HVAC specialist AAON has announced it has entered into a membership interest purchase agreement to acquire 100% of the equity interests of BasX, dba BasX Solutions for $100m. BasX is a high-efficiency data centre cooling solutions, cleanroom systems, custom HVAC systems and modular solutions.
BasX specialises in the design, engineering and manufacturing of custom, energy-efficient cooling solutions for the rapidly growing hyperscale data centre market. BasX also designs and manufactures custom solutions for cleanroom environments for the biopharmaceutical, semiconductor, medical and agriculture markets, as well as custom, energy-efficient air handlers and modular solutions for a vast array of markets. Headquartered in Redmond, Oregon, BasX operates a manufacturing footprint of 200,000 sqft. In 2021, BasX is expected to realise revenue of approximately $70 million.
BasX and AAON are extremely well aligned on engineering expertise and manufacturing efficiency
The transaction terms require an upfront payment of $100 million, subject to customary adjustments. Additional payments valued at up to $80 million are subject to earn-out milestones that extend through 2023.
As a condition to closing, AAON will also sign a real estate purchase agreement with BasX Properties, LLC, an affiliate of BasX, to acquire the real property and improvements utilised by BasX for an additional $22 million, subject to customary closing conditions and adjustments. AAON plans to fund the transactions through a combination of cash, borrowings under its revolving credit facility and equity.
Strategic Rationale
There are several factors that led AAON to believe this was a compelling acquisition:
- BasX brings the company exposure to attractive end-markets into which AAON had minimal exposure.
- The products that BasX manufactures are highly engineered, customised products, fully complimenting AAON's existing business model.
- There are high barriers to entry. The sophistication of the equipment, the high cost of failure if the equipment fails and the strong customer relationships with a concentrated group of blue chip companies all act as a moat to this business.
- The acquisition is accretive to organic growth. BasX has experienced a five-year sales CAGR of 45% and has a robust backlog that supports future growth.
- AAON anticipates revenue and cost synergies to result from the acquisition. The AAON brand and the financial support will help BasX penetrate their markets at an accelerated rate. AAON also foresees cross selling opportunities related to having manufacturing locations in different geographies of the U.S. and R&D related synergies. Cost synergies are related to procurement of materials and components, productivity improvements associated with the sharing of best practices and vertical integration opportunities.
- AAON anticipates the acquisition will be accretive to earnings immediately, excluding upfront acquisition-related costs and ongoing purchase accounting amortisation expenses.
- Lastly, AAON gains a premier leadership team that has a multi-decade track record of success in the industry. Conditional to the deal, BasX's management team will remain intact for at least three years following the close of the acquisition.
"Upon closing this acquisition, we will continue to advance our long-term strategy of focusing on innovative, semi-custom and custom, energy efficient HVAC solutions for nonresidential applications," said Gary Fields, AAON's President and CEO. "BasX will provide AAON with an immediate presence in the high-growth data centre and cleanroom markets, both of which the company has historically had minimal exposure. The growth and profitability fundamentals of these new markets are very compelling for AAON. We also believe there are material revenue and cost synergies that will result from the combined entity."
Fields added: "Moreover, BasX is led by a management team that has decades of experience in developing products that have shaped today's industry, an attribute that is fully complementary to AAON's strategy. Overall, we believe the strategic and financial benefits resulting from this acquisition are compelling for our company and all of our stakeholders. We look forward to welcoming the BasX team to the AAON family and are excited about the opportunities ahead."
Matt Tobolski, President and co-founder of BasX said: "The creativity, collaboration, and execution of projects by our team will be strengthened as we enter this new chapter with AAON. BasX and AAON are extremely well aligned from company cultures, engineering expertise, manufacturing efficiency and the steadfast commitment to delivering on promises to our customers."
Dave Benson, BasX CEO and Co-Founder added: "As BasX joins the AAON family, we are confident that the incremental add in product offerings and market segments will result in fantastic value to our collective customers and shareholders."