Emerson Electric Co. (DME – Free Report) intends to strengthen and expand its business through mergers and acquisitions. Emerson’s latest agreement to combine its industrial software business with Aspen Technology, Inc. (AZPN – Free Report) in an approximately $ 11 billion deal is a testament to this.
Based in Bedford, MA, Aspen Technology, Inc. provides asset optimization software solutions to various industries. The company’s solutions help optimize process manufacturing by supporting real-time decision making, predicting equipment failures, and providing the ability to predict and simulate potential actions.
Emerson’s stock price has fallen 0.9% over the past five trading sessions, finally closing at $ 95.73 on Friday.
In the headlines
The deal will involve Emerson merging its software business, OSI Inc. and geological simulation software, with Aspen Technology to form a new company – the new AspenTech. Under the cash and stock agreement, Aspen Technology shareholders will be entitled to receive $ 87 in cash and 0.42 shares of the combined entity in exchange for each share they own. After the transaction, which is expected to close in the second quarter of 2022, Emerson shareholders will own 55% of the combined entity, while the remaining 45% will be owned by Aspen Technology shareholders.
Complemented by Emerson’s strong software capabilities, the new AspenTech will focus on delivering end-to-end software solutions to its customers, helping them improve reliability, safety and production and reduce emissions. New AspenTech is expected to generate $ 1.1 billion in pro forma revenue in fiscal 2022 (end of June 2022) and $ 490 million in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).
The transaction will allow Emerson to take control of a leader in high-value industrial software, accelerate its software strategy and achieve substantial synergies, thereby creating value for its shareholders. With this controlling stake in the new AspenTech, Emerson hopes to gain the flexibility and platform to strategically deploy capital for growth through investments and acquisitions. Emerson believes the transaction will create a win-win scenario for the two companies, as it strengthens the business alliance between them and enhances their partnership in the areas of technology sharing, driving innovation and developing new products. .
As noted, the deal is likely to generate EBITDA synergies of $ 45 million for Emerson and increase its adjusted profit after the first year.
Emerson also reaffirmed its earnings and underlying sales outlook for fiscal 2021 (ended September 2021, results are expected). The company expects underlying sales to increase in the range of 5-6% year-over-year, while adjusted earnings per share are expected to be between $ 4.06 and $ 4. $ 08.
The company is expected to release its results for the fourth quarter of fiscal 2021 on November 3, before the market opens.
Zacks Rank, Price Performance and Estimated Trend
Emerson, with a market cap of $ 57.2 billion, currently holds a Zacks Rank # 3 (Hold). Over the next few quarters, it is poised to benefit from the strength of its medical, life sciences, food and beverage and residential end markets. High restructuring costs and the level of debt are major concerns for the company.
Over the past six months, Emerson stock has gained 4.3% versus industry growth of 3.6%.
Image source: Zacks Investment Research
Zacks’ consensus estimate for company earnings is set at $ 4.08 for fiscal 2021 and $ 4.57 for fiscal 2022 (ending September 2022), reflecting growth of 0 , 2% and 1.6%, respectively, from 60 days ago.
Actions to consider
A few top-ranked stocks in Zacks’ Industrials sector are Albany International Corp. (AIN – Free report) and Brady Corporation (BRC – Free report). Both of these companies currently carry a Zacks Rank # 2 (Buy). You can see The full list of Zacks # 1 Rank (Strong Buy) stocks today here.
Albany has achieved a surprise profit of 45.47%, on average, over the past four quarters.
Brady has achieved a surprise earnings of 2.49%, on average, over the past four quarters.