Methode Electronics, Inc., a global developer of custom engineered and application-specific products and solutions, announced that it has entered into a definitive agreement to acquire Grakon Parent, Inc. (Grakon), a global designer and manufacturer of advanced lighting systems, controls and components for premier OEM manufacturers in the heavy truck, bus, rail, electric vehicle and power sports markets. For the trailing 12 months as of July 31, 2018, Grakon’s revenue was approximately $159 million and EBITDA was approximately $41 million.
According to an 8K filing, the company entered into a debt commitment letter, dated as of August 20, 2018, with Bank of America, N.A. (BAML) and Wells Fargo Bank, National Association, pursuant to which, among other things, the Commitment Parties have committed to provide, subject to the terms and conditions of the Commitment Letter, a $250 million senior unsecured term loan credit facility and a $200 million senior unsecured revolving credit facility, the proceeds of which may be used to finance the Acquisition and for working capital, capital expenditures, and other lawful corporate purposes.
Excluding pre-tax costs related to the transaction, Methode expects the acquisition to be accretive to earnings, inclusive of estimated amortization and interest expense of $15 million to $20 million, in its current fiscal year ending April 27, 2019. Methode expects to fund the total consideration of approximately $420 million with a combination of cash on hand and committed debt financing. Methode intends to utilize approximately $140 million of cash on hand and has entered into a debt commitment agreement with certain lenders, pursuant to which the lenders have committed to make available to Methode at closing a $250 million term loan facility and a $200 million revolving credit facility, which will replace Methode’s existing revolving credit facility. The transaction is not subject to a financing condition.
Grakon has provided customized lighting solutions to the transportation industry for over 40 years. The company’s expertise and innovative designs have led to a preferred supplier status among its OEM customers in Asia, Australia, Europe, and the Americas. Grakon delivers interior lighting expertise, as well as exterior lighting systems that enhance vehicle styling, improve safety and eliminate equipment downtime. The company’s top 10 commercial vehicle customers have an average tenure of over 19 years, with its newest customer being Tesla. With three facilities in North America, two in Europe and two in Asia, Grakon has over 1,200 employees, including over 100 engineers.
Methode’s President and Chief Executive Officer, Donald W. Duda, said, “Grakon will enhance our product line, diversify our business mix into new end-markets and allow us to serve a broadly expanded universe of customers. The company has developed an extensive array of lighting and electronic controls uniquely engineered for diverse and growing transportation applications. Grakon’s solutions align with global trends including increasing LED adoption and advanced driver assistance, while providing differentiation and critical functionality. This transaction furthers our objective of pursuing strategic acquisitions where we can leverage our core competencies and provide an attractive value proposition for our shareholders.”
Methode anticipates pre-tax acquisition and related costs in the range of $23 million to $26 million, which include financing, legal, insurance, due diligence, environmental and financial advisory expenses and the impact of performance-based stock award amortization. Methode expects to update its Fiscal 2019 guidance to include the acquisition of Grakon when the third-party valuation is finalized, a further analysis of projected income is complete and transaction costs are settled.
The acquisition is subject to customary closing conditions, including expiration of applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. The transaction is expected to be completed in September 2018.
Foros acted as financial advisor to Methode. Wachtell, Lipton, Rosen & Katz served as Methode’s outside legal counsel.
Baird acted as financial advisor to Grakon. Kirkland & Ellis LLP served as Grakon’s outside legal counsel.