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HMS Networks AB, a global provider of industrial information and communication technology, has entered into a binding agreement with Spectris Group Holdings Limited to acquire Red Lion Controls business, an established US-
based provider of industrial automation solutions, through the acquisition of 100 percent of the shares in Red Lion Controls Inc. and Red Lion Europe GmbH as well as certain assets in other jurisdictions (“Red Lion”), expanding HMS’ presence in the North American market and complementing HMS’ offering and enable cross-selling of both HMS’ and Red Lion’s products through their respective market channels.
Summary Of the Acquisition
HMS has entered into a binding agreement to acquire Red Lion for a cash consideration of USD 345 million (approximately SEK 3,600 million), on a cash and debt free basis (Enterprise Value). The acquisition is expected to be accretive to HMS' earnings per share from completion of the acquisition (excluding any non-cash amortization impacts from the transaction). The combination of HMS and Red Lion had annual sales exceeding SEK 4.4 billion, during the twelve-month period ending on September 30, 2023, with an adjusted EBIT margin of approximately 24 percent.
The acquisition will be financed through a combination of new debt and equity, consisting of a term loan and a revolving credit facility, and a bridge loan facility expected to be repaid through a share issue following the completion of the acquisition. HMS will convene an extraordinary general meeting (“EGM”) on January 26, 2024, to authorize the board of directors of HMS to resolve upon such a share issue, and HMS’ intention is to conduct a directed share issue, noting that no such decision has been taken and is subject to market conditions at the time of closing of the acquisition.
The acquisition is expected to close during the first half of 2024, subject to customary regulatory approvals and closing conditions.
Strategic Rationale
For HMS it is of strategic importance to strengthen its presence in the North American market and to improve its product offering range with products and offers that are specifically developed to meet the North American market demand.
The Red Lion offering is centered around three core product lines. Access products focus on cloud connectivity, edge intelligence, and remote device management, and includes Industrial Gateways, Protocol Converters, Routers and Access Points. Connect products enable communication between plant operators and assets with Industrial Layer 1 and 2 Ethernet Switches representing the main parts of this product line. And Visualize products allow plant operators to interact with assets with Human Machine Interfaces (HMI) and Panel Meters constituting the main products.
The acquisition is expected to enable several cross-selling synergies of HMS and Red Lion, partly by capitalizing on the different market channels. With the greatest proportion of Red Lion’s sales coming from North America, through a well-developed distributor network that HMS will be able to utilize to drive sales of HMS’ gateway and remote access offering. HMS, with about 60 percent of its sales in the large automation markets in Europe and well-developed and targeted market channels, will be able to cross-sell selected parts of the Red Lion offering.
Furthermore, the acquisition is expected to have R&D and product development synergies on several parts of both HMS’ and Red Lion’s offerings which will be explored further after closing of the transaction.