Industrial manufacturer Eaton Corp. said Thursday it is buying aerospace fuel systems company AT Holdings Corp., the parent of Argo-Tech, for $695 million.
Argo-Tech’s aerospace business, which had sales for the fiscal year ended October 28, 2006, of $206 million, includes high-performance aerospace engine fuel pumps and systems, airframe fuel pumps and systems, and ground fueling systems for commercial and military aerospace markets.
Eaton said the deal, expected to close in the first quarter of next year, will strengthen its major commercial and military aerospace platform content and significantly increase its aftermarket opportunities. With more than 100,000 fuel pumps in over 60 percent of large commercial aircraft in service today, Argo-Tech services a significant repair and overhaul demand as a commercial aircraft will typically experience five to six main engine fuel pump overhauls over its 30-year life span.
Argo-Tech is also well positioned for the next generation of commercial aircraft and very light jets, Eaton said. The company is the sole source supplier of the main engine fuel pump for the General Electric GEnx engines to be used on the Boeing 787, Airbus A350 and the Boeing 747-8, and the company is the fuel system supplier for the Eclipse 500 and Adams 700. With this acquisition, Eaton’s aerospace operations will grow to approximately $1.5 billion in annual revenues.
"As Eaton continues its attempt to diminish cyclicality, we feel the addition of Argo-Tech is a positive move for the company," said Prudential analyst Igor Maryasis.
While Maryasis is in favor of the deal, he points out that it came at a steep price. Eaton paid 11 times cash flow for Argo-Tech, above the average ratio of Eaton's past acquisitions of 6-7 times cash flow.
"We do not expect the deal to have a significant effect on Eaton's 2007 results, but feel that the company is taking steps in the right direction to optimize its business portfolio to offset its exposure to the decline in the North American heavy-duty truck and automotive markets," Maryasis said.
The company employs about 640 people in four locations – Cleveland, Ohio; Costa Mesa and Inglewood, Calif.; and Tucson, Ariz. Prior to the closing, AT Holdings will be reorganized to exclude its cryogenics and other non-aerospace businesses, which had sales of $22 million in 2006, and certain other assets from the transaction."The acquisition of Argo-Tech adds an important component to Eaton’s aerospace fuel system strategy by acquiring a leading provider in engine fuel pump technology,” said Alexander M. Cutler, Eaton's chairman and chief executive officer. “Argo-Tech will strengthen our aerospace operations by providing Eaton with a total fuel system capability, attractive aftermarket opportunities and an increased portfolio and customer base."