Flowserve to acquire Velan in an all-cash transaction valued at $245 MM

Flowserve Corporation (“Flowserve”), a leading provider of flow control products and services for the global infrastructure markets, and Velan Inc. (“Velan”), a leading manufacturer of highly engineered industrial valves, today announced that they have entered into a definitive agreement (the “Arrangement Agreement”) under which Flowserve will acquire Velan in an all cash transaction (the “Transaction”) valued at approximately $245 million (C$329 million), including the purchase of all of the issued and outstanding Velan equity for approximately $209 million (C$281 million) and the assumption of approximately $36.3 million (C$48.9 million) in outstanding gross debt as of November 30, 2022.  Flowserve will also assume Velan’s $31.4 million (C$42.2 million) of cash and cash equivalents, also as of November 30, 2022.  The Transaction is expected to close by the end of the second quarter of 2023.

Founded in Montreal in 1950, Velan is a leading manufacturer of industrial valves with a strong presence in the nuclear, cryogenic and defense markets. Velan is a family-controlled business, with a team of 1,650 people and manufacturing facilities in nine countries. Through its fiscal third quarter ended November 30, 2022, Velan reported trailing twelve-month revenues of approximately $380 million with reported EBITDA of approximately $21 million. Upon completion of the Transaction, Velan will become part of Flowserve’s Flow Control Division (FCD) segment.

Velan adds significant value within Flowserve’s existing valves portfolio and further builds upon Flowserve’s existing assets through the addition of Velan’s premier brands, strong heritage and technical expertise in attractive and diverse end markets. The additional scale, footprint consolidation and procurement opportunities provided by the combination is expected to result in substantial synergies. Further, the Transaction is expected to increase Flowserve’s aftermarket potential, based on the large installed base of Velan products and the expansive network of Flowserve’s Quick Response Centers (QRCs.)

In addition to revenue synergies created through a global aftermarket footprint, Flowserve expects to realize approximately $20 million (C$26 million) of run-rate cost synergies within two years after close. The Transaction is expected to be accretive to Flowserve’s adjusted EPS in the first full year following close. Including anticipated synergies, the economics imply an EBITDA multiple of less than 7x.

“We are excited about the opportunity to add Velan and its talented team to the Flowserve family,” said Scott Rowe, Flowserve’s President and Chief Executive Officer. “With its strong positioning in the nuclear, cryogenic, industrial and defense markets and highly complementary product portfolio, the addition of Velan furthers our Diversification, Decarbonization and Digitization (3D) strategy. The Transaction also meets our disciplined financial criteria, bringing meaningful aftermarket revenue and synergy opportunities.”

Velan’s Chairman of the Board and of its Special Committee, James Mannebach, commented, “This agreement is the culmination of an extensive and robust review of strategic options to maximize shareholder value and reflects the incredible efforts of our team members to serve customers with a focus on innovation and excellence. The Transaction provides Velan shareholders an opportunity to realize an immediate and attractive premium for their shares and is recommended by the Board of Directors and Special Committee of Velan. We see a very bright future for Velan as part of Flowserve’s leading global flow control business, and we look forward to working closely with their team to quickly integrate and realize the significant benefits of this complementary combination.”

Velan Holding Co. Ltd. (“Velan Holding”), Velan’s controlling shareholder, the sole holder of multiple voting shares, representing approximately 72% of the total shares outstanding of Velan and 92% of the aggregate voting rights attached to all Velan shares, respectively; together with Kernwood, an affiliate of Ed Kernaghan, a director of Velan, holding 1,405,500 subordinate voting shares, have entered into support and voting agreements pursuant to which they have agreed to vote all of their shares in favor of the Transaction at the Special Meeting.

Following closing of the Transaction, Flowserve expects to maintain a significant presence in Québec, including Velan’s Montreal, Québec head office and the combined company will continue to maintain a significant global presence.

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