TRG | The Bottom Line – 5/31

Worthington Enterprises (WOR) this week made news on the M&A front, reporting two transactions that are expected to be accretive to company results. WOR is acquiring EU-based Hexagon Ragasco for $98MM (7.5x multiple) and turning the SES segment into a JV by combining it with Hexagon Composites. Notably, this is a win across the board as financial metrics improve across margins and ROIC. Ragasco is a manufacturer of LPG composite cylinders for use in household cooking, industrial, and leisure applications (https://hexagonragasco.com/). The company has one manufacturing plant in Norway and sells globally to over 100 countries. We expect to see synergies around purchasing and commercial opportunities. Ragasco is already a well-run business that has solid margins and is more of a core fit for WOR, and as such, this is more a story of being the better owner and not a turnaround opportunity. In addition, WOR is combining the SES segment with Hexagon Composites (part of the company that sold Hexagon Ragasco to WOR) to form a JV. WOR sold 49% of the SES segment to Hexagon for $10MM, will retain 49%, with company management retaining 2%. Hexagon is a global leader in hydrogen and CNG, and WOR has a strong history of successful JVs (WAVE and ClarkDietrich).  We expect this JV to follow a similar pattern of 1 + 1 = 3 and be better positioned for the long term. The JV structure also aligns WOR with a global leader in hydrogen, effectively partnering for what is believed to be a longer tail for growth. We view these announcements as favorable and in-line with Worthington’s acquisition strategy. The cylinders business is a well-run business with accretive margins that is a natural fit with Worthington’s existing products and expertise. The SES JV deal is also a playbook that the company has executed in the past with both WAVE and ClarkDietrich, and those JVs have performed better once formed and are valuable cash generators for the overall business. The deal is expected to close June 3rd.