Barnes Announces Sale of Associated Spring™ and Hänggi™ Businesses as Part of Continued Portfolio Optimization and Long-term Profitable Growth Strategy
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Insights
The divestiture of Barnes Group's Associated Spring™ and Hänggi™ businesses for $175 million represents a strategic financial maneuver that can be seen as a positive development for the company's financial health. By allocating the expected net cash proceeds of $150 million towards debt reduction, Barnes is actively working to improve its leverage position. The targeted Net Debt to EBITDA ratio of 3.0x by the end of 2024 and a further reduction to a 2.5x ratio by 2025, is indicative of a disciplined approach to financial management, which is often rewarded by investor confidence and can lead to a re-rating of the company's stock.
Moreover, the divestiture aligns with a broader corporate strategy to focus on higher-margin Aerospace markets, which could result in a more streamlined and profitable business mix. Investors should note the potential for improved margins and earnings quality post-transaction, which may be a catalyst for stock performance. Additionally, the reduction in exposure to the automotive sector may be viewed favorably, given the current industry challenges such as supply chain disruptions and cyclical demand.
Barnes Group's divestiture of its industrial component manufacturing businesses is a strategic move that aligns with current market trends favoring specialization and focus on core competencies. The Aerospace industry is known for its high barriers to entry and long-term contracts, which can provide stable revenue streams. By concentrating on this segment, Barnes is positioning itself to capitalize on the expected growth in aerospace markets, driven by increasing air travel demand and the need for new aircraft.
Investors should consider the competitive positioning of Barnes post-divestiture, as the company is likely to benefit from a sharpened focus on Aerospace, which has historically provided higher growth and margin opportunities compared to the industrial segment. This strategic pivot could potentially enhance Barnes' market share and strengthen its competitive moat within the Aerospace sector.
The closing of this transaction, expected in early 2024, is contingent upon regulatory and customary closing conditions. It is important for stakeholders to monitor the progress of these conditions, as any regulatory hurdles could delay or even prevent the deal from materializing. From a legal perspective, the involvement of reputable advisors such as BofA Securities and Foley & Lardner LLP indicates a thorough due diligence process and a well-structured agreement, which is likely to mitigate the risk of post-transaction legal complications.
Furthermore, the inclusion of a $15 million seller promissory note due in 24 months introduces an element of deferred compensation, which can be beneficial for managing cash flow post-transaction. Stakeholders should be aware of the implications of such financial instruments on the company's future financial obligations and potential impact on earnings.
Enables Industrial Segment Simplification, Strengthens Balance Sheet, and Accelerates Debt Reduction
Thomas J. Hook, President and Chief Executive Officer of Barnes said, “Over the past year, we have been executing a comprehensive business transformation strategy based on three key pillars — Execute Core Business; Scale Aerospace; and Integrate, Consolidate & Rationalize Industrial — to generate improved growth, profitability, and cash flow at Barnes. Informed by a comprehensive strategic review of our business by independent advisors, we have continuously shared progress updates on our journey. Today’s announced divestiture demonstrates a leap forward in rationalizing our Industrial business and rebalancing our portfolio toward our industry-leading Aerospace business.”
“Additionally, this transaction allows us to pay down debt, enabling lower interest expense and meaningful tax benefits. Associated Spring™ and Hänggi™ are solid businesses with a long heritage and blue-chip customer base. We are confident that One Equity will bring the dedicated focus and necessary resources to grow this business,” added Hook.
Associated Spring™ and Hänggi™ are leaders and innovators in engineered spring and precision metal component manufacturing, progressive stamping, micro-stamping, and fine blanking. The brands are part of Barnes’ Motion Control Solutions strategic business unit within the Industrial Segment and serve automotive, general industrial, and other markets. Combined, the businesses had approximately
“We are thrilled to partner with Associated Spring™ and Hänggi™’s strong leadership team and talented employees. One Equity has extensive experience in the diversified industrials space and in acquiring high-performing businesses through carveout transactions. We look forward to working with the team to expand this platform through organic growth initiatives and transformational acquisitions, a hallmark of our strategy,” said Ante Kusurin, Managing Director of One Equity Partners.
Hook concluded, “The combination of our recent MB Aerospace acquisition and this divestiture dramatically shifts Barnes’ portfolio toward markets with higher growth and margin opportunities. Following the close, our Aerospace Segment will account for a majority of our consolidated revenues and an even larger percentage of our earnings. Further, our exposure to automotive will be materially lower. While we still have work to do in executing our strategic transformation, we remain committed to reshaping and positioning Barnes for success by executing on our three strategic pillars to deliver value to shareholders.”
The transaction is expected to close early 2024 subject to regulatory and other customary closing conditions. Barnes leadership will provide additional details on the company’s Q4 and Full Year 2023 earnings call on February 16, 2024.
BofA Securities served as financial advisor and Foley & Lardner LLP served as legal counsel to Barnes.
About Barnes
Barnes Group Inc. (NYSE: B) leverages world-class manufacturing capabilities and market-leading engineering to develop advanced processes, automation solutions, and applied technologies for industries ranging from aerospace and medical & personal care to mobility and packaging. With a celebrated legacy of pioneering excellence, Barnes delivers exceptional value to customers through advanced manufacturing capabilities and cutting-edge industrial technologies. Barnes Aerospace specializes in the production and servicing of intricate fabricated and precision-machined components for both commercial and military turbine engines, nacelles, and airframes. Barnes Industrial excels in advancing the processing, control, and sustainability of engineered plastics and delivering innovative, custom-tailored solutions for industrial automation and metal forming applications. Established in 1857 and headquartered in
About One Equity Partners
One Equity Partners (“OEP”) is a middle market private equity firm focused on the industrial, healthcare, and technology sectors in
Forward-Looking Statements
This press release contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address our expected future operating and financial performance and financial condition, and often contain words such as "anticipate," "believe," "expect," "plan," "strategy," "estimate," "project," and similar terms. These forward-looking statements do not constitute guarantees of future performance and are subject to a variety of risks and uncertainties that may cause actual results to differ materially from those expressed in the forward-looking statements. These risks include our ability to close the divestiture of Associated Spring™ and Hänggi™ within the anticipated time period, if at all; uncertainties relating to conditions in financial markets; currency fluctuations and foreign currency exposure; future financial performance of the industries or customers that we serve; risks associated with international sales and operations; the ability to maintain adequate liquidity and financing sources; and general economic conditions affecting the industries we serve. A detailed discussion of these and other factors that may affect our future results is contained in Barnes Group Inc.’s filings with the
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Investors:
Barnes Group Inc.
William Pitts
Vice President, Investor Relations
860.583.7070
ir@onebarnes.com
Source: Barnes Group Inc.
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