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 – recently announced strategic actions to accelerate its transformation to an industrial technology company focused on higher growth and higher value opportunities. Knowles has entered into a definitive agreement to acquire Cornell Dubilier (CD) in an all-cash transaction. Plus, Knowles announced that it is evaluating strategic alternatives for its Consumer MEMS Microphones business (CMM).
Proposed Acquisition Of Cornell Dubilier
Based in Liberty, South Carolina, Cornell Dubilier 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:
1.) Increases Exposure to High-Growth End Markets – The deal significantly expands Knowles’ serviceable available market through Cornell Dubilier’s capacitor offerings. And Cornell Dubilier’s end markets are aligned to key growth tailwinds, including increasing defense budgets, medical imaging and critical care application growth, industrial electrification, and implementation of next-generation fast charging architectures.
2.) Diversifies and Expands Product Portfolio – This 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.
3.) Drives Non-GAAP EPS Accretion and Preserves Financial Flexibility – Pro forma, the deal is expected to be accretive to Knowles’ non-GAAP EPS in 2024. And 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.
Deal Terms
The total cost of the acquisition is $263 million and consists of a $140 million cash payment at the 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 the closing. And 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 deal with a combination of cash on hand, borrowings from its existing revolving credit facility, and the seller note.
This acquisition is expected to close in the fourth quarter of 2023, subject to regulatory approvals and other customary closing conditions.
Exploring Strategic Alternatives For Consumer MEMS Microphones Business
Knowles also announced today that it is reviewing strategic alternatives for its CMM business. And 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.
KEY QUOTES:
“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. 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.”
“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.”
— Knowles Chief Executive Officer Jeffrey Niew
“We are thrilled to be joining Knowles, which shares our culture of innovation. 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.”
— Cornell Dubilier Chief Executive Officer Jim Kaplan
