Carlyle To Buy Flender From Siemens In $2.4B Deal; Analyst Sees 65% Upside

The Carlyle Group will buy mechanical drive technology company Flender from German engineering group Siemens for an enterprise value of €2.025 billion ($2.39 billion).

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Further details of the transaction, which is subject to regulatory approvals, were not disclosed. Equity for the investment will be provided by Carlyle (CG) Europe Partners (CEP) V, a €6.4 billion fund investing in European opportunities across a range of sectors and industries, and an affiliate of Carlyle Asia Partners (CAP) V, a $6.6 billion fund focused on buyout and strategic investments across a range of sectors in the Asia Pacific region. The deal is expected to close in the first half of 2021.

Flender is a supplier of mechanical and electrical drive systems active across 35 countries including Asia, and employs approximately 8,600 people with estimated sales of €2.2 billion in FY20. The company’s products and services, includes gearboxes, couplings, and generators for a wide variety of industries. The business is particularly strong in wind energy, a sector benefitting from secular tailwinds given its increasing importance in the energy mix, Carlyle said.

“China is expected to remain a major driver of the global renewable energy transition and has pledged to become carbon neutral by 2060,” said Janine Feng, Managing Director of Carlyle Asia Partners. “We are excited by the significant growth opportunity of wind energy development in China and across Asia, where a significant proportion of the global capacity additions is expected to originate.”

“We will draw upon our deep local presence to help Flender further solidify its competitive position in wind and industrial gears in the region, and to support the long-term development of wind power in Asia and globally,” Feng added.

The investment in Flender is part of Carlyle’s long-term global focus on industrials, a sector in which the US buyout firm has invested over $20 billion since inception. Carlyle manages one of the largest industrial portfolios in the world, including Nouryon, Atotech, Axalta and Senqcia.

Shares in Carlyle have dropped more than 9% over the past 5 days, taking their year-to-date decline to 22%. (See Carlyle stock analysis on TipRanks)

Oppenheimer analyst Chris Kotowski on Oct. 29 assigned a Buy rating on the stock with a $41 price target (65% upside potential), saying that CG is particularly well positioned for more uncertain markets because its PE AUM is well diversified across a broad array of more than two dozen major carry funds.

Given the 3Q “net accrued performance fee balance increasing 10% Q/Q to $1.96B (or ~$5.50/share), we think there is a lot of upside to consensus earnings expectations in coming years,” Kotowski wrote in a note to investors. “The investments are also broadly diversified by sector and geography.”

The rest of the Street is cautiously optimistic on the stock. The Moderate Buy analyst consensus is evenly split between 2 Buys and 2 Holds. That’s with a $32.75 average analyst price target indicating 31.4% upside potential over the coming year.