Software company Roper Technologies, Inc. (NYSE: ROP) will sell a majority stake in its industrial business to private equity company Clayton, Dubilier & Rice, LLC as part of its divestiture strategy to focus on businesses with less cyclicality.
According to the June 1 deal, Roper Technologies will receive $2.6 billion pretax cash proceeds and it will retain a 49% minority interest in a new standalone entity.
The transaction includes Roper’s entire Process Technologies segment and the industrial businesses within its Measurement & Analytical Solutions segment. The deal includes these businesses: Alpha, AMOT, CCC, Cornell, Dynisco, FTI, Hansen, Hardy, Logitech, Metrix, PAC, Roper Pump, Struers, Technolog, Uson and Viatran. The filings stated that in 2021 these businesses generated around $940 million in revenue and $260 million in EBITDA.
“This is the final step in Roper’s divestiture strategy to reduce the cyclicality and asset intensity of our enterprise,” Neil Hunn, Roper Technologies President and CEO, said in a press release. “We have created a meaningfully enhanced and higher-quality go-forward portfolio of market-leading businesses that is better positioned to deliver higher and more resilient organic growth, an improved working capital profile, and strong cash conversion. Selling a majority interest in these industrial businesses will provide Roper with significant upfront cash, while maintaining the ability to receive additional cash proceeds from the future exit of our minority interest. The after-tax proceeds from this transaction will expand Roper’s M&A firepower to more than $7 billion, which will be targeted toward our large pipeline of high-quality acquisition opportunities.”
Starting Q2 2022, Roper will report the results of the aforementioned businesses as discontinued operations. Upon closing, Roper will report its ownership interest in the new entity as income from a minority investment.
“We are excited to partner with Roper in a manner that assists them in achieving their corporate objectives while creating a new industrial platform with significant opportunity as a standalone entity,” CD&R Partner Andrew Campelli said in a press release. “Roper has proven to be an excellent operator of these market-leading industrial businesses, which we believe will serve as the foundation for continued organic and inorganic growth.”
Operating Advisor to CD&R Funds, John Stroup, will lead the new standalone entity upon transaction completion.
The transaction is expected to close by the end of the year, subject to customary closing conditions.
Jones Day served as legal advisor and Evercore served as financial advisor to Roper. Meanwhile, Debevoise & Plimpton served as legal advisor to CD&R. UBS Investment Bank, RBC Capital Markets and BNP Paribas served as lead financial advisors to CD&R; BMO Capital Markets, Mizuho Securities and Natixis, New York Branch also provided advising.
Prior to the announcement, Roper’s stock was valued at $442.44 on May 31. When it was announced on June 1, its stock closed at $430.83. A few days later, on June 7, its stock closed at $428.26.
The deal comes after CD&R’s proposed acquisition of exterior building product manufacturer Cornerstone Building Brands in a $5.8B deal, which was announced in March.