Notable Mergers and Acquisitions 11/8: (SNHY) (TSLA) (SNPS)

November 8, 2016 9:47 AM EST

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*** Sun Hydraulics Corporation (Nasdaq: SNHY) has entered into an agreement with Enovation Controls, LLC, an Oklahoma-based and privately held provider of electronic control, display and instrumentation solutions, to acquire its Power Controls (PC) and Vehicle Technologies (VT) lines of business. The acquisition is expected to close in 30 days, subject to regulatory approval and other customary closing conditions.

Key Transaction Highlights:

  • Acquisition value at initial consideration of $200M and additional earn-out potential of $50M over 27 months
  • Expected to be immediately accretive to Sun's 2017 earnings per share by $0.25 - $0.35
  • Funded with cash on hand and cash available under Sun's revolving credit facility
  • Tax step-up basis benefit estimated at $35+M of value
  • Annual profit synergies of $5M expected by 2020

"With this acquisition, Sun acts on its commitment to our customers and shareholders. Our strategic focus is on innovation and complete system solutions. Enovation Controls' premium products support this focus and are an excellent fit with the Sun brand," said Wolfgang Dangel, Sun's President and CEO. "The PC and VT businesses are highly successful. They operate in some of the same industries Sun currently serves, while providing diversification opportunities in markets such as marine, power systems and recreational vehicles. Enovation Controls' products will complement Sun's current offerings in mobile and industrial applications as hydraulic systems increasingly incorporate electronics."

"Enovation Controls, co-founded by Frank Murphy III and Kennon Guglielmo, is among the fastest growing and most innovative electronic control and display companies globally," continued Dangel. "The acquisition of the PC and VT business lines provides Sun attractive new brands with proven appeal, including the highly respected Murphy® brand, while infusing Sun with fresh ideas and expertise."

"Today marks the beginning of an exciting new chapter for Enovation Controls," said Murphy, co-founder. "We have a deep respect for Sun Hydraulics. It is clear they share our commitment to addressing the needs of customers who build systems requiring both superior performance and reliability while incorporating cutting-edge technology. We are proud of the innovative company our team has built, and we are confident Sun will continue our strong tradition of stewardship given its reputation for leadership, global presence and resources."

Sun will maintain Enovation Controls as a separate standalone company, with Kennon Guglielmo remaining involved on the leadership team. The PC business will continue to provide electronic control systems, displays and customized instrumentation panels for power units, generator sets, off-highway equipment, and engine and pump instrumentation. The company's VT business will continue to provide electronic controls and infotainment solutions, solving complex problems in the recreational and off-highway vehicle and marine markets.

The acquired company will consist of approximately 300 employees located around the globe in the United States, England, Germany, India and China. Enovation Controls' two other lines of business, Natural Gas Production Controls and Engine Controls and Fuel Systems, will operate as a newly formed company not owned by Sun.

Sun's financial advisor for the transaction was Robert W. Baird & Co. Incorporated. Shumaker Loop & Kendrick, LLP acted as legal advisor.

Enovation's financial advisor for the transaction was Founders Investment Banking. Norton Rose Fulbright acted as legal advisor.

As a reminder, Sun Hydraulics' third quarter earnings will be released later today.

*** Tesla (Nasdaq: TSLA) posted the following to its Blog on Tuesday:

Accelerating a sustainable energy future is only possible with high-volume factories. They allow us to manufacture high-quality products with economies of scale, making them more affordable and accessible to the world. As the machine that builds the machine, our factories are so important that we believe they will ultimately deserve an order of magnitude more attention in engineering than what they produce. At very high production volumes, the factory becomes more of a product than the product itself.

After increasing our output target to 500,000 cars per year by 2018, we began searching for the best engineering talent in automated manufacturing systems. Today, we are excited to announce that Tesla has entered into an agreement to acquire Grohmann Engineering, a world-renowned engineering company in Prüm, Germany, which will become Tesla Grohmann Automation.

