Enters into Agreement to Acquire Cornell Dubilier for Total Cash Consideration of $263 Million, Adding Film, Electrolytic and Mica Capacitor Product Offerings; Expected to be Accretive to Non-GAAP EPS in 2024 – Announces Exploration of Strategic Alternatives for Consumer MEMS Microphones Segment – Actions Reflect Execution of Strategic Roadmap to Increase Exposure to High-Growth Medtech, Defense & Aerospace, and Industrial Electrification End Markets.
Knowles Corporation, a leading global supplier of high performance components and solutions, including ceramic capacitors and radio frequency (“RF”) filters, advanced medtech microphones and balanced armature speakers and audio solutions, today announced strategic actions to accelerate its transformation to an industrial technology company focused on higher growth and higher value opportunities.
The Company has entered into a definitive agreement to acquire Cornell Dubilier (“CD”) in an all-cash transaction. In parallel, Knowles announced that it is evaluating strategic alternatives for its Consumer MEMS Microphones business (“CMM”).
Proposed acquisition of Cornell Dubilier
Cornell Dubilier, based in Liberty, South Carolina, is a technology leader and manufacturer of high-quality film, electrolytic and mica capacitors used in demanding medtech, military, aerospace, and industrial electrification applications with an annualized revenue of more than $135 million and over 35 thousand customers. The acquisition:
- Increases exposure to high-growth end markets: The transaction significantly expands Knowles’ serviceable available market through Cornell Dubilier’s capacitor offerings. In addition, Cornell Dubilier’s end markets are aligned to key growth tailwinds, including increasing defense budgets, medical imaging and critical care application growth as well as industrial electrification and implementation of next generation fast charging architectures.
- Diversifies and expands product portfolio: The combination of Cornell Dubilier’s broad selection of power film, electrolytic and mica capacitors with Knowles’ Precision Devices segment will deliver a compelling value proposition and wider portfolio of products and solutions to both existing and new customers.
- Drives non-GAAP EPS accretion and preserves financial flexibility: Pro forma, the acquisition is expected to be accretive to Knowles’ non-GAAP EPS in 2024. Following the closing of the acquisition, Knowles expects to have a leverage ratio of 1.4x pro forma EBITDA and maintain its capital deployment strategy focused on balancing R&D and capex investment with accretive M&A while continuing to return cash to shareholders through share repurchases.
“Adding Cornell Dubilier’s impressive, broad-based roster of OEM and distribution partner customers, as well as its leading capabilities in capacitor technology will expand the applications for Knowles’ products,” said Knowles Chief Executive Officer Jeffrey Niew. “We will be well positioned to grow with new and existing customers as we work to generate stronger earnings and cash flow and create shareholder value. We admire the outstanding company and culture built by the Kaplan family over the past 40 years and we look forward to welcoming Cornell Dubilier’s talented employees to Knowles.”
“We are thrilled to be joining Knowles, which shares our culture of innovation,” said Cornell Dubilier Chief Executive Officer Jim Kaplan. “Like Knowles, some of the world’s most respected companies rely on Cornell Dubilier’s technologies, and together, we will be well positioned to offer even more cutting-edge products and solutions to our customers and drive growth.”
Acquisition Terms & Details
The total cost of the acquisition is $263 million and consists of a $140 million cash payment at closing and an interest-free seller note of $123 million, with $50 million maturing one year from closing and the remaining $73 million maturing two years from closing. The total fair value of the consideration transferred is estimated at $250 million and represents 9.6x Cornell Dubilier’s trailing-twelve-month adjusted EBITDA inclusive of run-rate cost synergies. Knowles expects to finance the acquisition with a combination of cash on hand, borrowings from its existing revolving credit facility, and the seller note.
The acquisition is expected to close in the fourth quarter of calendar year 2023, subject to regulatory approvals and other customary closing conditions.
J.P. Morgan is serving as the exclusive financial advisor to Knowles and Foley & Lardner LLP is serving as its legal advisor.
Exploring Strategic Alternatives for Consumer MEMS Microphones Business
The Company also announced today that it is reviewing strategic alternatives for its CMM business. CMM designs and manufactures micro-electro-mechanical systems microphones that enable voice control communication and superior audio recording for customers across the ear, compute, internet of things and smartphone market segments.
Mr. Niew commented, “The CMM segment is an attractive, cash-producing business with differentiated products and a strong customer base. This process is another step in Knowles’ business transformation as we explore potential partners to accelerate a return to growth for CMM.”
The Company has engaged Jefferies LLC to assist in the CMM strategic review. No assurance can be given that any transaction or other strategic outcomes will result from the review. The Company has not set a timetable for the conclusion of the strategic review and does not intend to comment on or provide updates regarding these matters unless and until it determines that further disclosure is appropriate or required.