Signify to acquire Cooper Lighting Solutions to strengthen its position in the attractive North American lighting market

October 15, 2019

• Signify to acquire Cooper Lighting Solutions from Eaton for USD 1.4 billion in cash
• Clear strategic fit:

* Strengthening Signify’s market positions in North America, with increased innovation power and more competitive offerings;

* Improving the business mix with Professional revenues increasing from 42% to 53% of total sales¹

• Respective agent networks and front office functions will continue to operate independently
• Substantial value creation opportunity: cost synergy potential with savings of more than USD 60 million per year, to be largely achieved in the first three years
• Compelling financial metrics: mid-teens EPS accretion in year 1; transaction ROIC to exceed WACC after year 1
• Transaction fully funded with debt; committed bridge financing in place
• Upon closing of the acquisition:

* Capital allocation priority is to deleverage. Strong free cash flow expected to drive down the net leverage ratio from around 2x at closing to below 1x net debt/EBITDA within three years

* Continue to pay a stable or increased dividend per share

Eindhoven, the Netherlands – Signify, (Euronext: LIGHT), the world leader in lighting, today announced that it has entered into a definitive agreement with Eaton to acquire Cooper Lighting Solutions for USD 1.4 billion (approx. EUR 1,270 million) in cash. Closing is subject to regulatory approvals and other customary conditions and is expected to take place in the first quarter of 2020.

Cooper Lighting Solutions, headquartered in Peachtree City, GA, United States, is a leading provider of professional lighting, lighting controls, and connected lighting. The business offers a large breadth of products and applications, both in the indoor and outdoor segments, sold under renowned brands in North America including Corelite, Halo, McGraw-Edison, Metalux. The company sells its lighting portfolio through a strong agent network and has direct relationships with retailers, distributors and other end-user customers. The business generated² USD 1.7 billion of sales in 2018, of which 84% were LED-based, a reported EBITDA of USD 187 million and free cash flow of USD 143 million.

A strategic transaction to strengthen Signify’s position in the North American professional lighting market

This acquisition is fully in line with Signify’s strategy to expand in attractive markets, enhancing Signify’s position in the North American market and improving the business mix. 

Together, the two businesses will be better positioned to benefit from the growing USD 12 billion professional lighting market in North America, driven by the continued conversion to LED and the increased demand for connected lighting systems and controls.

Signify and Cooper Lighting will maintain separate front offices: sales forces, agent networks, product and brand portfolios, marketing and product development teams. Both businesses will be able to strengthen their respective product portfolios, benefitting from an increased power of innovation as well as more competitive and cost-efficient offerings. 

Substantial cost synergy potential of more than USD 60 million per year 

The transaction is expected to generate substantial cost synergies of more than USD 60 million per year, largely to be achieved in the first three years. These tangible and well-identified cost synergies will stem from savings in the bill of materials as well as from supply chain and sourcing optimization.

Compelling financial metrics

Signify will acquire Cooper Lighting Solutions for a cash consideration of USD 1.4 billion (approx. EUR 1,270 million) on a cash and debt-free basis. The enterprise value of the transaction net of the present value of tax benefits2 will be USD 1,313 million (approx. EUR 1,191 million), representing a multiple of 7.0x 2018 EBITDA excluding synergies, and 5.3x including run-rate synergies.

The acquisition is expected to result in mid-teens EPS accretion in year one and the transaction ROIC is expected to exceed Signify’s WACC after year one.

Transaction impact on Signify

Upon closing of the acquisition, Signify will generate over 50% of its sales in the Professional segment, increasing the revenue base for its growing profit engines from EUR 4.9 billion to EUR 6.4 billion. The proportion of sales generated in the Americas increases from 28% to 40%. Once the full synergy potential is achieved, Cooper Lighting is expected to deliver an adjusted EBITA margin in the low- to mid-teens. 

Financing Structure

The acquisition is fully financed with debt, with committed bridge financing arranged. Signify intends to replace the bridge loan and the existing term loan debt obtained at IPO with a new financing structure before or shortly after the closing of this transaction.

Signify intends to maintain a robust capital structure and continues to aim towards a financing structure that is compatible with an investment grade profile. Following the transaction, the company will prioritize deleveraging with strong free cash flows expected to drive down the company’s net leverage ratio from around 2x at closing to below 1x net debt/EBITDA within three years. The company plans to continue to pay a stable to increased dividend per share. While Signify will focus on deleveraging, it will continue to invest in R&D and other organic growth opportunities. As Signify will focus on integrating Cooper Lighting and on delivering synergies, M&A will have a lower priority.

¹ Based on 2018 sales

² Based on audited carve-out financials, excluding Specialty Lighting

Conference call and audio webcast

Eric Rondolat (CEO) and Stéphane Rougeot (CFO) will host a conference call for analysts and institutional investors at 8am CET on Wednesday 16 October to discuss the announced transaction. A live audio webcast of the conference call will be available via the Investor Relations website.