- Meaningfully completes Vertiv’s data center offering by adding a leading independent provider of switchgear, busway and modular power solutions;
- Expands Vertiv’s addressable market by $7 billion, entering an attractive global market growing at mid-single digits;
- Expected to be accretive to Vertiv’s organic growth, adjusted operating margins, cash flow and adjusted EPS; and
- Core Vertiv business continues to see robust order and backlog growth but supply chain disruptions have accelerated; updating guidance to reflect latest market conditions.
COLUMBUS, Ohio–(BUSINESS WIRE)–Vertiv Holdings Co, a global provider of critical digital infrastructure and continuity solutions, today announced that through its subsidiaries, it has entered into a definitive agreement to acquire E&I Engineering Ireland Limited and its affiliate, Powerbar Gulf for approximately $1.8 billion in upfront consideration plus the potential for up to $200 million in cash, based on achieving certain 2022 profit milestones. The upfront consideration consists of $1,170 million in cash and approximately $630 million of Vertiv common stock. The transaction has been unanimously approved by Vertiv’s Board of Directors and is expected to close in the fourth quarter of 2021, subject to customary closing conditions.
Founded in 1986 by Philip O’Doherty, E&I is a leading independent provider of electrical switchgear and power distribution systems, pioneering unique in-house integrated power solution designs and technology tailored to individual client project needs. With annual sales of approximately $460 million (2021E) and 2,100 employees, E&I has a long heritage in the power distribution market and deep relationships with a blue-chip customer base in more than 30 countries. E&I’s products represent a critical system of the data center power infrastructure and compete in an addressable market of about $7 billion, which is expected to grow 5% annually through 2025.
“The acquisition of E&I represents a key milestone in Vertiv’s strategy, completing our portfolio of in-building power train offerings for data centers and vital commercial and industrial markets,” said Rob Johnson, Vertiv’s Chief Executive Officer. “The combination will amplify Vertiv’s growth opportunities and profitability, while enabling Vertiv to deliver differentiated solutions that manage a customer’s entire power infrastructure as an integrated system. We look forward to adding E&I’s highly skilled team members to the Vertiv family. Our companies share a strong culture of engineering excellence and innovation and a passion for serving our customers with differentiated products and service.”
“While this deal marks the first acquisition by Vertiv since becoming a public company, our team has thoughtfully followed acquisition best practices during the process of identification, valuation, due diligence and integration planning. E&I represents a unique opportunity for Vertiv and it fits well in the Vertiv portfolio. I am excited about the potential of these two great businesses coming together as one,” said Dave Cote, Vertiv’s Executive Chairman.
“This transaction brings together two highly complementary businesses and represents a great outcome for E&I’s employees and customers,” said Philip O’Doherty, founder and Chief Executive Officer of E&I. “We are excited to join the Vertiv team and to continue to grow our business through Vertiv’s global reach, strong channel presence and great customer positioning in critical digital infrastructures.”
Compelling Strategic and Financial Benefits
- Highly Complementary Product Portfolio with Differentiated Technology. E&I’s products in critical power switchgear, UPS input and output switch gear and busway fill the remaining gaps in the Vertiv critical power infrastructure offering.
- Broad Global Customer Base. Together, Vertiv and E&I will serve some of the world’s leading hyperscale cloud and colocation companies that are increasingly looking to suppliers to have a full “powertrain” capability and flexible power deployment options to support increasingly demanding power requirements.
- Significant Geographic Expansion Potential. E&I today competes in North America, Europe and the Middle East. This transaction provides the opportunity to leverage Vertiv’s footprint outside of the United States, particularly in Europe and Asia to rapidly expand penetration with new customers.
- Attractive Cost and Revenue Synergies. The combination is expected to yield excellent sales synergies; however no sales synergies are contemplated in the base financial model so they represent incremental upside. Vertiv expects to realize approximately $18 million in pre-tax run rate cost synergies within three years of close. Cost synergies will come from a combination of procurement, general, administrative and product costs. Revenue synergy opportunities are driven by highly complementary customers and products to support cross-selling and integrated solutions for each company’s customers.
- Accretive to Vertiv’s Financial Profile. The transaction is expected to be accretive to Vertiv’s organic growth, adjusted operating margins, cash flow and EPS in 2022.
Transaction Details
Under terms of the agreement, E&I will receive upfront consideration of approximately $1.8 billion, consisting of $1,170 million in cash and approximately $630 million of Vertiv common stock, issued at the volume-weighted average closing price per share over the 60-day trading period ended Sept. 7, 2021, and equating to 23.1 million shares. Up to $200 million of additional cash consideration would be payable based upon the achievement of certain 2022 EBITDA targets, with $100 million paid if E&I achieves 2022 EBITDA of $146 million and an incremental $100 million if E&I achieves 2022 EBITDA of $156 million or higher. Assuming expected 2022 EBITDA of $150 million, the resulting $1.9 billion purchase price – including $100 million of additional consideration based upon the above thresholds – represents a multiple of about 11x 2022 EBITDA including expected run rate year-three cost synergies of $18 million.
