TRG | The Bottom Line – 3/10

Despite headline uncertainty in the market, companies are making decisive moves in 2023. Last week we wrote about CRH’s (CRH - $38.2B mkt cap) announced intention to move for primary listing to a U.S. Exchange. HNI Corporation (HNI - $1.1B mkt cap) this week announced its intention to acquire Kimball International (KBAL - $450MM mkt cap), combining two office furnishing companies with complementary products and geographies. HNI will acquire KBAL for $485MM (EV of $531MM including debt) in a cash/stock transaction (70% cash, 30% stock), implying a 6.8x FY’22 EBITDA multiple (inclusive of synergies). This represents an 81% premium to KBAL’s 30-day VWAP.  The transaction adds size and scale to HNI and enhances the product offering to align with trends in office furnishings. We think a critical difference on the HNI/KBAL deal versus other office furniture deals is sales channel. Both HNI and KBAL have a significant portion of products that is sold “open line” (more than half of sales). This means there is no channel conflict because each company is selling products in channels that sell multiple lines. As such, both brands can co-exist, mitigating the potential risk of losing dealer support. A simplified example of this would be a grocery store (Kroger or Publix) selling multiple types of soft drinks (Coca-Cola, Pepsi, etc.) versus Trader Joe’s selling very specific drink products. HNI confirmed the deal has no impact to the strategy on the residential product side of HNI (Hearths).