While much of the corporate world is rushing toward electric vehicles, industrial conglomerate
is selling its golf cart business–Club Car–to a private equity player.
Ingersoll (ticker: IR) announced the plans on Monday. Private equity company Platinum Equity will pay almost $1.7 billion for Club Car, which makes golf cars along with recreational and utility vehicles. Those vehicles can be powered with gas, but these days are often powered with rechargeable batteries.
“Demand for electric vehicles across many product platforms and geographies is at an all-time high,” Mark Wagner, Club Car’s president, said in the news release. “Golf remains a very stable, healthy business while our consumer and commercial markets are rapidly growing around the world.”
In its fourth-quarter earnings presentation, Ingersoll recognized the importance of a transition to zero-emissions vehicles calling it a key market driving “across industrial, commercial and low-speed consumer markets.”
The price paid works out to about 12 times 2020 earnings before interest, taxes, depreciation and amortization, or Ebitda.
Investors, frankly, never thought of Ingersoll as an electric-vehicle maker. The Club Car business amounts to roughly 15% of total sales for Ingersoll.
The electric-vehicle connection isn’t a stretch though.
(PII), for instance, is pushing further into electric vehicles, recently announcing separate partnerships with Zero Motorcycles and Optimus Ride to bring both electric as well as autonomous vehicles to niche end markets. Polaris makes utility vehicles, as well as snowmobiles and Indian-branded motorcycles.
Ingersoll stock was down about 0.8% on the news. The
Dow Jones Industrial Average
were effectively flat. Year to date, Ingersoll shares are up about 10%.
Ingersoll has plans other than electric vehicles. “Today’s announcement to divest Club Car demonstrates swift progression on our transformation journey,” said Ingersoll CEO
in the company’s news release. “We are excited about future opportunities to create long-term value for stockholders with the cash from the transaction, including significant organic and inorganic investment into our core business segments as we advance our growth strategies and expand our addressable market.”
Ingersoll has been busy in recent months. The company merged with industrial flow controls company Gardner Denver and spun off air-conditioning player
This deal helps pay down debt and positions the company to make acquisitions in the future. “The deal should be viewed fairly positively, as it accelerates this portfolio simplification, and IR is selling the asset after it has performed extremely well,” wrote Barclays analyst Julian Mitchell in a Monday report.
This could be a case of Ingersoll selling high. “Next, we would expect [the company] IR to undertake M&A activity following the recent acquisition of the Tuthill vacuum and blowers business, and in light of its un-levered balance sheet.”
When the deal closes, Ingersoll’s debt to Ebitda will be less than one. That’s roughly half of the debt load carried by the average industrial company.
Future M&A is one reason Mitchell likes Ingersoll stock. He rates shares Buy and has a $56 price target for shares. Overall, his peers like–but don’t love–Ingersoll stock. About 53% of analysts covering the company rate shares Buy. The average Buy-rating ratio for stocks in the Dow is about 60%.
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