Emerson Electric (NYSE:EMR) is working with Goldman Sachs on the potential sale of its power transmission solutions business, said three industry sources. The first source estimated the business may fetch just under USD 1bn in the event of a sale.
The company has not kicked off a sale process for the business, which is expected to attract strategics and private equity firms.
A spokesperson for St. Louis, Missouri-based Emerson declined comment. Goldman Sachs also declined comment.
Last Friday, the global diversified technology company announced it was evaluating strategic alternatives for power transmission solutions. The business' products include belt and chain drives, helical and worm gearing, mounted and unmounted bearings, couplings, modular plastic belts and conveying chains and components.
Emerson said plans for power transmission solutions, which is housed in the company’s Industrial Automation segment, are expected to be "determined and announced" by year end.
Power transmission solutions may command a multiple north of what Gates recently received, in part, given its end markets are much less cyclical given it does not have automotive exposure, said the second source. The same source said the business had double digit margins, approaching 20%.
In April, Blackstone announced an agreement to acquire power transmission and fluid transfer solutions business, Gates, from Onex and Canada Pension Plan Investment Board for approximately USD 5.4bn. The deal valued Gates at approximately 9.6x adjusted EBITDA.
Since spring, there has been talk among the investment banking community that Emerson was weighing options for power transmission solutions, according to several industry sources. The company has been “flirting” with strategics, said the first source, while another of the sources noted that prior to the announcement “everyone [was] chatting [a potential deal] up.”
The business has long been considered a “not whether, but when” candidate for divestiture said a fourth industry source, describing power transmission solutions as an asset that is not long for Emerson’s portfolio.
Altra Industrial Motion (NASDAQ:AIMC) is among the best comparables for the Emerson business, said two of the sources. The Braintree, Massachusetts-based company designs, produces and markets a range of mechanical power transmission products.
Other comps include Rexnord (NYSE:RXN), whose Process & Motion Control arm includes gears, couplings, industrial bearings, aerospace bearings and seals, and Regal Beloit’s (NYSE:RBC) mechanical segment, which manufactures an array of mechanical motion control product, said one of the sources. Regal Beloit lists Emerson Power Transmission as a major domestic competitor.
The same source suggested Timken’s (NYSE:TKR) power transmissions arm as a comparable. On 30 June, the Canton, Ohio-based company announced the completion of its spinoff of its steel business, TimkenSteel, which began trading independently on Tuesday. The remaining business is focused on Timken’s bearings and power transmission products.