Emerson has sold its majority stake to Blackstone and two sovereign funds—the Abu Dhabi Investment Authority (ADIA) and Singapore’s GIC—to receive upfront cash proceeds of approximately $9.5 billion.
Founded in 1971, the Climate Technology division of the global technology and software supplier Emerson is the world’s leading provider of heating, air conditioning and refrigeration solutions – it has been valued at $14 billion during the time of the transaction. The deal notably includes their market-leading Copeland Compressor Business, Alco Controls, and the entirety of their product and services portfolio across refrigeration and HVAC, which accounted in 2022 for $5 billion in fiscal sales for residential, industrial and commercial applications.
Emerson has made it clear that the objective of this merger is to “drive growth and significant value creation for our shareholders by creating a leading global automation company” using the cash from the sale, according to Lal Karsanbhai, President and CEO of Emerson Electric. The climate technology division seeks to resell its “non-core” businesses to subsequently diversify its operations into automation machinery, mainly in the automotive, energy and industrial sectors.
The deal would remain a joint venture, whereby Emerson will retain 45% equity on its climate technology business, and will be providing $2.25bn in seller financing. The company will also be expected to sell the ownership of its St. Louis Missouri Campus to the joint venture, and will need to scout for potential headquarters during the remaining three-year lease.
The transaction takes place in an interesting economic context of high interest rates, and therefore difficulty to obtain debt financing for large leveraged buyouts of the sort. Joe Baratta, head of Blackstone’s private equity business, stated that “This is a marquee transaction for our private equity business and a testament to our ability to deliver solutions to our partners even in difficult economic and market environments”. Indeed, Blackstone has managed to follow through despite the ambiguous economic outlook, placing more than $5 billion of debt in this deal by enlisting large sovereign funds as co-investors.
Goldman Sachs and Centerview Partners served as financial advisors for Emerson Electric during the deal, while Barclays served as the lead financial advisor to Blackstone. Additionally, a large portion of Blackstone’s debt is being led by RBC Capital Markets, Wells Fargo and SMBC.
While the terms of the transaction have already been decided and disclosed, the deal is expected to take place in the first half of 2023.
Analyst: Augustin Dubois
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