Sulzer to Acquire Cardo’s Flow Solutions Business


Sulzer and Assa Abloy, the new majority owner of Cardo AB after a public offer concluded in March 2011, have signed an agreement for the acquisition of Cardo’s Flow Solutions business. The Board and the Executive Committee of Sulzer unanimously support this acquisition.

Headquartered in Malmö, Sweden, Cardo’s Flow Solutions business achieved 2010 1 sales of approximately CHF 463 million and an adjusted EBITDA of CHF 67 million2, implying a 14.5% EBITDA margin. The business has around 1 900 employees and generates around 90% of its sales in the wastewater market as a full line supplier of pumps and related equipment such as lifters, mixers, aerators, compressors, control and monitoring equipment and services.

“Cardo’s Flow Solutions business with its complete pumping solutions for the wastewater market and its committed employees provides an excellent strategic fit for Sulzer,” said Ton Büchner, CEO of Sulzer. “With the intended acquisition of this strong supplier in the attractive wastewater pumps market, Sulzer will be able to benefit from the attractive long-term growth of this market. Leveraging Sulzer’s broad global presence and further developing the complementary product portfolios of Sulzer Pumps and Cardo’s Flow Solution business, we want to further grow the business and create value for customers, the employees of both companies and our shareholders.”

A strong position in an attractive growth market

With the intended acquisition, Sulzer will enter the wastewater pump and related equipment market and become a strong player within it. Cardo’s Flow Solutions business complements the existing business of Sulzer Pumps in water transportation and desalination. After the intended acquisition, the water and wastewater segment will become a key market for Sulzer, accounting for approximately 16% of total sales (pro-forma combined based on 2010 sales).

Wastewater is one of the largest markets for pumps with an estimated market size of around CHF 4 billion and expected long-term growth rates through the cycle of over 5% per annum. The market offers strong growth potential in both mature markets – with the modernization of existing infrastructure – as well as in emerging markets, mainly driven by new infrastructure investments. This positive market outlook is supported by strong underlying trends: population growth, increasing water consumption per capita with concurrent water scarcity, more stringent environmental requirements and the increasing age of infrastructure in developed countries. Over time, demand in the wastewater pump market has also proven to be more stable than in other pumps markets.

Strong platform to further grow the wastewater business

As part of Sulzer, the wastewater pumps business will represent an attractive platform for further growth. The business already has a very strong position in the large European market. Sulzer’s strong global presence will be leveraged to further expand its market positions in the Americas, Asia/Pacific, Middle East and Africa. The complementary pump types of Cardo Flow Solutions and Sulzer are an ideal basis for continued technological development of complete pumping solutions to customers in the water and wastewater industry. The combined product portfolio also offers cross-selling opportunities. In addition, Sulzer’s strong global service network will be leveraged to further develop the aftermarket service business.

Integration into Sulzer Pumps

The intended acquisition is subject to customary regulatory approvals. Closing is expected in the second half of 2011.

After the closing of the transaction, the wastewater pumps business will be integrated into Sulzer Pumps as an additional global business area, with the intention to further expand the business geographically and expanding the range of complete pumping solutions. Cardo Flow Solutions’ process pumps business for the general industries segments will be integrated into Sulzer Pumps’ existing process pumps business area.

Value-creating acquisition – balance sheet remains strong, allowing for further acquisitive growth

The transaction is in line with Sulzer’s acquisition criteria of strategic fit, integration capability, and value creation.

The cash consideration of CHF 858 million1corresponds to an adjusted 2010 EBITDA2 multiple of 12.8x. The intended acquisition is expected to be EPS ‘pre-amortization’ accretive (excluding amortization of acquisition related intangible assets) and EPS ‘post-amortization’ neutral in the first year after the acquisition (2012). Sulzer Pumps’ return on capital employed (ROCE) will remain above Sulzer’s financial value creating threshold of 12.5%, and the Sulzer Corporation will also remain value creating.

Synergies will be mainly achieved through broader geographic presence, combined solutions, joint sourcing, and shared services. Run-rate sales synergies are expected to be in the range of 10% of acquired sales in year three. Cost synergies are identified and will be quantified after closing.

Sulzer expects transaction costs of CHF 10 million and integration costs of CHF 25 million distributed over three years, The future EBIT impact due to amortization of acquired intangibles will be quantified after closing only.

The transaction of CHF 858 million1 will be financed with cash on hand and available debt capacity.

After the transaction, Sulzer’s balance sheet will remain strong allowing for further acquisitive growth.

1Assuming an SEK/CHF exchange rate of 0.14550 (three months daily average).

2EBITDA adjusted by non-recurring items (restructuring and footprint adaptations) of CHF 9 million.

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