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Alternative Investment

GIC to co-invest in Blackstone’s $19.8 billion deal to take control of US climate tech unit

BENGALURU – Emerson Electric Co will sell a majority stake in its climate technologies unit to Blackstone in a deal that values the business at US$14 billion (S$19.8 billion), as the United States industrial firm pivots to supplying to a booming automation market.

Emerson, which will retain a stake of about 45 per cent in the climate tech unit, said Blackstone and co-investors Abu Dhabi Investment Authority and Singapore sovereign wealth fund GIC would contribute US$4.4 billion in equity towards the deal, which would be supplemented by US$5.5 billion of debt financing.

The climate technologies unit will be structured as a new stand-alone joint venture between Emerson and Blackstone, the world’s largest manager of alternative assets such as private equity and real estate.

The unit – which includes the Copeland compressor business and heating, ventilation, and air conditioning (HVAC) products and services – generated net sales of US$5 billion in fiscal 2022.

The deal values the unit at 12.7 times its cash flow in fiscal 2022, a premium to peers such as manufacturers of components and industrial companies that own HVAC businesses, which trade at roughly 10.5 times and 11.5 times respectively.

“The business is poised for accelerated growth as it leads the way in helping consumers and businesses shift to more energy-efficient heating and cooling products as part of their carbon reduction efforts,” Blackstone Private Equity global head Joe Baratta said.

Emerson will receive an upfront payment of about US$9.5 billion, it said on Monday, which it will use to scoop up more firms, especially in the automation segment.

Businesses are accelerating their efforts to automate their operations amid a shortage of factory workers, and Emerson has doubled down on its software strategy to capture that shift.

The company sold its division that makes waste disposal equipment and hot water dispensers to Whirlpool and merged its software units with smaller rival Aspen Technology.

“(Emerson) is significantly re-orienting its portfolio to result in a more focused and potentially higher-growth enterprise,” Citi Research analysts said. The deal, expected to close in the first half of 2023, is the latest in a flurry of private equity transactions this year as a sell-off in equities on recession worries hammered valuations.

Emerson said it plans to use proceeds from the deal to invest in automation-related businesses and spend around US$2 billion on share repurchases in 2023. REUTERS

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