Blackstone agrees Emerson deal

January 2023  |  DEALFRONT | PRIVATE EQUITY & VENTURE CAPITAL

Financier Worldwide Magazine

January 2023 Issue

Emerson Electric has agreed to sell a majority stake in its climate technologies unit to private equity firm Blackstone Inc in a deal that values the business at $14bn.

Under the terms of the deal, Blackstone will pay about $9.5bn upfront and another $2.25bn note at close. The transaction has been unanimously approved by Emerson’s board of directors and is expected to close in the first half of 2023, subject to regulatory approvals and customary closing conditions.

Emerson will retain around a 45 percent stake in the climate tech unit, said Blackstone, and co-investors Abu Dhabi Investment Authority and Singapore state fund GIC would contribute $4.4bn in equity toward the deal, which would be supplemented by $5.5bn of debt financing. The debt will be equivalent to about four times the new company’s annual cash flow.

“Today’s announcement is a definitive step in the portfolio journey we embarked on when I became CEO in early 2021,” said Lal Karsanbhai, president and chief executive of Emerson. “Over the past 18 months, the Emerson team has accelerated our portfolio transformation, divesting non-core businesses including InSinkErator and Therm-O-Disc, while investing in organic growth opportunities and important transactions including AspenTech. Our differentiated capabilities in intelligent devices and software, and the focus, cohesiveness and operating agility of a pure-play company, will allow Emerson to bring our comprehensive automation products and solutions to a diverse set of end markets.

“This transaction enables Emerson to partially monetize our Climate Technologies business at an attractive valuation and provides significant upfront cash proceeds to invest in growth, while at the same time enabling Emerson to participate in Climate Technologies’ upside potential upon exit of our non-controlling position,” he continued. “We are excited to partner with Blackstone given its successful history of value creation in collaboration with corporate partners. We look forward to working closely with Blackstone to ensure a smooth transition for Climate Technologies’ employees and customers.”

“Blackstone has a long and successful track record of large-scale corporate partnerships, a key pillar of our investment strategy,” said Joe Baratta, global head of Blackstone Private Equity. “This is a marquee transaction for our private equity business and a testament to our ability to deliver solutions to our partners even in difficult economic and market environments. We are proud to be partnered with Emerson to help drive the next stage of growth for this great business.

“Copeland is the market leader in supplying critical components for residential, commercial and refrigeration climate control systems. The business is poised for accelerated growth as it leads the way in helping consumers and businesses shift to more energy-efficient heating and cooling products as part of their carbon reduction efforts. We are thrilled to back the business’ dedicated team as they continue to innovate and deliver energy-efficient solutions to their customers,” he added.

According to Emerson, the climate technologies unit had fiscal 2022 net sales of $5bn, pre-tax earnings of $1bn and earnings before interest, taxes, depreciation and amortisation (EBITDA), including standalone costs, of $1.1bn. The transaction value of $14bn for the unit represents a multiple of 12.7 times fiscal 2022 EBITDA, including standalone costs. Emerson will retain 45 percent common equity ownership of the standalone climate technologies business, which will be structured as a joint venture between Emerson and Blackstone, until its potential sale or IPO.

The transaction marks a significant milestone in Emerson’s journey to create a higher value, cohesive industrial technology portfolio and to become a pure-play global automation company serving a diversified set of end markets, the company notes. Emerson, together with AspenTech, has the industry’s most comprehensive portfolio of advanced automation technologies and software.

Emerson said it plans to use proceeds from the deal to invest in automation-related businesses and spend around $2bn on share repurchases in 2023.

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BY

Richard Summerfield

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