Industry NewsSummary
RBC Bearings has acquired Swiss Tool Systems for $33.9 million.
Swiss Tool is a leading maker of modular tooling technologies for metal cutting machines.
ROLL is looking to acquire small tuck-in opportunities as well as potentially larger deals as long as they are accretive in year 1 and deliver at least 12% ROIC.
RBC Bearings (ROLL) announced it has acquired Swiss Tool Systems for $33.9 million.
Swiss Tool Systems supplies modular tooling systems and high-precision metal boring and turning solutions.
With the deal for Swiss Tool, ROLL is executing on an M&A strategy to acquire ‘tuck-in’ opportunities to build out its offerings.
Bürglen, Switzerland-based Swiss Tool Systems was founded in 1972 to develop and commercialize modular tooling systems and high-precision boring and turning solutions for metal cutting machines.
Management is headed by CEO Daniel Martin, who has been with the firm since 2017 and was previously CEO Switzerland at Angst+Pfister.
Swiss Tool Systems’ primary offerings include a quick-change tool system, a quick-change-configurator, clamping units HSK/PSK/KM, turning tools, toolholders, fine boring, rough boring, deep hole boring, and large hole boring products among others.
According to a market research report by Grand View Research, the global metal cutting machines market was valued at $6 billion in 2016 and is projected to reach $9.79 billion by 2025.
This represents a forecasted CAGR of 5.7% between 2017 and 2025.
The main drivers for this expected growth are the increase in demand from the automotive industry, especially in the Asia-Pacific region, as well as solid growth in various application industries, such as electronics, defense, marine, construction, and aerospace.
The Asia-Pacific region is projected to exhibit the fastest growth rate of 6.7% between 2017 and 2025 primarily due to growth in various application industries, including the automotive and defense aerospace markets.
Major vendors that provide metal cutting machines include:
Lincoln Electric (LECO)
Trumpf
Nissan Tanaka
Bystronic Laser (SWX:CON)
Koike Aronson (TYO:6137)
RBC disclosed the acquisition price and terms as equivalent to $33.9 million, which it would finance through existing cash and debt.
With existing annual sales of Swiss Tool of $11.3 million, RBC paid a 3x Price/Sales multiple.
According to an NYU Stern valuation of a basket of publicly held ‘Machinery’ firms, their Price/Sales multiple was 1.63x in January 2019, indicating that RBC may be paying a premium based on that metric.
A review of the firm’s most recent published financial figures indicate that as of June 29, 2019, ROLL had $32.7 million in cash and equivalents and $195 million in total liabilities, of which long-term debt was $26.3 million.
Free cash flow for the three months ended June 29, 2019, was $28.1 million.
In the past 12 months, ROLL’s stock price has risen 9.1% vs. the U.S. Machinery industry’s drop of 6.7% and the broader overall U.S. market’s rise of only 0.3%, as the chart below indicates:
RBC has acquired Swiss Tool as a complement to its collets business in Europe and the U.S.
As RBC Chairman and CEO Michael Hartnett stated in the deal announcement:
Swiss Tools is a leading world-wide supplier of modular tooling systems and high-precision boring and turning solutions for metal cutting machines. Swiss Tools supplies highly engineered products that are complementary to our collets business in Europe and the U.S. to a customer base that we know well and serve daily. Their manufacturing processes and design expertise align very well with and complement those of RBC Bearings.
In the most recent earnings call, Hartnett alluded to a ‘good’ M&A pipeline as the firm continues ‘to look at small and large M&A options.’
Management’s stated criteria for M&A deals is that they should be accretive in the first year and meet or exceed its 12% target return on invested capital.
The firm is continuing to look at a number of ‘tuck-in’ opportunities and it appears the Swiss Tool is one of those deals, so investors should expect to see further deals of this type in the medium term future.
