NN Stock (NNBR) Surges And Then Tumbles: This Is What Happened Today

By Amit Chowdhry ● August 24, 2020
  • NN, Inc. (NASDAQ: NNBR) — a diversified industrial company, designs, and manufactures high-precision solutions, components, and assemblies for the defense, medical, automotive, and aerospace industries — saw its stock price jump over 22% and dropped again. This is what happened.

NN, Inc. (NASDAQ: NNBR) — a diversified industrial company, designs, and manufactures high-precision solutions, components, and assemblies for the defense, medical, automotive, and aerospace industries — saw its stock price jump over 22% only to fall back to a price that was lower than the previous close. Specifically, the stock price jumped to a high of $7.30 and fell to $5.48 at the close today (previous close was $5.94). What happened?

The stock price jumped after it was announced that NN would be selling its life sciences division for $825 million. Private equity firm American Securities LLC is the buyer and it will be integrated into the investment firm’s MW Industries — which is a provider of engineered springs, specialty fasteners, bellows, and precision components.

NN is going to receive $755 million in cash up front along with $70 million in earnout cash paid based on performance through 2022.

What is NN going to do with the proceeds? About $700 million will be used to pay down debt and strengthen the balance sheet. NN has about $950 million in debt. It’s worth mentioning that NN is selling its most profitable unit, which has a 7.8% operating profit margin according to Fool.com.

And NN will be leaning more on its mobile solutions operations (3.2% margin) and power solutions division (7.3% margin). NN said that following the sale of its Life Sciences unit, NN will be a diversified industrial platform with a growth trajectory of approximately $600 million in annual sales over the next five years.

NN said it is expecting to see incremental growth within its diverse end markets, including the growing electric vehicle space — which provides a unique opportunity for the businesses to enhance their existing applications in both vehicles and charging stations.

By reducing the company debt, NN will be able to run as a more lean operation so I’m interested to see what the company has up its sleeve within the next few years. I plan to buy a few and hold a few shares this week to see how the company does over the next few years.

Following the transaction closing, Toby Buck will be appointed as President of the MW Industries Life Sciences division. Buck was previously the CEO and Chairman of Paragon — which was acquired by NN, Inc. in 2018 and comprises much of the Life Sciences division. Chris Fillmore, the current Chief Commercial Officer at MW Industries, will become the President of the MW Components division once the acquisition is closed.

Evercore Inc. acted as lead financial adviser to MW Industries, and Weil, Gotshal & Manges LLP acted as legal adviser. And KeyBanc Capital Markets also acted as a financial adviser to MW Industries. J.P. Morgan acted as financial adviser to NN, Inc., and Simpson Thacher & Bartlett LLP acted as legal adviser.

KEY QUOTES:

“Our businesses all have unique characteristics with opportunities to deliver innovative technology and engineered solutions to our customers in attractive and diverse end markets. This is a pivotal moment for NN as the sale of Life Sciences provides us with a clear, expedient and certain path to obtain the necessary capital to significantly reduce our debt and continue to execute on our Power Solutions and Mobile Solutions businesses where we see strong potential to grow and generate value for our shareholders. The resulting diversified industrial platform has a strong combined growth trajectory, with the ability to capitalize on key growth areas in its end markets as global market conditions improve and demand returns to more normalized levels.”

“The Board appointed new leadership about a year ago to help guide the company through an extensive strategic evaluation of our business, a process that began late last year. While the COVID-19 global pandemic created challenges during the process, we are confident that after a comprehensive review process, this transaction offers the right partner for Life Sciences and fair value for the business. The combination with MW Industries will help Life Sciences accelerate growth and innovation across global markets, and position the business for long-term value creation and success to the benefit of all its stakeholders.”

“This is a significant and exciting transformation for our company. Looking ahead, our Power Solutions and Mobile Solutions businesses are highly complementary, serve attractive, high-growth markets and have demonstrated positive signs of growth and resilience amid challenging market conditions. With these strong fundamentals, coupled with a stronger and leaner financial structure, we believe we are well-positioned as a diversified, global industrial platform to continue pursuing avenues of strategic growth in electric vehicles, aerospace and defense, and other dynamic markets.”

— Warren Veltman, President and CEO of NN

“Our ability to grow and generate increased value for shareholders is greatly enhanced with an improved balance sheet, particularly in light of the continued challenging environment related to the COVID-19 pandemic. By reducing our net leverage, we’ll have greater financial flexibility and a solid foundation from which to grow with valuable assets, skilled employees and a global footprint to pursue growth opportunities that enable strong operating performance, margin improvements and increased free cash flow over the long term.”

— Tom DeByle, Senior Vice President and Chief Financial Officer of NN

“We are thrilled to welcome our new Life Sciences colleagues to MW Industries. At a time when businesses in the medical sector are under more pressure than ever, we can offer an unbeatable combination of speed, quality, and supply chain resilience. It means our customers can focus on the urgent business of improving people’s lives, safe in the knowledge that they have the components they need, precisely when and where they need them. We are also excited for our plans to have Toby return to lead this business. He is a veteran executive and board member with over 35 years of sustained success across the medical device manufacturing, electronics, assembly, machining and fabrication industries. He will be a valuable new member of our team and we look forward to building this business together.”

— Simon Newman, CEO of MW Industries