Signify acquires Cooper Lighting Solutions

Eindhoven, The Netherlands – Signify (Euronext: LIGHT), the world leader in lighting, today announced a definitive agreement with Eaton to acquire Cooper Lighting Solutions for cash of $1.4 (approximately EUR 1,270 million).  The closing is subject to regulatory approvals and other customary conditions and is expected to take place in the first quarter of 2020.

Headquartered in Peachtree City, GA, United States, Cooper Lighting Solutions is a leading provider of professional lighting, lighting controls and connected lighting. The company offers a wide range of products and applications in both the indoor and outdoor segments, bearing well-known brands in North America, including Corelite, Halo, McGraw-Edison, Metalux. Cooper Lighting Solutions offers its lighting portfolio through a strong network of agents and is in direct contact with retailers, distributors and other end-user customers. In 2018, the Company generated sales of USD 1.7 billion, of which 84% were LED-based, reporting EBITDA of USD 187 million and generating USD 143 million in free cash flow.

Eric Rondolat, CEO of Signify, said: "Today's announcement demonstrates the strategic importance of the North American market for Signify. With this acquisition, Kuze will significantly strengthen our position in the American market. We look forward to welcoming the Cooper Lighting team, who have created a high-performing company based on professionalism, truly innovative offerings and long-lasting and strong relationships with its customers. We share with them a true passion for lighting and a successful history of innovation. By joining forces to further develop our connected lighting activities, we will continue to increase operational efficiency and provide the highest level of service to our customers."

A strategic move to strengthen Signify's position in the North American professional lighting market

This acquisition is a product of Signify's strategy to expand into attractive markets as it enhances Signify's position in the North American market and improves its business mix.

Together, the two companies will be better positioned to benefit from the growing $12 billion professional lighting market in North America in line with the ongoing shift toward the use of LEDs and the growing demand for connected lighting systems and controls.

Signify and Cooper Lighting will continue to have separate front offices, including sales forces, representative networks, product and brand portfolios, marketing and product development teams. Both businesses will be able to strengthen their product portfolios by leveraging increased innovation power as well as more competitive and cost-effective offerings.

Significant cost synergy potential of over USD 60 million per year

The acquisition is expected to generate significant cost synergies of over USD 60 million annually, with the majority of them realized within the first three years. These well-defined tangible cost synergies will be achieved through the quality and quantity specifications of the products, as well as the savings achieved in supply chain and resource utilization optimization.

Notable financial metrics

Signify will acquire Cooper Lighting Solutions for a cash consideration of USD 1.4 billion (approximately EUR 1,270 million), both cash and debt-free. The net value of the transaction excludingthe present net worth of tax deductions2 is USD 1,313 million (approximately EUR 1,191 million), which means that the expected value of EBITDA for 2018 will increase by 7.0 times excluding synergies and 5.3 times, including synergies estimated on the current trend.

The acquisition is expected to result in earnings per share growth of 13-19% in the first year, and after the first year, the return on capital on the transaction investment is expected to exceed Signify's weighted average cost of capital.

Impact of the transaction on Signify

With the close of the acquisition, Signify will increase its revenue base for growing dividends from EUR 4.9 billion to EUR 6.4 billion, increasing sales in the Professional segment by more than 50%. Sales in North and South America will increase from 28% to 40%. Once its synergy potential is fully reached, Cooper Lighting is expected to realize an adjusted EBIDTA margin of 13-19%.

Financing Structure

The acquisition was fully financed through debt using the pledged bridge loan. Signify plans to replace the existing term loan debt received during the bridge loan and initial public offering with a new financing structure before or immediately after the close of this transaction.

In order to maintain a sound capital structure, Signify's financing structure target suitable for an investment category profile continues to exist. Following the transaction, the company's priority will be to reduce the leverage ratio thanks to strong free cash flows, which are expected to reduce the company's net leverage ratio from approximately 2 times at close to less than 1x the value of net debt/EBIDTA in three years. The company plans to continue to pay a fixed or incremental dividend per share. Signify will focus on reducing leverage while also continuing to invest in R&D and other organic growth opportunities. Mergers and acquisitions will be given less priority as Signify will focus on integrating Cooper Lighting and delivering synergies.