Graco Inc., which supplies technology and expertise for the management of fluids in both industrial and commercial applications, has entered into a definitive agreement to purchase the operations of the finishing businesses of Illinois Tool Works, Inc. in a $650 million cash transaction.

The ITW businesses manufacture and distribute equipment for industrial liquid finishing, powder coating and automotive refinishing worldwide. Key attributes of the businesses include:

  • 2010 revenues of $305 million, of which 40% were generated in the Americas
  • Significant operations are located in the United States, Switzerland, United Kingdom, Japan, Brazil and Mexico, with sales offices and distribution capabilities in several additional countries 
  • Leading equipment technologies and brands, such as Gema® powder finishing equipment, Binks® industrial pumping solutions, DeVilbiss® auto refinish guns and accessories, Ransburg® electrostatic guns and accessories, and BGK curing technology 
  • Professional management and 900 employees worldwide 
  • Global manufacturing capabilities/capacity

“This acquisition is an excellent strategic fit with Graco’s Industrial segment,” said Pat McHale, Graco’s CEO. “It will advance all of our stated core growth strategies: new products and technology, geographic expansion, and new markets.”

Via the acquisition, Hale noted that Graco gains a leading position in industrial powder paint equipment–a growing global market where Graco has no offering today. With regard to liquid finishing, the acquired product technologies are complementary to Graco’s industrial offering and also give the company a leading position in automotive refinish—another sector where Graco has little presence.

“The acquired businesses generate two thirds of revenue outside North America, increasing our critical mass in important international and emerging markets,” Hale noted. “This transaction will bring several widely recognized premium brands to Graco, a strong distribution channel, an installed base and approximately 40% of revenue from parts and accessories. We believe this acquisition will create long term value for our shareholders.”

Graco plans to finance the transaction through a new committed $450 million revolving credit facility (U.S. Bank National Association and JP Morgan as joint lead arrangers) and previously announced long-term debt of $300 million. Operations are expected to be cash accretive immediately and will be included in Graco’s Industrial segment for reporting purposes. Closing is expected in June 2011, at the earliest, pending regulatory reviews and other customary conditions.