REGAL REXNORD TO ACQUIRE ALTRA INDUSTRIAL MOTION

Regal Rexnord Corporation announced that it has reached a definitive agreement with Altra Industrial Motion Corp. providing for Regal Rexnord to acquire 100% of Altra shares in an all cash transaction for $62.00 per share.

The transaction values Altra at $4.95 billion², representing 13.6x LTM Adjusted EBITDA, or 9.5x after factoring estimated run-rate cost synergies. The transaction is subject to the receipt of regulatory approvals, Altra shareholder approval, and the satisfaction of other customary closing conditions. The transaction is expected to close in the first half of 2023.

With the addition of Altra, Regal Rexnord expects 2022 pro forma revenue of ~$7.2 billion, Adjusted EBITDA of ~$1.5 billion, and an Adjusted EBITDA margin of ~21%. Based on the growth and margin outlook for the combined business, and after including $160 million in annualized run rate cost synergies, Regal Rexnord targets 2025 pro forma revenue of ~$8.3 billion, 2025 Adjusted EBITDA of ~$2.1 billion, and an Adjusted EBITDA margin >25%.

Altra is a global designer and manufacturer of a wide range of highly engineered motion control, automation, and power transmission solutions. The transaction expands Regal Rexnord’s portfolio, customer reach, and product diversity while enabling the creation of shareholder value through enhanced growth and substantial cost synergies.

“This acquisition opens up many new avenues for profitable growth. In particular, Altra’s Automation & Specialty platform transforms our existing automation portfolio – namely ModSort and Automation Solutions (formerly Arrowhead) – into a meaningful, global automation solutions provider. The automation business has highly attractive growth prospects and margins, serving many markets that have anticipated secular growth tailwinds, including factory automation, medical, aerospace, and warehouse & logistics,” said Regal Rexnord CEO, Louis Pinkham.

“The transaction also significantly enhances our power transmission portfolio, in particular our industrial powertrain offering, by adding complementary products in brakes, gears, and clutches, while extending the number of end markets in which we actively participate.”

“We believe this combination presents attractive opportunities for all our stakeholders – our customers, our associates, and our shareholders. We see tremendous upside from bringing Regal Rexnord’s 80/20 skillset, partnered with both companies’ continuous improvement mindset, and a disciplined plan-do-check-act (PDCA) management approach — producing a broader offering and higher service levels for our customers, growth opportunities for our associates, and compelling expected financial returns for our shareholders, including enhanced growth, cost synergy-driven margin expansion, attractive ROIC, and earnings accretion.”

“Among the many benefits Altra brings, a particularly notable one is the infusion of additional talent into our combined business, to help support and guide our many growth and free cash flow enhancement initiatives. Importantly, Regal Rexnord and Altra are a terrific cultural fit, with a shared commitment to integrity, customer success, and continuous improvement. We are confident that these shared values and complementary businesses will help facilitate a seamless transition and support our continued success.”

Rakesh Sachdev, Non-Executive Chairman, commented, “I, and the entire Board, are extremely excited to see Regal Rexnord take this next step in what has been a compelling transformation journey. We are confident, given a proven operational and M&A integration track record, the organization is well positioned to pursue what we believe will be a highly value-enhancing transaction – for Regal Rexnord’s associates, its customers, and its shareholders.“

Key Strategic & Financial Benefits

• Creates a substantial automation and industrial power transmission business by significantly expanding Regal Rexnord’s automation portfolio and capabilities, and enhancing its power transmission offering, particularly in industrial brakes, clutches and gear motor sub-systems. The combined company’s enhanced power transmission portfolio creates an even more compelling partner for distributors, and better positions Regal Rexnord to offer industrial powertrain solutions in a broader set of end markets. In addition, the transaction represents an attractive value proposition for both customers and end users through improved service capability breadth, technology content and domain expertise.
  
  
• Raises exposure to secular growth end markets. The pro forma automation business, with expected sales of roughly $1.1 billion in 2022, is anticipated to have over 70% of its sales generated in end markets with secular growth characteristics, including factory automation, medical, alternative energy, aerospace, and warehouse & logistics.
  
  
• Accelerates digital strategy, better positioning Regal Rexnord for Industry 4.0, which will be critical to future new product development efforts.
  
