Spectrum Brands (NYSE: SPB) has inked a deal to acquire the home appliances and cookware categories of Tristar Products, Inc. for $325 million in cash with additional milestone payments of $125 million in the coming years.
Synergies of the Deal
Founded in 1992, Tristar’s primary business is taking provided ideas and turning them into branded and global distributed products. It markets home appliances, fitness equipment, cooking innovations, and health and beauty products.
The addition of Tristar businesses will complement Spectrum Brands’ existing home and personal care appliance business and enhance the fast-growing cooking appliances category with the inclusion of popular brands like PowerXL, Emeril Lagasse, and Copper Chef.
Furthermore, Spectrum Brands will leverage its global presence and experience to expand Tristar’s brands and DTC capabilities to create global market leadership in the appliances space, including air fryers, indoor grills, and toaster ovens.
Notably, Tristar’s sales have grown over 85% in the last three years, with reported net sales totaling $546 million in the last twelve months ending December 31.
Potential Spin-off of Combined Business into Pureplay Global Company
The newly combined business is intended to be separated from Spectrum Brands. Consequentially, a new standalone, pure-play global Pet Care and Home & Garden company will be created with new Spectrum brands.
The company stated that it is assessing all options including the creation of two pure-play businesses, with one focused on pet care and home and garden, while the other will be primarily a home and personal care company.
The company intends to update investors on the separation plans later this year.
Per the terms of the deal, the company will pay $325 million in cash for the home appliances and cookware categories of Tristar Products. In addition, the company will pay up to $100 million in cash if certain gross profit targets are met in the calendar year 2022. Moreover, an additional payment of $25 million, in cash or equity of the combined business, will be made if certain other gross profit targets are achieved in the calendar year 2023.
The acquisition is expected to close over the next three months, subject to certain regulatory approvals.
The company plans to fund the acquisition via a combination of available cash in hand and a $500 million additional loan incurred as a new tranche under the company’s existing credit agreement.
Management Weighs In
Spectrum Brands CEO, David Maura, commented, “The Tristar Business brings us a fantastic content creation studio, incredible DRTV capabilities and adds a direct-to-consumer distribution business that we believe can meaningfully lift HPC’s margins and growth rate.”
He further added, “We are currently considering possible scenarios for the combined business, which include, but are not limited to, a partial or complete spin-off to our shareholders, an initial public offering or a merger with an existing publicly traded entity.”
On February 1, RBC Capital analyst Nik Modi maintained a Buy rating on Spectrum Brands with a price target of $124 (39.64% upside potential).
Overall, the stock has a Strong Buy consensus rating based on 6 unanimous Buys. At the time of writing, the average Spectrum Brands price target was $121.67, which implies 37.02% upside potential to current levels.
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