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Emerson exits climate tech in $14bn deal to focus on automation

03 November, 2022

Emerson is selling a majority stake in its Climate Technologies business to the private equity firm Blackstone in a transaction that values the business at $14bn. Emerson plans to become a “pure play” global automation company serving a variety of markets. It claims that, together with AspenTech – the industrial software developer in which it took a 55% stake for $6bn earlier this year – it has the industry’s most comprehensive portfolio of advanced automation technologies and software.

The Climate Technologies business includes Copeland compressors and a portfolio of HVAC and refrigeration products and services. Its 2022 sales are worth an estimated $5bn with pre-tax earnings of $1bn. Under the deal with Blackstone, Emerson will keep a non-controlling 45% stake in Climate Technologies, which the organisations will operate as a standalone joint venture until its potential sale or IPO. Emerson will receive an upfront pre-tax cash payment of around $9.5bn, and a $2.25bn note at the close.

As a pure automation supplier, Emerson says it will be positioned for higher growth in the process, hybrid and discrete industries. Following completion of the transaction, Emerson expects to have industry-leading margins and strong free cash-flow generation.

“Today’s announcement is a definitive step in the portfolio journey we embarked on when I became CEO in early 2021,” says Emerson’s president and CEO, Lal Karsanbhai. “Over the past 18 months, the Emerson team has accelerated our portfolio transformation, divesting non-core businesses including InSinkErator and Therm-O-Disc, while investing in organic growth opportunities and important transactions including AspenTech.

“Our journey has been with clear purpose – to drive growth and significant value creation for our shareholders by creating a leading global automation company,” he continues. “Our differentiated capabilities in intelligent devices and software, and the focus, cohesiveness and operating agility of a pure-play company, will allow Emerson to bring our comprehensive automation products and solutions to a diverse set of end-markets.

“This transaction enables Emerson to partially monetise our Climate Technologies business at an attractive valuation and provides significant upfront cash proceeds to invest in growth, while at the same time enabling Emerson to participate in Climate Technologies’ upside potential upon exit of our non-controlling position,” Karsanbhai adds.

Emerson recently unveiled a new software-defined automation architecture that it predicts will “catalyse the future of modern manufacturing”. It says that the next-generation architecture, based on its Plantweb digital ecosystem, will empower companies through “boundless automation” to manage, connect and deliver OT (operational technology) and IT (information technology) data seamlessly and easily across the enterprise.

The ability to move data freely and securely across OT and IT domains – from the intelligent field to the edge and cloud – will optimise operational and business performance across enterprises, Emerson predicts.

Emerson believes that its vision for the industrial automation architecture of tomorrow will “catalyse” manufacturing

“The industrial sector is facing a pivotal moment, with the intersecting priorities of safety, productivity and sustainability forcing a crossroads between ‘the way things have always been done’ and the tech-powered vision of tomorrow,” says Mark Bulanda, executive president of Emerson’s Automation Solutions business. “As an automation leader with expanding software capabilities through our AspenTech addition, Emerson is well-positioned to help the industries we serve navigate a path to a digital future.”

Emerson argues that the automation architecture currently used by the world’s essential industries was purpose-built with operational data isolated from hardware and software systems. This siloed approach presents a barrier to the meaningful use of data because the separate layers of automation – including sensors, software, cloud-based applications and artificial intelligence – block data access from one layer to another.

To achieve the full potential of automation requires secure access to OT data to put it to work across layers to optimise processes, reliability, safety and sustainability simultaneously. New technologies and applications combined with market needs – including digital companies, decentralised operating models and the move to self-optimised plants – have created demand for a new automation paradigm where a unified software environment streams data effortlessly across the enterprise, when and where it’s needed.

Emerson contends that this software-defined, data-centric and app-enabled architecture will “democratise” critical data. The architecture will gather data easily from devices and edge-based technology control systems, and move it securely to today’s cloud-based enterprises for analysis, trending and forecasting – enabling tight collaboration between IT and OT.

“Emerson has been at the forefront of industrial automation innovation breakthroughs for the past four decades, and our commitment continues,” says Emerson Automation Solutions’ chief technology officer, Peter Zornio. “The shift to a software-defined architecture across the cloud, edge and intelligent field will eliminate functional and architectural silos, creating a ‘boundless automation’ platform. Such a platform is required to truly enable all the benefits promised by digital transformation applications and programmes.”

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