U.S. manufacturer Chart Industries Inc. announced Wednesday it agreed to buy UK-based industrial equipment maker Howden from private equity firm KPS Capital Partners for $4.4 billion in cash and newly created preferred stock, doubling its revenue and earnings.
J.P. Morgan and Morgan Stanley provided Chart with $3.375 billion of committed bridge financing. The deal is expected to close in the first half of 2023 if it clears regulators.
Winston & Strawn advised Chart led by Mike Blankenship and Matt Stevens and including Doug Lionberger, Justin Hoffman, Ben Smolij and John Niedzwiecki. BofA Securities is serving as financial advisor.
Morgan Stanley, J.P. Morgan Securities, Barclays and Evercore are financial advisors to KPS Capital and to Howden, which used Paul Weiss, Rifkind, Wharton & Garrison as legal counsel.
By merging, the companies hope to boost scale and drive growth in areas involving decarbonization, as countries and companies hurry to cut emissions and meet targets under climate agreements.
“The combination of Chart and Howden furthers our global leadership position in highly engineered process technologies and products serving the nexus of clean – clean power, clean water, clean food and clean industrials,” said Jill Evanko, Chart’s CEO and President.
Luke Lemoine, an analyst at Piper Sandler in Houston, wrote in a note Thursday that the firm believes the deal valuation is reasonable, although the stock is off significantly due to the concern on the amount of leverage associated with the transaction when a probable recession is looming.
“We believe investors are concerned about leverage along with the perception the LNG story is being diluted, overshadowing the industrial logic and valuation,” he said.
Based in Georgia, Chart manufactures equipment used in liquefied natural gas, hydrogen, biogas and carbon dioxide capture industries while Scotland-based Howden makes fans, steam turbines and other air and gas handling equipment.
In a presentation to investors, Chart said the deal expands Chart’s equipment portfolio and process technology offerings for multiple molecules and applications across high growth areas, and in particular clean energy.
The company said the proposed merger will provide strong cost and sales synergies, scale and innovation potential in priority areas including hydrogen, carbon capture and storage, decarbonization of industries, water treatment, petrochemical, LNG, air separation, marine, cement and natural gas processing.
Chart said the deal would be accretive to margins, cash earnings per share and free cash flow in the first full year and it identified opportunities for margin expansion in the first three years of ownership.