NEW YORK (The Deal) -- As part of its promise to streamline operations, Cameron International (CAM) said Monday it agreed to sell its centrifugal compression business to Ingersoll-Rand (IR) for $850 million.
The unit makes and provides services for centrifugal compressors in several industries around the world. It generated almost $400 million in sales last year and was expected to have Ebitda of $80 million next year. It employs 850.
Swords, Ireland-incorporated Ingersoll-Rand, which has its executive offices in Davidson, N.C., said separately that the acquisition will immediately boost earnings per share, Ebitda margins and return on invested capital and expand its compression offerings into air separation, petrochemicals, chemicals and process gas. It plans to fund the deal with cash on hand and debt.
"Cameron's centrifugal compression division offers complementary product, manufacturing and engineering strengths as well as financial synergies that make it a natural fit into our core business and will provide meaningful value to our shareholders," Ingersoll-Rand chairman CEO Michael Lamach said in a statement.
Houston-based Cameron said it decided to sell the unit after review of its long-term strategy to increase its focus on its core markets and that its goal was to identify a buyer that is more closely aligned with its broad and global markets. Cameron chairman, CEO and president Jack Moore said in a statement that Ingersoll Rand sees a "strong strategic fit" for its business.
A source said Cameron ran a full auction process that attracted many bidders, both strategic and financial and domestic and international.
Cameron said it expects to complete the sale before year's end if it's approved by regulators and report the unit's results as discontinued operations in the third quarter. It also said it expects $600 million in after-tax proceeds, which it will use to buy back stock.
Kurt Hallead, an analyst at RBC Capital Markets, said the deal was done at an attractive multiple. Simmons & Co. International said the price was toward the high end of its expected range of $650 million to $950 million, coming in at a 10.5 times to 14.5 times Ebitda multiple, assuming 15% to 20% Ebitda margins.
Tudor Pickering Holt & Co. Securities said the price was in line with expectations at 11 to 12 times this year's expected Ebitda. Tudor Pickering said it continues to like the stock and sees 20% upside over the next 12 months.
According to Simmons, Cameron repurchased 27 million shares last year for $1.5 billion at an average price of $56 per share and 15 million shares in the first quarter for more than $900 million, or an average $61 per share, but the company recently disclosed that it expected the pace of repurchases to slow considerably due to reaching frictional balances in cash levels after repurchasing $300 million in shares in the second quarter. About $456 million remained on Cameron's repurchase authorization at the end of the second quarter, Simmons said.
Cameron said it was exploring strategic alternatives for the business when it announced the sale of its reciprocating gas compression business to General Electric (GE) in January for $550 million.
Ingersoll-Rand bought heating and air conditioning company Trane in 2007 for $10 billion but spun off its home and commercial security operations through an initial public offering last year after pressure from activist investor Nelson Peltz and the California State Teachers' Retirement System.