Siemens announced the acquisition of Dresser-Rand (DRC $81.97; Market Perform) for $7.6 billion ($83 per common share in cash). Concurrent with the acquisition announcement, Siemens announced that it is divesting its 50% stake in the joint venture BSH Bosch und Siemens Hausgeraete GmbH for €3 billion. In our opinion, the $7.6 billion price is a fair value given the strong strategic fit and equates to roughly 14.5 times William Blair’s 2015 EBITDA estimate of $505 million and 26.0 times William Blair’s 2015 EPS estimate of $3.20. However, the 14.5 times EBITDA multiple is at the higher end of the roughly 12.0 to 15.0 times EBITDA multiples we have seen paid for similar assets recently. Although the company is focused on simplifying and paring down its business portfolio, the acquisition is in line with CEO Joe Kaeser’s goal of building up Siemens’ presence in the oil and gas markets. The acquisition complements Siemens’ existing offerings, notably for the global oil and gas industry and for distributed power generation.
The acquisition also fits well with Siemens previous acquisition (for $1.3 billion in May) of Rolls Royce’s small aero-derivative and gas compression product lines for operating LNG pipelines. These two acquisitions close the value chain of oil and gas offerings from Siemens. Management believes the combination of businesses will allow Siemens to grow between 6% and 8% per year in its oil and gas markets. Dresser-Rand also provides an attractive revenue stream with 50% of the company’s 2013 revenue derived from services of its large installed base.
Siemens expects €105 million of annual synergies (€70 million from cost; €35 million from sales) by fiscal 2017 and €150 million of annual synergies (€100 million from cost; €50 million from sales) by fiscal 2019. The company forecasts €180 million of integration costs, mainly to be incurred in the first two years of the acquisition. While Siemens paid a high price for a strategic asset, integration and driving projected synergies will be key for a successful acquisition.
The BSH announcement, which still requires regulatory approval, is a clear positive for Siemens as it continues to focus the portfolio and exit a lower-growth and lowermargin business. In addition to the €3 billion purchase price, both Siemens and Bosch will each receive an additional distribution of €250 million from BSH before the transaction is completed.