Vertiv plans to finance the transaction with cash on hand and new debt financing, supported by committed financing. At the close of the transaction, Vertiv expects an adjusted net leverage ratio of about 3.4x net debt to adjusted EBITDA, which is expected to de-lever to approximately 2.3x by year end 2022. The company expects the transaction to close in the fourth quarter of 2021 subject to receipt of regulatory approvals and satisfaction of customary closing conditions.
Centerview Partners LLC is acting as lead financial advisor to Vertiv, and Baker McKenzie and Latham & Watkins provided legal counsel. Rothschild & Co is acting as sole financial advisor to E&I and Clifford Chance provided legal counsel. Committed financing to support the transaction is being provided by Citi, that also acted as a financial advisor to Vertiv.
Updated Business Conditions
Vertiv today also provided an update on current business conditions. Overall market demand remains robust and consistent with expectations. Orders in July and August were up approximately 12% compared to the same period last year, driven by continued strength in cloud and colocation markets. Order growth drives a record backlog of about $2.4 billion at the end of August, a 30% increase from year-end 2020.
Despite continued strong market demand, supply chain challenges described in our prior communications are trending worse than expected, with critical part shortages driving the need for additional spot buys. In some cases, the company cannot procure critical parts at any price, creating production and delivery challenges pressuring the top-line. Vertiv is taking actions to address these challenges, which are expected to continue through the first half of 2022.
Given these pressures, Vertiv is revising its guidance for the third quarter and full year 2021. The revised guidance reflects current market conditions and anticipates no improvements until next year, which Vertiv considers prudent but could prove conservative. A summary of the revised guidance compared with prior guidance is provided below:
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Prior Q3 2021 Guidance |
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Revised Q3 2021 Guidance |
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Net sales |
$1,260M – $1,300M |
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$1,210M – $1,250M |
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Organic net sales growth1 |
6.5% – 9.5% |
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2.5% – 5.5% |
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Adjusted operating profit2 |
$155M – $165M |
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$125M – $135M |
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Adjusted operating margin |
12.3% – 12.8% |
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10.3% – 10.8% |
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Adjusted EPS |
$0.26 – $0.30 |
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$0.17 – $0.20 |
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|
|
|
|
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Prior FY 2021 Guidance |
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Revised FY 2021 Guidance |
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Net sales |
$4,970M – $5,030M |
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$4,880M – $4,940M |
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Organic net sales growth1 |
11.5% – 12.5% |
9.5% – 10.5% |
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Adjusted operating profit |
$590M – $610M |
|
$530M – $550M |
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Adjusted operating margin |
11.8% – 12.2% |
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10.9% – 11.1% |
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Adjusted EPS |
$1.12 – $1.18 |
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$0.96 – $1.01 |
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Free Cash Flow |
$290M – $310M |
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$190M – $220M |
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1 This is a non-GAAP financial measure that cannot be reconciled for those reasons set forth under “Non-GAAP Financial Measures” of this news release. |
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2 This release contains certain non-GAAP metrics. For reconciliations to the relevant GAAP measures and an explanation of the non-GAAP measures and reasons for their use, please refer to Exhibit 99.1. |
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The above revised third quarter and full year 2021 guidance excludes projected one-time M&A costs of approximately $15 million in the third quarter and $66 million for the full year. In addition, full year guidance excludes approximately $45 million of projected net sales and $11 million of projected adjusted operating profit from the E&I acquisition – assuming a Dec. 1, 2021 transaction closing date.
Johnson concluded, “Today marks the start of an important chapter for Vertiv as we announce this significant and value-creating addition to our portfolio. Vertiv is laser-focused on executing well, ensuring we are well positioned to benefit when supply chain conditions improve. Together with E&I, the future of Vertiv has never been brighter and we are excited about the potential value creation opportunities for our shareholders in both the near- and long-term.”
Conference Call
Vertiv’s management team will discuss the transaction and financial outlook today during a conference call at 9 a.m. Eastern Time. The call will contain forward-looking statements and other material information regarding the transaction and financial outlook. A webcast of the live conference call will be available for interested parties to listen to by going to the Investor Relations section of the company’s website at investors.vertiv.com. A replay of the conference call will also be available for 30 days following the webcast.
About Vertiv Holdings Co
Vertiv (NYSE: VRT) brings together hardware, software, analytics and ongoing services to ensure its customers’ vital applications run continuously, perform optimally and grow with their business needs. Vertiv solves the most important challenges facing today’s data centers, communication networks and commercial and industrial facilities with a portfolio of power, cooling and IT infrastructure solutions and services that extends from the cloud to the edge of the network. Headquartered in Columbus, Ohio, USA, Vertiv employs approximately 20,000 people and does business in more than 130 countries. For more information, and for the latest news and content from Vertiv, visit Vertiv.com.
About the E&I Engineering Group
The E&I Engineering group is a global provider of electrical switchgear and power distribution solutions with a proven track record for quality, technical expertise and customer service. With manufacturing facilities in Ireland, USA and United Arab Emirates, E&I can design, deliver and install on a global scale. E&I is globally recognized as a leader within the power distribution industry. An extensive product range, specialist technical services and a resolute focus on customer service delivers an unparalleled service that provides peace of mind for all customers. All of its products are manufactured in-house ensuring that all are of the required specification and are commercially viable and fit for purpose.
