Why Madison Air Solutions Stock Was Getting Mashed This Week
Key Points
This is Germany's ebm-papst.
This asset buy will dramatically affect the balance sheet, and it could result in stock dilution, too.
Madison Air Solutions (NYSE: MAIR), a recent arrival to the stock exchange, wasn't having one of the best weeks in its existence as a publicly traded company.
After the cooling solutions specialist announced a splashy acquisition, investors actively and eagerly traded out of its equity. As of Friday morning before market open, Madison's shares were down by 16% week to date, according to data compiled by S&P Global Market Intelligence.
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A major buy
That slide started early on Monday, when Madison Air announced it had signed a definitive agreement to become the new owner of a Germany-based peer, ebm-papst. The enterprise value of the deal is $5.4 billion, Madison said, or $5 billion when accounting for anticipated future tax savings.
Image source: Getty Images.
ebm-papst is a company over 60 years old that has grown into an international supplier of airflow solutions. According to its owner-to-be, more than 250 million of its fans are installed worldwide.
The American company quoted CEO Jill Wyatt as saying that "By combining ebm-papst's differentiated technology with Madison Air's application expertise, trusted customer relationships and proven operating model, we will help more customers improve uptime, efficiency, compliance and productivity in mission-critical environments."
Madison Air expects the acquisition to close by the end of this year.
Flush with funds
Madison Air added that it would fund the acquisition with a mix of cash on hand and debt/equity financing. It did not get more specific. It did write that it was provided a debt commitment letter from several lenders, notably the large American bank Wells Fargo.
The company raised over $2.2 billion in its April IPO. Regardless, its admission that the deal would dramatically increase its leverage -- plus create potential dilution from a secondary stock issue -- sent investors heading for the exits. I'd say that's understandable, as those concerns are warranted. I'd be careful with this stock.
Wells Fargo is an advertising partner of Motley Fool Money. Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.