Helios to buy Balboa from AEA Investors for $218.5m

Helios Technologies has agreed to acquire Balboa Water Group from AEA Investors LP for $218.5 million.

Helios Technologies has agreed to acquire Balboa Water Group from AEA Investors LP for $218.5 million. The deal is expected to close in the fourth quarter of this year. Balboa is a provider of electronic controls for the health and wellness industry.

PRESS RELEASE

SARASOTA, Fla.–(BUSINESS WIRE)–Helios Technologies (Nasdaq: HLIO) (“Helios” or the “Company”), a global industrial technology leader that develops and manufactures solutions for both the hydraulics and electronics markets, has entered into a definitive agreement to acquire BWG Holdings I Corp. (operating as Balboa Water Group, hereinafter “Balboa”) for $218.5 million from investment funds affiliated with AEA Investors LP (the “Acquisition”). Helios plans to fund the Acquisition through a combination of cash and existing and new credit facilities. Helios expects to close the transaction in the fourth quarter of 2020, subject to customary closing conditions and regulatory approvals.

Balboa is an innovative market leader of electronic controls for the health and wellness industry with proprietary and patented technology that enables end-to-end electronic control systems for therapy bath and spas. Headquartered in Costa Mesa, CA, Balboa is a global operation selling into 47 different countries and utilizing a new state-of-the-art manufacturing facility in Baja, Mexico.

“With this acquisition, we are further advancing our Vision 2025 strategy by executing on the value streams focused on product and technology expansion and market diversification,” commented Josef Matosevic, the Company’s President and Chief Executive Officer. “The addition of Balboa’s complementary technology to our portfolio enhances our scale and leadership position in digital control systems and allows us to strategically expand our product portfolio. We believe the strategic and financial benefits resulting from this acquisition are compelling for both our company and our stakeholders. We look forward to welcoming the Balboa team to the Helios family and are excited about the opportunities ahead.”

Complementary Electronic Controls Technology Increases Addressable Market
Balboa has differentiated, proprietary controls technology expected to enhance and accelerate the Electronics segment’s ability to innovate and propel into new end markets. Balboa is the leader in the markets it serves with proprietary and patented technology. Balboa’s AC controls technology is a great addition to the capabilities of Enovation Controls, a wholly owned subsidiary of Helios, which has a long history of deep application knowledge in control of DC (direct current) and battery powered technologies. This combination is intended to enable Helios to enter new and adjacent, high growth markets with a robust complementary product portfolio. This Acquisition diversifies Helios’s end markets, customers and product offerings while enhancing scale, addressable market and innovation in electronic control systems.

Solid Financial Contributions
Balboa has delivered compounded annual growth in the mid-single digits for nearly 10 years and is expected to achieve Adjusted EBITDA margins of approximately 20 percent by year-end 2021. The Acquisition is expected to be accretive to Adjusted EPS day one onward, and the first year ROIC is expected to exceed Helios’s WACC. The purchase price of $218.5 million represents a 2020E Adjusted EBITDA transaction multiple of 9.3x on a pro forma basis.

Adds Low Cost Manufacturing Operations
Balboa utilizes a new, state-of-the-art production facility in Baja, Mexico with the potential to increase capacity and optimize costs. This facility can be leveraged to further optimize the manufacturing and supply chain process across other areas of the Electronics segment.

Financing and Closing
Total consideration for the transaction is $218.5 million. Helios intends to use a combination of cash on hand and existing and new credit facilities. On a pro forma basis following the close of the transaction, Helios expects its 2020E year-end net debt-to-Adjusted EBITDA leverage ratio to be approximately 3.4x. Helios is committed to a long-term net debt leverage target of less than 2.0x and expects to continue to benefit from strong cash flows to support debt reduction and organic growth initiatives.

The Acquisition is expected to close in the fourth quarter of 2020, subject to customary closing conditions and regulatory approvals.

Advisors
Morgan Stanley & Co. LLC served as financial advisor and Jones Day as legal counsel to Helios on this transaction. Houlihan Lokey served as financial advisors and Fried, Frank, Harris, Shriver & Jacobson LLP served as legal counsel to Balboa.

Conference Call and Webcast
Helios will host a conference call and webcast today, October 12, 2020 at 9:00 a.m. ET to discuss the transaction. The live conference call is available by dialing (201) 689-8573. The Internet webcast and accompanying slide presentation will be available here: www.heliostechnologies.com.

A telephonic replay will be available from 12:00 p.m. ET on the day of the call through October 19, 2020. To listen to the archived call, dial (412) 317-6671 and enter conference ID number 13711834. The webcast replay will be available in the investor relations section of the Company’s website at www.heliostechnologies.com.

About Helios Technologies
Helios Technologies is a global industrial technology leader that develops and manufactures hydraulic and electronic control solutions for diverse markets. The Company operates in two business segments, Hydraulics and Electronics. The Hydraulics segment markets and sells products globally under the brands of Sun Hydraulics for its cartridge valve technology, Custom Fluid Power for its hydraulic system design and Faster which provides quick release coupling solutions. Global Electronics brands include Enovation Controls and Murphy for fully-tailored solutions with a broad range of rugged and reliable instruments such as displays, controls and instrumentation products. Helios Technologies and information about its associated companies is available online at www.heliostechnologies.com.

About AEA Investors LP
AEA Investors LP was founded in 1968 by the Rockefeller, Mellon and Harriman family interests and S.G. Warburg & Co. as a private investment vehicle for a select group of industrial family offices with substantial assets. AEA has an extraordinary global network built over many years which includes leading industrial families, business executives and leaders; many of whom invest with AEA as active individual investors (“Participants”) and/or join its portfolio company boards or act in other advisory roles. Today, AEA’s approximately 90 investment professionals operate globally with offices in New York, Connecticut, London, Munich and Shanghai. The firm manages funds that have over $15 billion of invested and committed capital including the leveraged buyouts of middle market companies and small business companies and mezzanine and senior debt investments. AEA Private Equity invests across three sectors: value added industrials, consumer, and services. The AEA Small Business Funds is a strategy within AEA that currently manages $1.8 billion of invested and committed capital. The team seeks to help grow and transform companies at the lower end of the middle market by sponsoring growing companies with proven management teams and superior business models.