Methode to buy PE-backed Grakon for $420 mln

Methode Electronics Inc has agreed to acquire Grakon, a Seattle-based maker of lighting systems and components for the transportation sector, for $420 million. The seller is Industrial Growth Partners. Foros provided financial advice to Methode on the deal while Baird did likewise for Grakon.

PRESS RELEASE

CHICAGO, Aug. 20, 2018 (GLOBE NEWSWIRE) — Methode Electronics, Inc. (NYSE:MEI) (“Methode” or “we”), a global developer of custom engineered and application-specific products and solutions, announced that it has entered into a definitive agreement to acquire Grakon Parent, Inc. (“Grakon”), a global leader in the design, development and manufacture of advanced lighting systems, controls and components for premier OEM manufacturers in the heavy truck, bus, rail, electric vehicle and power sports markets. For the trailing 12 months as of July 31, 2018, Grakon’s revenue was approximately $159 million and EBITDA was approximately $41 million.

Excluding pre-tax costs related to the transaction, Methode expects the acquisition to be accretive to earnings, inclusive of estimated amortization and interest expense of $15 million to $20 million, in its current fiscal year ending April 27, 2019.

Methode expects to fund the total consideration of approximately $420 million with a combination of cash on hand and committed debt financing. Methode intends to utilize approximately $140 million of cash on hand and has entered into a debt commitment agreement with certain lenders, pursuant to which the lenders have committed to make available to Methode at closing a $250 million term loan facility and a $200 million revolving credit facility, which will replace Methode’s existing revolving credit facility. The transaction is not subject to a financing condition.
Grakon has provided customized lighting solutions to the transportation industry for over 40 years. The company’s expertise and innovative designs have led to a preferred supplier status among its OEM customers in Asia, Australia, Europe, and the Americas. Grakon delivers interior lighting expertise, as well as exterior lighting systems that enhance vehicle styling, improve safety and eliminate equipment downtime. The company’s top 10 commercial vehicle customers have an average tenure of over 19 years, with its newest customer being Tesla. With three facilities in North America, two in Europe and two in Asia, Grakon has over 1,200 employees, including over 100 engineers.

Methode’s President and Chief Executive Officer, Donald W. Duda, said, “Grakon will enhance our product line, diversify our business mix into new end-markets and allow us to serve a broadly expanded universe of customers. The company has developed an extensive array of lighting and electronic controls uniquely engineered for diverse and growing transportation applications. Grakon’s solutions align with global trends including increasing LED adoption and advanced driver assistance, while providing differentiation and critical functionality. This transaction furthers our objective of pursuing strategic acquisitions where we can leverage our core competencies and provide an attractive value proposition for our shareholders.”

Methode anticipates pre-tax acquisition and related costs in the range of $23 million to $26 million, which include financing, legal, insurance, due diligence, environmental and financial advisory expenses and the impact of performance-based stock award amortization. Methode expects to update its Fiscal 2019 guidance to include the acquisition of Grakon when the third-party valuation is finalized, a further analysis of projected income is complete and transaction costs are settled.

The acquisition is subject to customary closing conditions, including expiration of applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. The transaction is expected to be completed in September 2018.

Foros acted as financial advisor to Methode. Wachtell, Lipton, Rosen & Katz served as Methode’s outside legal counsel.

Baird acted as financial advisor to Grakon. Kirkland & Ellis LLP served as Grakon’s outside legal counsel.

Conference Call and Slide Presentation Information
Methode will conduct a conference call and Webcast with a slide presentation on Tuesday, August 21 to discuss this transaction, to be led by Mr. Duda and Methode’s Chief Financial Officer, Ron Tsoumas, at 10:00 a.m. Central Daylight Time. To participate in the conference call, please dial (877) 407-9210 (domestic) or (201) 689-8049 (international) at least five minutes prior to the start of the event. A simultaneous Webcast can be accessed through Methode’s Web site, www.methode.com, by selecting the Investor Relations page, and then clicking on the “Webcast” icon. A replay of the conference call will be available shortly after the call through August 28, 2018, by dialing (877) 481-4010 and providing Conference ID number 37298. On the Internet, a replay will be available for seven days through Methode’s Web site, www.methode.com, by selecting the Investor Relations page and then clicking on the “Webcast” icon.

About Methode
Methode (NYSE:MEI) is a global developer of custom engineered and application specific products and solutions with manufacturing, design and testing facilities in Belgium, Canada, China, Egypt, Germany, India, Italy, Lebanon, Malta, Mexico, Singapore, Switzerland, the United Kingdom and the United States. We design, manufacture and market devices employing electrical, electronic, wireless, safety radio remote control, sensing and optical technologies to control and convey signals through sensors, interconnections and controls. Our business is managed on a segment basis, with those segments being Automotive, Interface, Power Products and Other. Our components are in the primary end markets of the automobile, computer, information processing and networking equipment, voice and data communication systems, consumer electronics, appliances, aerospace vehicles and industrial equipment industries. Further information can be found on Methode’s website www.methode.com.