators.
Milestone has also built lasting trust-based ties with strong
distribution channels offering wide geographical coverage and
access to a variety of end markets (corporate, hospitality, houses
of worship, education, government and retail stores/restaurants).
These have helped distribute Milestone products both efficiently
and widely.
Moreover, Milestone has an active CSR3 policy based on three
pillars: environmental responsibility through eco-friendly product
development and three ISO-14001-certified operating facilities;
socially responsible sourcing with robust CSR3 audit programs of
its supplier base as well as safety and responsible practices by
suppliers; and community involvement through special consideration
for activities in which Milestone employees are involved.
Based in Eden Prairie, Minnesota, Milestone recorded 2016
revenues of $464m, 90% in North America. Over the same period,
adjusted4 operating5 profit and free cash flow5 stood at
respectively 21% and 12.5% of sales. Milestone has about 1,000
employees and has locations in the United States, Canada, China,
Hong-Kong, Australia and the Netherlands.
A synergetic move with Legrand
Legrand’s acquisition6 of Milestone should generate mid-term
sales synergies. Milestone’s strong relationship with 6,000
professional AV dealers should build up Legrand’s existing basis of
about 3,500 dealer relationships tied to its Middle Atlantic
Products brand. Likewise, Legrand’s strong relationship with
electrical, IT and data communication distributors could allow
Milestone to move in these distribution channels. With locations in
North America, Europe and Asia, Milestone could offer Legrand
opportunities to expand its AV infrastructure and power
business into new geographical areas.
Resulting operations should also benefit from short to mid-term
cost synergies stemming from (i) direct and indirect sourcing with
scope for combining purchasing platforms, (ii) streamlining of
production facilities particularly in Asia, and (iii) opportunities
to optimize administrative areas.
1 Legrand’s accessible market is now estimated at more than
$115bn, split between electrical infrastructure for less than
$100bn and digital infrastructures for more than $15bn.2 Systems
Contractor News.3 Corporate Social Responsibility.4 Adjusted
Legrand definition: adjusted for amortization and depreciation of
revaluation of assets at the time of acquisitions and for other
P&L impacts relating to acquisitions and, where applicable, for
impairment of goodwill.5 Excluding non-recurring items.6 Subject to
standard conditions precedent.
Financial rationale
Legrand is acquiring1 Milestone for an Enterprise Value (EV) of
$950m, net of a discounted US tax benefit of $250m2, resulting from
standard goodwill amortization starting in 2017. Legrand’s cash tax
rate and free cash flow will benefit fully from this tax gain which
will have no impact on Legrand’s IFRS P&L (either on income tax
rate or net income).
Based on this EV of $950m, the Milestone acquisition1 meets all
of Legrand’s financial criteria:
- 2016 EV/EBITDA3 of around 9.0x;
- mid to high single digit accretion on
EPS before PPA4;
- value creation within three to five
years.
Legrand should keep a robust balance sheet structure with an
expected post-deal net debt/ EBITDA5 ratio of less than 2. The
financing of the Milestone acquisition1, which ultimately will be
made via new debt, is fully secured in the short term by a
commitment letter for a bridge-to-bond loan and by Legrand’s
existing credit facilities.
Milestone ticks all the boxes of Legrand’s key
fundamentals
The acquisition1 of Milestone represents a strategic move for
Legrand based on the two companies’ strong business
complementarities. Driven by sustained social and technological
megatrends, both Legrand and Milestone have built strong leading
positions in their respective markets.
Legrand and Milestone products are known for their reliability,
ease of installation, valuable design and functionalities, and
although they represent a small share of installation costs, they
are critical to the overall infrastructure in which they are
installed. Both Legrand and Milestone thus focus on innovation. In
particular, Milestone’s annual R&D to sales ratio is consistent
with Legrand’s long-term average ambition of 4% to 5%. Along with
technical excellence, best-in-class customer relationships based on
training, technical support and short lead-time have built lasting
customer loyalty to both companies’ brands.
Lastly, both Legrand and Milestone have overall strategies
aiming at robust financial discipline but also take an integrated
approach to their respective businesses through strong CSR6
commitments.
------------------------
1 Subject to standard conditions precedent.2 Discounted at a
rate of 7.0% over the period of goodwill amortization (15 years).
The gross amount of the tax benefit is $400m.3 Excluding
non-recurring items.4 Purchase Price Allocation.5 Including
Milestone’s EBITDA on a full year basis.6 Corporate Social
Responsibility.
AUDIO WEBCAST
- A live and replay teleconference on the
Milestone acquisition1 will take place on June 28, 2017,
at 8.45 am CET (Paris time)
- The teleconference will be available on
Group website: http://www.legrand.com/EN/
Key financial dates
- 2017 first-half results: July 31,
2017“Quiet period2” starts July 3, 2017
- 2017 nine-month results: November 7,
2017 “Quiet period2” starts October 7, 2017
ABOUT LEGRAND
Legrand is the global specialist in electrical and digital
building infrastructures. Its comprehensive offering of solutions
for commercial, industrial and residential markets makes it a
benchmark for customers worldwide. Drawing on an approach that
involves all teams and stakeholders, Legrand is pursuing its
strategy of profitable and sustainable growth driven by
acquisitions and innovation, with a steady flow of new
offerings—including Eliot* connected products with enhanced value
in use. Legrand reported sales of more than €5 billion in 2016. The
company is listed on Euronext Paris and is a component stock of
indexes including the CAC 40, FTSE4Good, MSCI World, Corporate
Oekom Rating, DJSI World, Vigeo Euronext Eurozone 120, Europe
120-France 20 and World 120, and Ethibel Sustainability Index
Excellence.(ISIN FR0010307819).http://www.legrand.com
*Eliot is a program launched in 2015 by Legrand to speed up
deployment of the Internet of Things in its offering. A result of
the group’s innovation strategy, the Eliot program aims to develop
connected and interoperable solutions that deliver lasting benefits
to private individual users and
professionals.http://www.legrand.com/EN/eliot-program_13238.html
1 Subject to standard conditions precedent.2 Period of time when
all communication is suspended in the run-up to publication of
results.
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Investor relationsLegrandFrançois PoissonTel: +33 (1) 49
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ConsultantsVilizara LazarovaTel: +33 (0)1 44 82 46 34Mob: +33 (0)6
26 72 57 14vilizara.lazarova@consultants.publicis.frorEloi
PerrinTel: +33 (0)1 44 82 46 36Mob: +33 (0)6 81 77 76
43eloi.perrin@consultants.publicis.fr
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