Xylem to buy metering, data analytics firm Sensus

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Water technology company Xylem signed a definitive agreement to acquire Sensus for about $1.7 billion in cash

Sensus, owned by investment funds affiliated with The Jordan Co. and GS Capital Partners 2000, is a provider of smart meters, network technologies and advanced data analytics services for the water, electric and gas industries.

It has more than 80 million metering devices installed globally, and its distinctive FlexNet communications network technology uses licensed spectrum in the U.S. and other geographies and provides secure connectivity solutions that support multiple applications.

Sensus generated $837 million in adjusted revenue and $159 million in adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) in fiscal 2016, which ended March 31, 2016.

The $1.7 billion cash purchase price is 10.7x Sensus’ fiscal year 2016 adjusted EBITDA. Xylem expects to achieve at least $50 million in annual cost synergies to be substantially realized within three years of closing as Xylem extends its global procurement and continuous improvement initiatives into this business, with additional revenue synergy potential. The transaction is expected to be accretive to Xylem’s adjusted earnings in 2017.

In addition to its presence in the smart water sector, Sensus generates about 24 percent of its revenues from sales to electric and gas utilities. The projected growth rate of smart metering, particularly AMI, is even higher in these sectors than in water, and Sensus is well positioned to capture that growth with its network-enabled solutions.

Sensus has about 3,300 employees and major locations in the U.S., United Kingdom, Germany, Slovakia and China. Nearly 70 percent of 2016 revenues were generated in the U.S.

Xylem will finance the all-cash transaction with the deployment of about $400 million of Xylem’s non-U.S. cash, new and existing credit facilities, and a combination of short- and long-term debt. There is no change to Xylem’s full-year 2016 adjusted earnings outlook. Xylem expects to maintain quarterly dividend payments to shareholders.

The transaction is subject to customary closing conditions and regulatory review, including approval by the Federal Communications Commission of the transfer of certain spectrum licenses. The transaction is expected to close in the fourth quarter of 2016.

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