• Emerson will receive $9.5 billion in pre-tax cash proceeds
• Climate Technologies had $5 billion in fiscal 2022 sales with EBITDA of $1.1 billion
• Unit includes market-leading Copeland compressor business and portfolio of products and services across all HVAC and refrigeration end markets

Emerson announced a definitive agreement under which it will sell a majority stake in its Climate Technologies business to private equity funds managed by Blackstone in a transaction valuing Climate Technologies at $14.0 billion. Emerson will receive upfront, pre-tax cash proceeds of approximately $9.5 billion while retaining a non-controlling ownership interest in a new standalone joint venture.

The standalone Climate Technologies business includes the market-leading Copeland compressor business and the entire portfolio of products and services across all HVAC and refrigeration end-markets, representing approximately $5.0 billion of fiscal 2022 sales.

Management Comments

“Today’s announcement is a definitive step in the portfolio journey we embarked on when I became CEO in early 2021,” said Lal Karsanbhai, President and Chief Executive Officer of Emerson. “Over the past 18 months, the Emerson team has accelerated our portfolio transformation, divesting non-core businesses including InSinkErator and Therm-O-Disc, while investing in organic growth opportunities and important transactions including AspenTech. Our journey has been with clear purpose – to drive growth and significant value creation for our shareholders by creating a leading global automation company. Our differentiated capabilities in intelligent devices and software, and the focus, cohesiveness and operating agility of a pure-play company, will allow Emerson to bring our comprehensive automation products and solutions to a diverse set of end markets.”

“This transaction enables Emerson to partially monetize our Climate Technologies business at an attractive valuation and provides significant upfront cash proceeds to invest in growth, while at the same time enabling Emerson to participate in Climate Technologies’ upside potential upon exit of our non-controlling position,” continued Mr. Karsanbhai. “We are excited to partner with Blackstone given its successful history of value creation in collaboration with corporate partners. We look forward to working closely with Blackstone to ensure a smooth transition for Climate Technologies’ employees and customers.”

Joe Baratta, Global Head of Blackstone Private Equity, commented, “Blackstone has a long and successful track record of large-scale corporate partnerships, a key pillar of our investment strategy. This is a marquee transaction for our private equity business and a testament to our ability to deliver solutions to our partners even in difficult economic and market environments. We are proud to be partnered with Emerson to help drive the next stage of growth for this great business. Copeland is the market leader in supplying critical components for residential, commercial and refrigeration climate control systems. The business is poised for accelerated growth as it leads the way in helping consumers and businesses shift to more energy-efficient heating and cooling products as part of their carbon reduction efforts. We are thrilled to back the business’ dedicated team as they continue to innovate and deliver energy-efficient solutions to their customers.”

Transaction Details

Climate Technologies had fiscal 2022 net sales of $5.0 billion, pre-tax earnings of $1.0 billion and EBITDA, including standalone costs, of $1.1 billion. The transaction values Climate Technologies at $14.0 billion, representing a multiple of 12.7x fiscal 2022 EBITDA, including standalone costs. Emerson will receive upfront, pre-tax cash proceeds of approximately $9.5 billion and a note of $2.25 billion at close and retain 45% common equity ownership of the standalone Climate Technologies business, which will be structured as a joint venture between Emerson and Blackstone, until its potential sale or IPO. The cash consideration will be funded by $5.5 billion of fully committed debt financing ($6.2 billion inclusive of an unfunded ABL facility) and $4.4 billion of equity contribution from Blackstone. A wholly owned subsidiary of the Abu Dhabi Investment Authority (ADIA) and GIC will invest alongside Blackstone as part of the transaction.

See related article: Blackstone and M&T Bank to Provide Enstructure with $525 Million Sustainability-Linked Loan Facility

Video source: Emerson Commercial and Residential Solutions / YouTube

Timing and Other Details

The transaction has been unanimously approved by Emerson’s Board of Directors and is expected to close in the first half of the calendar year 2023, subject to regulatory approvals and customary closing conditions.

Operating results for Climate Technologies, and previously announced divestitures, InSinkErator, which is expected to close later today, and Therm-O-Disc, will be reported in discontinued operations in the first fiscal quarter of 2023. Included in Emerson’s continuing operations will be Automation Solutions, Safety & Productivity, and AspenTech.

As part of the transaction, Emerson will be right sizing its corporate and platform cost structure and will sell ownership of its St. Louis, Missouri campus to the joint venture. Emerson will enter a three-year lease on the headquarters with an option to extend a further two years. During that time, Emerson will undertake a comprehensive assessment of potential headquarters locations.

Advisors

Centerview Partners LLC and Goldman Sachs & Co. LLC are serving as financial advisors to Emerson, and Davis Polk & Wardwell LLP is serving as legal counsel. Barclays served as lead financial advisor to Blackstone. Guggenheim Securities, LLC and Evercore also provided financial advisory services to Blackstone. The ABL revolver and TLA portion of the debt financing related to the transaction is led by RBC Capital Markets, LLC, Wells Fargo and SMBC. Additional financing is provided in the form of a private Term Loan by a consortium of lenders. Simpson Thacher & Bartlett LLP is acting as legal counsel to Blackstone.

Source: Blackstone