A.O. Smith Corp will acquire Lochinvar Corp for $418 million to expand the company's presence in the global water heating market.
Paul W. Jones, chairman and chief executive officer, at A.O. Smith said: 'This acquisition fits squarely within our stated strategy to expand our core product offering with new technologies, which emphasize high-efficiency products that can be applied globally. This is a significant first step in growing our diversified global water heating platform and the beginning of the redeployment of the proceeds from the sale of our Electrical Products Company.'

Privately held Lochinvar is a manufacturer of boilers used in commercial and residential hydronic heating and hot water applications.

For the 12 months ended June 30, 2011, Lochinvar recorded sales of around $200 million, in addition to the fixed purchase price, privately held Lochinvar's shareholders could earn up to an additional $35 million if certain revenue objectives are achieved by November 2012.

A.O. Smith expects to achieve approximately $10 to $15 million of annual synergies over the next few years from purchasing economies and potential global expansion opportunities. The company will also not assume Lochinvar's existing debt under the deal.

Ajita G. Rajendra, president of A.O. Smith Water Products Company, said: 'The $1.1 billion North American boiler industry is in the midst of a transition to the new high-efficiency condensing technology, which we believe is growing several times faster than GDP. We expect high efficiency boiler products to continue to grow at an accelerated rate for the foreseeable future.'

'We also believe there are significant growth opportunities in regions outside of North America, especially in China, for Lochinvar's higher-efficiency boilers, as more commercial customers seek ways to save energy and reduce operating costs.'

William L. Vallett, Jr., chief executive officer and president of Lochinvar, added: 'We are extremely excited about the potential benefits of combining with such a logical partner like A. O. Smith and the future prospects for our employees, customers and suppliers.'

The acquisition is expected to close in the third quarter of 2011, subject to customary closing conditions and regulatory review.

David Pepper, managing director of Lochinvar’s UK subsidiary, welcomed the news. He said: 'We see this as a wholly positive development. We have already been told that the new owners intend to maintain the two brands and run the companies as separate businesses because of their respective strengths in the global heating marketplace. However, being part of an enlarged group will bring additional commercial benefits to Lochinvar as an established manufacturing, sales and distribution business with 35 years’ experience in the UK.'

'It is extremely significant that Ajita Rajendra focused on our ‘proven high efficiency boiler technology’ as a key motivation for the purchase. This is an area of major potential growth worldwide; and by bringing the two companies together, the management has created a platform for us to exploit that growth to the full,' added Mr Pepper.