Understanding the Synergies behind Emerson’s Deal with Pentair



Pentair expands Emerson Electric’s product reach

Emerson Electric’s (EMR) acquisition of Pentair Valves & Controls will give Emerson the best of two worlds and strengthen areas that are currently weak or nonexistent. For example, control valves and isolation valves are responsible for 70% and 10%, respectively, of Emerson’s final control business. Also, 54% of Pentair valves and controls sales are derived from isolation valves and 29% from pressure management, ares in which Emerson currently has no presence.

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With 42% exposure, the chemical industry (VAW) is Pentair Valves & Controls’ dominant end market. Emerson’s controls business leans toward the oil and gas (XOP) industry with a 47% exposure. Emerson earned $1.3 billion from national and international oil companies, and Pentair Valves & Controls made just $110 million from them in 2015. The chemical end market is responsible for just 12% of Emerson’s sales.

Similarly, when it comes to geographies, Pentair could help Emerson increase its international presence. More than 71% of Pentair’s business is sourced outside the United States with a comparative figure of 55%.

Synergies in the Emerson-Pentair deal

The Pentair Valves & Control business experienced several operational excellence initiatives under the stewardship of Tyco (TYC) before 2012 and Pentair (PNR) in the 2012–2016 period. Analysts have thus questioned the claims of 10% combined net profit synergies from sales and costs.

However, Emerson has maintained that neither Tyco nor Pentair had a $7 billion Process Automation business. It intends to do that by doubling the best cost locations of Pentair Valves & Controls and having the best cost sourcing.

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