Regal Rexnord Corporation (NYSE: RRX) is announcing today that it has entered into a definitive agreement to acquire Arrowhead Systems, a global leader in providing industrial process automation solutions, including conveyors and (de)palletizers to the food & beverage, aluminum can, and consumer staples end markets, among others. The acquisition complements Regal Rexnord's current conveying offering, which includes plastic and metal conveyor belts, table top conveyor chains, guide rails and transfer/divert stations, in addition to related motion control products and electric motors. The $297 million all-cash transaction, which is subject to customary working capital and other adjustments, has been approved by Regal Rexnord's Board of Directors and is expected to close in the fourth quarter of 2021, subject to customary closing conditions and regulatory approvals.

Arrowhead dates back to 1946 with the founding of Busse Bros., which patented the first machine for stacking cans on pallets, or automatic palletizer, and was subsequently acquired by Arrowhead Conveyor in 1999. The combined business went on to broaden and deepen its capabilities in palletizing and conveying, including by adding a full suite of aftermarket services and solutions, extending its reach outside the U.S. and, more recently, implementing a robust digitization project to support IIoT, AI and predictive maintenance capabilities.

Commenting on the transaction, Louis Pinkham said "Strategically, Arrowhead is everything Regal Rexnord looks for in an acquisition – it increases our exposure to attractive, high-growth end markets; its highly engineered products and solutions, including a robust digital capability, are differentiated and highly valued by its customers, as reflected in Arrowhead's mid-30's gross margins; and the complementary nature of its offering should accelerate Regal Rexnord's ability to offer more complete and value-added conveying solutions. Key Arrowhead growth drivers are also highly consistent with our ESG mindset and our Regal Rexnord value of driving innovation with purpose – purposeful for our customers and for our planet – considering its offering directly supports rising consumer demand for more environmentally friendly packaging, particularly a migration away from single use plastics to aluminum cans."

"The transaction meets Regal Rexnord's strict acquisition financial criteria, including year 1 accretion and ROIC expected to exceed 10% by Year 5, supported by attractive cost and sales synergies, which we have initially estimated at $8 million annually by year 3, growing to $12 million including additional cross-marketing synergies. After posting an 18% organic revenue CAGR over the last three years, Arrowhead is on track to generate approximately $100 million in revenue in 2021 and we believe is well positioned for continued high-single digit to low double digit organic growth over our three year planning horizon."

"We are particularly excited about the complementary nature of Arrowhead and our ModSort Systems modular transfer and diverter stations, which are fast becoming important 'last mile' components in e-commerce warehouse applications, but have much broader applicability in other markets, where Arrowhead focuses. Similarly, we see ample opportunities to capitalize on Arrowhead's strength in design, fabrication and assembly in a broader set of end markets, including e-commerce, by leveraging ModSort's extensive integrator network."