SPX Flow Stock Pops after Spurning Ingersoll Rand

Shares of SPX Flow (NYSE: FLOW) popped on Monday after Ingersoll Rand (NYSE: IR) confirmed that it had made two separate acquisition offers.

The confirmation comes following leaks that Ingersoll Rand was looking to take over SPX Flow, which makes specialized industrial equipment for handling and separating materials. SPX Flow serves a variety of industries, including food processing and pharmaceuticals.

As of 10:30 a.m. EDT, SPX Flow shares were up 25%.

Turning down a suitor

Ingersoll Rand said that it had made an offer of $81.50 per share back on May 27, which SPX Flow’s board rejected for being too low. The suitor followed that up with an even higher offer on June 10 for $85 per share, according to the company. Both offers consisted of all cash, with no stock component. 

The higher offer represents a 20% premium over SPX Flow’s all-time high. Following the rejections, SPX Flow declined to engage with Ingersoll Rand in further negotiations. 

“While we had hoped to complete a transaction privately, we remain committed to engaging with SPX Flow on a friendly basis and in a constructive and collaborative manner,” Ingersoll Rand CEO Vicente Reynal said in a statement. “To be clear, while we believe that SPX Flow is a strong strategic fit with Ingersoll Rand, we will be disciplined in our approach and not stray from our demonstrated commitment to pursuing accretive transactions that present significant, additional post-synergy value creation opportunities.”

Ingersoll Rand suggests that its offer is more than generous, representing significant value based on the financial targets that SPX Flow had previously set at its Investor Day in March. As an all-cash offer, the proposal would also mitigate any risks that SPX Flow fails to execute on its goals, Ingersoll Rand said.

At the Investor Day, SPX Flow laid out a target to achieve gross margins of approximately 40% by 2023, up from 35% in 2020. At the same time, the company would look to reduce operating expenses, hoping to bring selling, general, and administrative (SG&A) costs down to around 23% of revenue.

SPX Flow is seeking to expand through acquisitions, forecasting $200 million to $300 million in acquired revenue by 2023.

Ingersoll Rand is not looking to embark upon a hostile takeover attempt, according to the previous reports, and Reynal’s comments seem to reinforce that notion. The company has pivoted in recent years towards industrial equipment following its merger with Gardner Denver last year.

Earlier this year, Ingersoll Rand divested its golf cart business to private equity firm Platinum Equity in a $1.7 billion deal.

In spurning Ingersoll Rand’s overtures, SPX Flow is effectively expressing its belief that it is worth significantly more than $85 per share. Investors appear to agree, bidding the stock up to a fresh all-time high of $80.62 this morning.

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