DXP Enterprises, Inc. Completes Strategic Acquisition
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Insights
The acquisition of Hennesy Mechanical Sales LLC by DXP Enterprises, Inc. is a strategic move that could potentially strengthen DXP's position in the municipal water, wastewater and industrial markets. The addition of Hennesy's geographical reach and aftermarket service capabilities may offer DXP a competitive edge in these sectors. Investors should note the reported sales and adjusted EBITDA figures, which suggest a healthy financial performance by Hennesy in the past year, indicative of a potentially accretive acquisition for DXP.
Furthermore, the transaction being funded through cash on the balance sheet indicates a strong liquidity position for DXP, alleviating concerns about potential debt increases or equity dilution. The focus on aftermarket services is particularly noteworthy, as this segment often provides higher margins and more stable revenue streams compared to new equipment sales. This could imply a strategic focus on long-term, sustainable earnings.
The acquisition's timing, at the beginning of the financial year, suggests a proactive approach by DXP Enterprises towards achieving its strategic goals. The mention of a repeatable and sustainable earnings profile post-acquisition implies that Hennesy is expected to contribute positively to DXP's financial stability and growth. From an investment perspective, the use of non-GAAP financial measures such as EBITDA and Adjusted EBITDA is significant as it offers a clearer picture of operational performance by excluding non-recurring items.
However, investors should exercise caution and consider the limitations of these measures as they do not account for all the costs of running a business. The reconciliation of non-GAAP to GAAP measures is essential for a full financial assessment. The acquisition could signal underlying growth opportunities in the water treatment market, which may be reflected in DXP's future stock performance.
From a legal and regulatory standpoint, the completion of the acquisition process, including the signing of a definitive agreement, indicates that DXP Enterprises has likely undergone due diligence to mitigate potential legal risks. This acquisition could serve as a precedent for similar transactions within the industry, emphasizing the importance of aftermarket and service capabilities in valuing such deals.
It is important for stakeholders to consider the legal synergies and the ease of integration of Hennesy into DXP's existing operations. The alignment of both entities in terms of compliance, especially in the highly regulated water and wastewater treatment sector, is crucial for the smooth continuation of Hennesy's operations post-acquisition.
- Leading distributor and manufacturers representatives focused on servicing the municipal water, wastewater, and industrial markets
- Enhances DXP’s Water geographic reach and capabilities
- Attractive Aftermarket and Service Capabilities
Hennesy is a leading manufacturers representative in the municipal water and wastewater treatment market and provides industrial pump sales, service, and repair in the states of
David R. Little, Chairman, and CEO remarked, “We are pleased to welcome the Hennesy employees to the DXP team. Hennesy will enhance our aftermarket and service capabilities, along with furthering our efforts to grow our DXP Water platform. Hennesy provides a repeatable and sustainable earnings profile that is complementary to our business and furthers our strategy.”
Signing of the definitive agreement occurred on January 2, 2024. Sales and adjusted EBITDA for the last twelve months ending November 30, 2023, were approximately
Kent Yee, CFO added, “We are excited to start off the year with another acquisition and welcome the talented and hardworking employees of Hennesy to the DXP team. We will continue to execute on our strategic priorities and strategy of making acquisitions in markets and business models where we can continue to enhance and propel DXP into the future. We look forward to continuing this path in 2024 as we grow, improve, and scale DXP.”
Non-GAAP Financial Measures
DXP supplements reporting of net income with non-GAAP measurements, including EBITDA, Adjusted EBITDA, and free cash flow. This supplemental information should not be considered in isolation or as a substitute for the unaudited GAAP measurements. Additional information regarding EBITDA referred to in this press release is included below under "--Unaudited Reconciliation of Non-GAAP Financial Information."
The Company believes EBITDA provides additional information about: (i) operating performance, because it assists in comparing the operating performance of the business, as it removes the impact of non-cash depreciation and amortization expense as well as items not directly resulting from core operations such as interest expense and income taxes and (ii) the performance and the effectiveness of operational strategies. Additionally, EBITDA performance is a component of a measure of the Company’s financial covenants under its credit facility. Furthermore, some investors use EBITDA as a supplemental measure to evaluate the overall operating performance of companies in the industry. Management believes that some investors’ understanding of performance is enhanced by including this non-GAAP financial measure as a reasonable basis for comparing ongoing results of operations. By providing this non-GAAP financial measure, together with a reconciliation from net income, the Company believes it is enhancing investors’ understanding of the business and results of operations, as well as assisting investors in evaluating how well the Company is executing strategic initiatives.
About DXP Enterprises, Inc.
DXP Enterprises, Inc. is a leading products and service distributor that adds value and total cost savings solutions to industrial customers throughout
The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. Certain information included in this press release (as well as information included in oral statements or other written statements made by or to be made by the Company) contains statements that are forward-looking. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future; and accordingly, such results may differ from those expressed in any forward-looking statement made by or on behalf of the Company. These risks and uncertainties include but are not limited to; ability to obtain needed capital, dependence on existing management, leverage, and debt service, domestic or global economic conditions, and changes in customer preferences and attitudes. In some cases, you can identify forward-looking statements by terminology such as, but not limited to, “may,” “will,” “should,” “intend,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “goal,” or “continue” or the negative of such terms or other comparable terminology. For more information, review the Company’s filings with the Securities and Exchange Commission.
View source version on businesswire.com: https://www.businesswire.com/news/home/20240108135826/en/
Kent Yee
Senior Vice President CFO
713-996-4700 – www.dxpe.com
Source: DXP Enterprises, Inc.
FAQ
What acquisitions did DXP Enterprises, Inc. (NASDAQ: DXPE) complete?
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