  
• Expected to generate sizable cost synergies of $160 million on a full-year run rate basis. Expected synergies to be driven by procurement, distribution efficiencies, footprint rationalization, and SG&A savings. Actions to realize the synergies are expected to be completed by year four. Leveraging Regal Rexnord’s competencies in 80/20 and lean, and building on its successful integration of Rexnord PMC, the acquisition presents an opportunity to further optimize the combined company’s global operating model, which in turn can support greater investment in the business to drive profitable growth. Regal Rexnord also anticipates significant cross-marketing synergies, which it will quantify at an appropriate time after the transaction closes.
  
  
• Path to 40% enterprise gross margins. Robust expected cost synergies plus the growth expectations for the combined business support a path to 40% gross margins in 2025 – up from Regal Rexnord’s prior expectation of reaching a 37% gross margin by 2025. Pro Forma Adjusted EBITDA margins are expected to rise by approximately 500 basis points by 2025.
  
  
• Provides significant immediate and long-term value creation and financial benefits. The transaction is expected to provide an attractive, double digit ROIC by year 5, and is expected to be accretive to adjusted earnings per share in the first year after closing, with double-digit accretion anticipated thereafter as synergies accrue and de-levering is planned to occur.
  
  
• Strong cash flows, and a rapid path to de-levering. Building on the legacy of Regal Rexnord and Altra, the pro forma enterprise is expected to generate substantial free cash flow, which will support a strong pace of debt reduction. Regal Rexnord expects to lower its net debt/adjusted EBITDA ratio to between 2.5x and 3.0x in 2024, and below 2.5x thereafter. Pro forma free cash flow conversion rates are expected to approximate 100%.
  
  
• Unites aligned cultures with deep commitment to 80/20 and Lean principles. The businesses share cultures focused on serving customers and driving operating efficiencies.
  
  
• Talent infusion into Regal Rexnord as a result of the combination is expected to support and help propel the many growth and margin enhancement initiatives currently underway, in particular around 80/20, Lean, digital/e-commerce, and new product development.

Conference Call and Investor Information

Regal Rexnord will host a conference call to discuss the transaction at 7:30 AM CT (8:30 AM ET) on Thursday, October 27, 2022. To listen to the live audio and view the presentation during the call, please visit Regal Rexnord’s Investor website: https://investors.regalrexnord.com. To listen by phone or to ask the presenters a question, dial 1-888-317-6003 (U.S. callers) or + 1-412-317-6061 (international callers) and enter 9257636# when prompted.

A webcast replay will be available at the link above, and a telephone replay will be available at 1-877-344-7529 (U.S. callers) or + 1-412-317-0088 (international callers), using a replay access code of 6418591#. Both will be accessible for three months after the call.

A copy of the investor presentation will be made available on Regal Rexnord’s investor relations website in advance of the conference call.

Preliminary Regal Rexnord Third Quarter Results

Given the announcement of the transaction, and its timing relative to the planned release of Regal Rexnord’s third quarter financial results on October 31, Regal Rexnord is pre-releasing the following select anticipated third quarter 2022 financial measures based on currently available information: Net sales of $1,325.3 million, adjusted diluted earnings per share of $2.66 and GAAP earnings per share of $1.80. For the full year of 2022, Regal Rexnord now expects adjusted diluted earnings per share to be in a range of $10.35 to $10.75, which contemplates, among other factors, expected net interest expense of $66 million vs. $50 million expected previously. This and other guidance from Regal Rexnord does not reflect any costs, expenses or other effects of the transaction.

Third Quarter Earnings Announcement

Regal Rexnord is scheduled to announce its Third Quarter earnings after market close on Monday, October 31^st and host an earnings conference call to discuss the results at 9:00 AM CT (10:00 AM ET) on Tuesday, November 1^st. Details of these calls will be found in a separate earnings announcement press release and on the Regal Rexnord investor relations website.

Advisors

J.P. Morgan and Incentrum Group are serving as financial advisors to Regal Rexnord, and Sidley Austin LLP is serving as legal counsel. J.P. Morgan is also providing Regal Rexnord with committed bridge financing for the transaction.

About Regal Rexnord

Regal Rexnord Corporation is a global leader in the engineering and manufacturing of industrial powertrain solutions, power transmission components, electric motors and electronic controls, air moving products, and specialty electrical components and systems, serving customers around the world. Through longstanding technology leadership and an intentional focus on producing more energy-efficient products and systems, Regal Rexnord helps create a better tomorrow – for its customers and for the planet.

Regal Rexnord is comprised of four operating segments: Motion Control Solutions, Climate Solutions, Commercial Systems and Industrial Systems. Regal Rexnord is headquartered in Beloit, Wisconsin and has manufacturing, sales, and service facilities worldwide. For more information, visit RegalRexnord.com.

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