In a move to boost exposure to the aerospace industry, Stanley Black and Decker (SWK) is reportedly in talks to purchase Consolidated Aerospace Manufacturing, LLC (CAM), a privately held fasteners, fittings, and engineered products manufacturer.
Stanley has apparently been very aggressive in the bidding process, outbidding other private equity firms for the CAM operations. Speculation is that the SWK bid may be around $1 billion, including assumption of debt, and that an announcement of the winning bid may come very soon.
CAM has been formed over the years as a variety of companies, including Voss, Bristol, and Moeller, were rolled up into the current operation, which is owned by Tinicum, Inc. The company has been at the mercy of the boom or bust aerospace cycle, but in the currently favorable environment is expected to produce mid-single digit sales growth.
Strategically, the acquisition could benefit Stanley in that it will increase the company’s exposure to the aerospace market, and a downtick in that market will not be overly impactful to the company’s broader earnings picture.
Stanley should be able to absorb a downward aerospace cycle, offsetting it with its tool business, which has grown to be the majority of the company’s revenue at this point. Recent acquisitions, of the Craftsman brand, and Newell’s tool business, have been heavily focused on hand tools.
On the other hand, CAM has had a history of less than stellar integration of its businesses, and Stanley Black and Decker may need to dedicate more resources than usual to ensure the integration goes smoothly.
One notable difference from a strategy perspective is that CAM places an emphasis on “individualized customer service from in-house and on-site technical support to application evaluation and product design.” While the tool business, with its focus on big box retailers like Home Depot (HD) is a very different business model.
It should be noted that Stanley does operate an industrial and fastener business currently, but it only makes up around 15% of revenue.
It is unclear if a CAM acquisition will be accretive to earnings, and investors will have to wait for official word from Stanley on the acquisition, and what impact it would have on earnings forecasts in 2020.
The company is expected to report earnings on January 29th before the open. With rumors of a possible CAM acquisition already public, Stanley may try to finalize the deal before that date.
Steven Adams’s personal position in Stanley Black and Decker: none.
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