Led by founder and CEO Klaus Grohmann, Grohmann Engineering is one of the world leaders in highly automated methods of manufacturing. This transaction will bring Mr. Grohmann’s leadership, a world-class team and unique expertise in-house. Moreover, it will serve as the initial base for Tesla Advanced Automation Germany headquarters, with other locations to follow. We expect to add over 1,000 advanced engineering and skilled technician jobs in Germany over the next two years.

Under the continued leadership of Mr. Grohmann, several critical elements of Tesla’s automated manufacturing systems will be designed and produced in Prüm to help make our factories the most advanced in the world. Combined with our California and Michigan engineering facilities, as well as other locations to follow, we believe the result will yield exponential improvements in the speed and quality of production, while substantially reducing the capital expenditures required per vehicle.

To date, we have increased the production rate at our Fremont Factory by 400% in four years, and we expect this acquisition to accelerate that growth rate. While the agreement is contingent upon clearance from regulators, including in Germany, we hope to have full approval and close the acquisition in early 2017. We are excited to have the Grohmann team join us in our goal of becoming the best manufacturer in the world to help accelerate the world's progress to a sustainable energy future.

*** Synopsys, Inc. (Nasdaq: SNPS) has signed definitive agreements to acquire Cigital, a privately held provider of software security managed and professional services, and Codiscope, a 2015 spinoff of Cigital and provider of complementary security tools. Cigital is a large, global application security firm specializing in professional and managed services for identifying, remediating and preventing vulnerabilities in software applications. Codiscope has transformed the tools and intellectual property created by Cigital into a suite of accessible and streamlined tools for a broad population of developers.

The security of software code throughout the software supply chain is a critical concern for companies across a broad range of industries, from financial services and medical devices to industrial controls and automotive. As the cyber security landscape becomes increasingly complex, many organizations are struggling to determine the right solution in the context of a multitude of point tool offerings and varying vendor strategies, as well as their own IT challenges and priorities. The acquisition of Cigital and Codiscope will add complementary products, services, and a highly skilled workforce to the Synopsys portfolio, enabling Synopsys to offer a comprehensive software security signoff solution.

"Synopsys, Cigital and Codiscope have a shared vision of building security into the software development lifecycle and across the cyber supply chain," said Andreas Kuehlmann, senior vice president and general manager of the Synopsys Software Integrity Group. "Cigital's consultants are instrumental in guiding organizations from the earliest stages of security readiness and system maturity, which will provide an impactful addition to Synopsys' current product-based offering. Codiscope's developer-focused tools and training modules are important in empowering developers to prioritize security. Together we will be able to provide our customers with a state-of-the-art software security platform."

"Coupling the managed services and professional services of Cigital with the product strengths of Synopsys really creates something very remarkable: the first true end-to-end provider for software security," said John Wyatt, Cigital chief executive officer. "We are excited about joining an organization that shares Cigital's vision of securing the software that is at the heart of every organization by Building Security In. The shared vision of the two companies will provide Cigital the opportunity to accelerate our growth while continuing to deliver consistent, quality services to our clients."

"Codiscope's mission of improving the quality of software by creating tools that help developers build and deploy secure code faster is a natural fit in the Synopsys vision of Software Integrity," said Gary Jackson, Codiscope Chief Executive Officer. "Addressing security at the developer level drives developer productivity, reduces remediation time, and promotes the education of security skills. As the velocity of development increases, security belongs in development, and Codiscope will provide Synopsys critical tools to lead the industry."

The terms of the deal are not being disclosed. The transaction, which will be funded with a combination of U.S. cash and debt, is subject to Hart Scott Rodino regulatory review and other customary closing conditions, and is expected to close by December 2016. While Synopsys has not yet provided financial guidance for fiscal 2017, our preliminary review indicates that the acquisition is expected to be modestly dilutive to 2017 non-GAAP earnings per share, and is expected to reach breakeven on a non-GAAP basis by the second half of 2018.

To keep up on all the Mergers & Acquisitions data in real-time, go to our M&A Insider page.



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