Atlas Copco AB (ATCOA) said British vacuum-pump maker Edwards Group Ltd., acquired in August, increased profitability last year and will further benefit from the combination with the world’s largest maker of air compressors.
“If you compare the performance of the company at the beginning of the year and the end of the year, it was significantly better,” Atlas Copco Chief Executive Officer Ronnie Leten said in a phone interview, when asked if Edwards’ profitability increased last year. “We have a bit of a tailwind from the semiconductor market.”
The $1.5 billion deal, Atlas Copco’s biggest since the takeover of Rental Service Corp. in 1999, broadens the Stockholm-based company’s client base beyond the construction and mining industry into technology markets such as vacuum pumps for semiconductor production. The deal allows the combined company to serve mutual clients, such as mobile-phone maker Samsung Electronics Co., with a wider product range.
Atlas will probably this week announce that it decided to pay an extra $140 million for Edwards, according to people familiar with the matter. Atlas will pay Edwards shareholders an additional $1.25 a share on top of the $9.25 already agreed, the people said, declining to be named because the matter isn’t public yet.
Atlas, which announced the Edwards purchase in August, already said that Edwards shareholders may get as much as $10.50 a share depending on financial results. Leten declined to comment on the final payout to Edwards shareholders.
The two largest shareholders of Edwards were CCMP Capital Advisors LLC, the former private-equity unit of JPMorgan Chase & Co., and Unitas Capital Pte, an Asian buyout firm. The companies held a majority, with management owning the rest.
The deal was one of several acquisitions last year, including Shandong Rock Drilling Tools Co., and Leten said he’s planning more purchases to expand into new markets.
“If I could do it as fast as I want organically, I would,” he said. “We are for sure looking at further acquisitions.”
Atlas Copco shares have risen 2.4 percent this year, valuing the company at 217.8 billion kronor ($34 billion). Edwards, which has about 3,200 employees, had sales of about $1 billion last year, with more than half stemming from Asia.
The Edwards acquisition by CCMP and Unitas in 2007 was a high-profile deal conducted at the height of the buyout boom in the U.K. While many investments made by peers such as Terra Firma Capital Partners Ltd.’s 4.5 billion-pound purchase of music group EMI and Apax Partners LLP’s 275 million-pound purchase of Incisive Media Ltd. saw private-equity firms lose their investment, CCMP and Unitas are reaping a return.
CCMP will get more than three times the amount it initially invested, people familiar with the matter said.
When CCMP and Unitas acquired Edwards, the company’s production was largely in the United Kingdom, CCMP Chairman Greg Brenneman said by phone. He also declined to comment on the final payout for Edwards shareholders.
To boost profitability - at the time between 8 percent to 12 percent based on adjusted earnings before interest, taxes, depreciation and amortization -- the new owners invested 110 million pounds ($185 million) and moved some production to cheaper locations such as Asia and Eastern Europe.
The two-private equity firms initially appointed Morgan Stanley (MS) to run a sale process for Edwards in 2010, before opting to pursue a stock market listing. The first attempt to sell shares on the London Stock Exchange was abandoned in April 2011, with the owners citing market uncertainty. A subsequent listing on the New York Stock Exchange was completed in May 2012, with CCMP and Unitas each reducing their stake by five percent to about 40 percent apiece.
“It was a fine independent company, but from a scale and an economic perspective it made far more sense for it to be part of Atlas Copco,” Brenneman said.
While the Crawley-based company’s 2012 Ebitda margin of 19.1 percent still lagged behind Atlas Copco’s 23.6 percent, access to the Swedish company’s sales and distribution channels should improve that, according to Leten.
“With the presence in 182 countries that Atlas Copco has, we need only marginally increase investment,” Leten said. “It’s really just a case of adding on a couple of sales people. We don’t need to add a general manager, a financial manager, warehousing or legal things.”
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