Here’s what went on behind the scenes before the Signify-Cooper Lighting deal was announced this week, and a look at what this new development means for the companies involved and for the lighting industry as a whole.
Earlier this week, Signify announced that it has entered into an agreement to acquire Cooper Lighting Solutions from Eaton for $1.4 billion in cash. In a press release, Signify said the transaction would strengthen its position in the North American professional lighting market, and that the move aligned well with its goal of expanding in attractive markets while also improving its business mix.
Wanting to know more about the deal and the logic behind it, tED magazine interviewed Kraig Kasler, president of Eaton’s lighting division. He says that Eaton’s decision to sell the lighting business is a departure from the spinoff, which was announced in March.
“After completing a comprehensive review of various potential options, the company concluded that a sale of the lighting business would provide the best value for its shareholders,” says Kasler, “and enable us to compete more effectively with our lighting peers in the years to come.”
Asked why the two companies (Signify and Cooper Lighting) are a good fit, Kasler says the newly-merged entity will be part of a lighting company that shares a commitment to innovation and sustainability, both of which drive value for shareholders. “Joining a strong lighting industry player like Signify will position us for continued success in the years to come,” he adds.
According to Kasler, Signify is focused on innovation and technology development while Cooper Lighting has been an innovation leader in the America luminaires market for decades. “Together, there are many opportunities to leverage each company’s unique skillset and technology,” he explains, “to add significantly more value for our agents, channel partners, and customers.”
Now that the acquisition has been announced, Kasler says that the closing of the sale is subject to regulatory approvals and other customary conditions. The closing is expected to take place sometime during the first quarter of 2020. “We don’t have all of the details yet, but as we prepare for the close, we will work to ensure that business continues as usual for our customers, employees, agents, and distributors,” says Kasler.
Speaking of distributors, Kasler adds that both Signify and Cooper Lighting have broad channel coverage in North America through two strong agent networks that will continue to operate independently. “The businesses will continue to sell their products under their own brand names,” he says, “using their respective agency networks, which we believe is critical to preserving the strategy and principles behind the commercial success of both companies.”
As for the lighting industry as a whole, Kasler says that both Cooper Lighting and Signify are industry leaders that share a similar DNA. “Once the acquisition is closed, our combined [force] in innovation and investments in research development,” he concludes, “will help strengthen our position in the industry’s newest frontier, connected and intelligent lighting.”
Signify Speaks Up
During a call with analysts on October 16, Signify’s CEO Eric Rondolat and CFO Stéphane Rougeot talked about the reasoning behind the acquisition and the integration of the two companies. They also gave some insights into what lies ahead in 2020. In discussing the attractiveness of the transaction, Rondolat said it “offers a clear strategic fit further strengthening our position globally and in North America, the largest professional lighting market in the world, which is valued at $12 billion.”
Based on the attractive financial terms of the transaction and the sizeable cost synergies, he adds, Signify determined that it “offers a lot of value creation potential. Finally, it will be beneficial to all stakeholders,” Rondolat added. Other key selling points mentioned included Cooper Lighting’s large breadth of products; its brands (Halo, Metalux, Corelite, and McGraw-Edison), and the fact that it generated $1.7 billion in sales in 2018 (95% of which were in North America).
Discussing Cooper Lighting’s strong go-to-market setup, Rondolat said it reflects a comprehensive coverage of all channels. “Indeed, Cooper Lighting has a strong agent network in North America with more than 125 agents strategically located, which will continue to operate independently,” Rondolat pointed out. “They have long-lasting relationships with their agents, with an average tenure of more than 20 years.”
Rondolat went on to say that roughly 90% of Cooper Lighting’s sales are realized through these agents, who generally specialize either in the commercial or industrial end markets (or on outdoor and infrastructure markets). “They generally tend to have very high rankings in the districts [that] they cover,” said Rondolat, adding that Cooper Lighting also has a solid position with major distributors that carry broad portfolios. “It also has a team that is fully dedicated to serve large specifiers in North America as well as end-users’ sales team, which have direct relationships with key accounts.”
Value Creation Wanted
Highlighting the deal’s significant value creation potential, Rougeot mentioned that in Cooper Lighting, Signify is getting a “great business with substantial cost synergy opportunities at attractive acquisition multiples.” Net off the future tax benefits, he explained, the deal’s enterprise value is close to $1.3 billion. “That translates into an enterprise value (EV) to EBITDA multiple of seven times before synergies,” he explains, “and 5.3 times after synergies.”
Rougeot also discussed Signify’s integration plan for Cooper Lighting, noting that the two companies’ core innovation capabilities, technologies, and IT will be leveraged globally. With respect to the cost synergies, he added, the company is focused on “rapidly generating the identified savings by sharing the expertise and the optimization opportunities both ways.” The same approach will be used to integrate the two manufacturers’ back-office functions.
With a bigger North American presence soon to be firmly within its sights, Signify’s leaders are bullish on the prospects for 2020. “First, our business mix will improve, and the share of our professional business will increase from 42% to 53% of our total sales after the acquisition,” Rougeot concluded. “This is based on the 2018 numbers, and [represents] a bit more than 10 points of increase. Secondly, the proportion of our sales in North America will increase from 28% to 40%.”
Tagged with acquisition, Cooper Lighting Solutions, Eaton, Signify