Spiralling production costs, shortages of raw materials, not enough labour – you’d surely be mad to buy a foodservice equipment manufacturing business right now, wouldn’t you?
Water treatment specialist Pentair certainly doesn’t think so after stumping up $1.6 billion for Manitowoc Ice in what ranks as the largest foodservice equipment takeover deal so far this year.
The ice machine brand was, of course, put on the market by its current parent Welbilt in order to satisfy competition concerns around its own acquisition by Ali Group.
Pentair specialises in water treatment solutions and, up to now, has never supplied commercial foodservice equipment.
So what is the motivation for it to splash so much cash?
We a look at six reasons why the deal makes strategic sense from its perspective…
1. A meaningful way to expand its water solutions platform
Pentair is in the business of water filtration, Manitowoc is in the business of ice. It isn’t hard to spot the connection even if we are talking about two very different entities. Pentair believes the addition of Manitowoc Ice can enhance growth in water quality direct-to-customer solutions and services.
By optimising complementary offerings for customers, it hopes the combination will substantially expand its water management capabilities and allow it to deliver a seamless foodservice experience.
2. Accelerate the build-out of water products and services in the hospitality market
The addition of Manitowoc Ice will enable Pentair to offer expanded products for drinking, cooling, cooking and cleaning.
It will also enhance the strength of Pentair Everpure in providing high quality water for ice products.
3. Large installed base will enhance customer intimacy and expand share of wallet
Manitowoc Ice has a global installed base of approximately one million units and more than 200 models of commercial ice machines worldwide.
With relationships with approximately 80% of the top 10 global restaurant chains and nearly 75% of the top 50 global quick-serve restaurants, the brand boasts a large installed base.
Many of these operators rely on Pentair for water quality solutions and services, highlighting a significant opportunity to provide a more complete offering for customers.
4. Enhances services footprint
Pentair expanded its services offering last year by acquiring Ken’s Beverages. It believes that there is an opportunity to create a more a predictive services model, which it can harness by marrying Manitowoc Ice’s capabilities with its own range of smart, connected solutions.
With sales of $308m last year, Manitowoc Ice will give Pentair significant scale to develop its services business.
5. Adds attractive margin business with growth potential
Manitowoc Ice is one of the largest players in the commercial ice machines space and a recognised A-brand name with expected EBITDA margins of more than 30%. It has a proven track record of sustained top-line growth and strong cash flow.
Furthermore, Manitowoc Ice will provide Pentair with new entry into a high-margin, high-quality commercial opportunity, expanding its overall offering.
6. Offers a compelling return profile
Pentair says the acquisition is expected to be accretive to earnings in 2022 with a strong opportunity for revenue synergies through a complete commercial water solutions portfolio covering all commercial water needs from drinking and cooling to cooking and cleaning.
The company says it will add $0.25 of adjusted earnings per share in 2023 and $0.40 in 2025.
Pentair plans to utilise its strong free cash flow for debt pay down after the transaction closes.