Watts Water Technologies, Inc. (WTS) completed the earlier announced acquisition of AERCO International, Inc. (AERCO), a portfolio entity of The Riverside Company. The acquisition will help expand Watts Water's product portfolio to the strategically important and related heat and hot water offerings.
As per the deal, Watts Water acquired 100% of AERCO's shares for $264.5 million. The final purchase price is subject to a customary net working capital adjustment. Watts Water funded the acquisition with borrowings under its credit facility.
Based in Blauvelt, NY, AERCO is a leading manufacturer of a wide range of high-efficiency commercial boilers and water heaters with solid operating margins and attractive opportunities to continue its strong growth. AERCO's products are distributed primarily in the U.S. for the commercial markets.
The acquisition will strengthen Watts Water's ability to provide a total solution to its customers as AERCO's products complement its existing portfolio. On the other hand, the buyout will provide AERCO with an opportunity to expand worldwide utilizing Watts Water's existing international presence.
Watts Water intends to continue generating incremental growth by targeting selected acquisitions, both in core markets as well as new complementary markets. The company has completed 36 acquisitions since 1999.
Watts Water reported third-quarter 2014 adjusted earnings of 70 cents, a 21% year-over-year improvement, driven by increased volumes in America, cost savings realized in the EMEA as part of its restructuring and transformation efforts and more stable manufacturing in its lead free foundry. The company ended the quarter with comfortable cash holdings of around $272 million.
In its third-quarter conference call, Watts Water provided a consistent integration approach for all acquisitions. The company also plans to implement a disciplined M&A approach that identifies only those targets that will pass its strategic criteria.
Watts Water will also benefit from growth in new residential construction, repair and replace activity, along with commercial recovery in North America and expansion into the Chinese markets. Even though the transformation program and restructuring actions in Europe will lead to cost savings, volumes will remain weak.
Watts Water, which operates through its subsidiaries, is a leading manufacturer of innovative products that control the efficiency, safety and quality of water within applications (residential, commercial and institutional).
At present, Watts Water carries a Zacks Rank #3 (Hold). Some better-ranked stocks to consider in the same industry are Roper Industries Inc. (ROP), Thermon Group Holdings, Inc. (THR) and Woodward, Inc. (WWD). All these stocks carry a Zacks Rank #2 (Buy).
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