By Yuyu Huang, Kelly Liu, Jenny Sun, Henry Yao (John Hopkins University); Pierre Caye, Cédrik Nadeau (McGill University)
Photo: threeedil (Unsplash)
Overview of the deal
Acquirer: Apollo Funds
Target: Barnes Group
Total Transaction Size: $3.6bn
Closed date: Q1 2025 (expected)
Target advisor: Goldman Sachs, Jeffries (financial); Wachtell, Lipton, Rosen & Katz (legal)
Acquirer advisor: Latham & Watkins LLP and Paul, Weiss, Rifkind, Wharton & Garrison LLP (legal)
In a $3.6 billion deal, Apollo Funds is acquiring aerospace parts maker Barnes Group, offering shareholders $47.50 per share in cash, a 5% premium over the last closing price and a 20% premium over what shares were trading at in June. The transaction is expected to close by the end of Q1 2025.
“Over the past several quarters, Barnes has made tremendous strides to unlock the company’s full potential by investing in our business, reshaping our portfolio, innovating our platforms and strengthening our financial performance,” said Thomas J. Hook, President and Chief Executive Officer of Barnes.
Company Details (Acquirer - Apollo Global Management)
Founded in 1990, Apollo Global Management, Inc. (NYSE: APO) is a global provider of asset management and retirement solutions. With $733 billion in total assets under management (AUM), primarily comprising equity, credit, and real asset investments, the firm has developed a strong expertise in private market investments. Apollo Private Equity, the firm’s private equity division, operates globally and invests in companies within a wide range of industries. The division’s strategy for managing its $72.4 billion in assets for individual and institutional investors emphasizes corporate carve-outs, deleveraging investments, and buyouts.
Founded in 1990, headquartered in New York City, New York, USA
CEO: Marc Rowan
Number of employees: ~ 5,000
Market Cap: $91.66bn (as of 11/10/2024)
EV: $86.07bn (as of 11/10/2024)
LTM Revenue: $31.83 bn
LTM EBITDA: $7.59 bn
LTM EV/Revenue: 2.69
LTM: EV/EBITDA: 9.85
Recent Transactions: Minority equity investment in a Vonovia affiliate (2024); Acquisition of Gaming & Digital Business of International Game Technology PLC (2024); Acquisition of Evri (2024); Minority equity investment in Fab 34 Joint Venture (2024)
Company Details (Target - Barnes Group)
Barnes Group is a global manufacturing company specializing in producing highly engineered and differentiated products for industrials and aerospace. It provides molding solutions, automation, and force and motion control to industries ranging from healthcare and mobility to packaging. It provides components and assemblies that serve as critical parts for commercial and military turbine engines, nacelles, and airframes with renowned aftermarket maintenance, repair, and overhaul (MRO) services.
The company was founded by Wallace Barnes and went public with its predecessor, Associated Spring Corporation, in 1946. The latter moved to the New York Stock Exchange in 1963 and was renamed Barnes Group Inc. in 1976 under the ticker B.
Founded in 1857, headquartered in Bristol, Connecticut, USA
CEO: Thomas J. Hook
Number of employees: 6,500
Market Cap: $3.15bn (as of 9/30/2024)
EV: $3.44bn
LTM Revenue: $1.62bn
LTM EBITDA: $0.23bn
LTM EV/Revenue: 2.13x
LTM EV/EBITDA: 14.70x
Projections and Assumptions
Short-Term Consequences
In the short term, the deal caused Barnes’ shares to rise nearly 3% in premarket trading, with multiples re-rating sharply. This reflects a positive reversion in investor sentiment following recent financial struggles. In the quarter ending June 30, 2024, the firm suffered a net loss of $46.8 million. Apollo's acquisition is part of its strategy to expand its industrial portfolio, capitalizing from a forecasted inflection in travel demand through 1H25.
Long-Term Upsides
Despite investigative scrutiny from the public on Barnes Group Management’s decision-making, the acquisition is seen by many to be largely beneficial for both sides in the long run. On one hand, the deal reflects Apollo’s investment strategy of targeting companies with well-established market positions and aligns with Apollo’s recent focus on expanding into the industrial manufacturing sector by absorbing companies with rich growth potential. On the other end, the deal also allows Barnes to accelerate their operational transformation and growth and appease investors who have pushed for a strategic review to pull the company out of recent losses. Analysts suggest that the expansive magnitude of this transaction could also lead to potential synergies down the line for Apollo and Barnes, allowing for streamlined operational efficiency and innovation through collaboration.
The acquisition also marks a growing trend towards market consolidation in the industrial manufacturing sector, with global industrial manufacturing M&A deals increasing in volume by 3.5% in Q1-2024 over Q1-2023. Hence this deal reinforces Apollo Management’s strategy to position itself as a frontrunner within these competitive sectors and macroeconomic consolidation trends, providing Apollo with a secure foothold for further growth down the line. The deal also reflects Apollo’s confidence in long-term aerospace industry trends, with this acquisition potentially allowing for and driving further industry innovation and investor confidence, creating a positive cycle of long-term growth.
Risks and Uncertainties
The acquisition of Barnes Group by Apollo Global Management for $3.6 billion raises a couple of risks and uncertainties that could impact the post-transaction integration of the deal. Geopolitical tensions or economic downturns, such as those in Ukraine or the Middle East, could have a significant impact on regulatory decisions and market conditions, making the acquisition's integration unpredictable. Moreover, Barnes operates across sectors including aerospace, healthcare, and packaging. Each of these sectors has varying demand cycles and competitive pressures. While long-term aerospace demand trends appear favorable, the volatile nature of global travel and manufacturing markets could affect revenue streams. Apollo’s ability to effectively manage through these sector-specific challenges and boost growth opportunities in a private company setting remains a significant uncertainty as well.
Operational risks post-acquisition should also be taken into consideration. Apollo's plan to take Barnes private allows the company to have strategic growth and accelerated transformation; it is still uncertain that these activities would produce the intended results. For example, Barnes has had financial issues, including a $46.8 million net loss in Q2 2024 and revenue that did not meet expectations. Addressing these difficulties comes with the risk of disrupting existing operations and failing to produce expected outcomes.