Premium industrial goods firm, RBC Bearings Inc. ROLL recently inked a $500 million acquisition deal with renowned diversified machinery company, Dover Corporation DOV. Under the terms of the deal, RBC Bearings would own the Sargent Aerospace & Defense business (‘Sargent’) of Dover. The acquisition, which will be financed through cash and senior debts, is expected to see light in first-quarter fiscal 2016.
Acquisition Rationale
Sargent, operating as a subsidiary firm of Dover Corporation, excels in engineering specialized products and solutions for aircraft engines & airframes, rotorcraft, submarines and land vehicles. The company also provides repairing service for these heavy vehicles. Furthermore, it manufactures and sells different types of hydraulic valves, specialty bearings, seal rings, specialty fasteners and alignment joints under leading brands such as Sonic Industries, Sargent Controls, Sargent Aerospace & Defense, Airtomic and Kah Bearing. The company generates revenues of roughly $195 million annually.
RBC Bearings’ aerospace and defense revenues suffered a decline in the last reported quarter due to contraction in its distribution activities. We believe that strategic integration of Sargent Aerospace & Defense business would not only fortify RBC Bearings’ defense and aerospace trade but also help strengthen the latter’s product portfolio, going forward.
Addition of Sargent to its portfolio complements RBC Bearings’ efforts to enhance its customer base as well as top-line figures in the upcoming quarters. The acquisition is expected to contribute 25–35 cents per share to the company’s earnings in the first year, and add $7.5 million of synergies over the next five years.
Inorganic Growth Story
RBC Bearings strategically adds new companies to its portfolio to maintain its competency as well as enhance the scale of its business. However, before agreeing to buy Sargent, the company had not acquired any firms within the last fifteen months. Its last buyouts date back to 2013, when Western Precision Aero LLC, Climax Metal Products Company and Turbine Components Inc. were added to its portfolio for ensuring greater economic surplus in business.
Moving Forward
RBC Bearings manufactures and distributes variable types of plain, roller and ball bearings in the aerospace, industrial and defense industries. These bearings, apart from reducing damage and energy loss, also enable proper power transmission in majority of machines and mechanical systems.
In the last four trailing quarters, RBC Bearings has reported a positive average earnings surprise of 1.12%. Backed by such inorganic expansion deals, we expect the stock to perform better than the broader market in the near term.
With a market capitalization of $1.44 billion, RBC Bearings currently carries a Zacks Rank #5 (Strong Sell). Better-ranked stocks in the industry include AO Smith Corp. AOS and AAC Holdings, Inc. AAC. Both stocks carry a Zacks Rank #2 (Buy).
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