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Morgan Stanley, Houlihan Lokey Advise on Helios Technologies Acquisition of Balboa Water Group

October 12, 2020, 08:00 AM
Filed Under: Mergers & Acquisitions

Helios Technologies, 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, from investment funds affiliated with AEA Investors LP. Helios plans to fund the Acquisition through a combination of cash and existing and new credit facilities.

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.

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.

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.

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