Rexnord to remain leverage neutral, below 3x, after Centa acquisition

By Devika Patel

Knoxville, Tenn., Feb. 1 – Rexnord Corp. plans to acquire Centa Power Transmission, which will leave the company leverage neutral as compared to its current leverage levels.

The acquisition will bring in more cash flow, which will enable the company to keep its net debt leverage ratio below 3x.

“In early January, we announced that we had signed an agreement to acquire Centa and that we expected to close the transaction in our fourth quarter,” president and chief executive officer Todd A. Adams said on the company’s fiscal third quarter earnings conference call on Thursday.

“With the acquisition set to close in our fourth quarter, I’ll point out that the combination of purchase price multiple and our expected free cash flow will allow us to be leverage neutral with where we are today with further de-levering accelerating into FY 2019,” Adams said.

The acquisition will bring in more cash, which will happen over several quarters.

“We would expect the benefits in terms of new orders and incremental revenue to emerge over multiple quarters,” senior vice president and chief financial officer Mark W. Peterson said on the call.

“A structural increase in free cash flow will further strengthen our financial flexibility and will enhance our ability to execute our disciplined bolt-on acquisition strategy while maintaining Rexnord’s net debt leverage ratio below 3x,” Peterson said.

Financial leverage, as measured by the company’s net debt leverage ratio, declined to 2.8x in the quarter.

“Based on our fourth quarter outlook and assuming the Centa acquisition closes this quarter as we expect, we will finish the year with our net debt leverage ratio unchanged at approximately 2.8x,” Peterson said.

The company finished the fiscal third quarter with year-to-date free cash flow of $97 million.

“We continue to project our free cash flow to exceed our net income and be in the roughly $175 million range for the full year,” Peterson said.

The acquisition is expected to close at the end of February.

Adjusted EBITDA was $95 million for the most recent quarter, compared with $79 million in last year’s third quarter.

Rexnord is a Milwaukee-based industrial company comprising two strategic platforms: process and motion control and water management.

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