Nordson: Maintaining $237 Fair Value After Announcement of EUR 960 Million ARAG Acquisition

We do not expect any significant change to our $237 fair value estimate or our Standard capital allocation rating for narrow-moat-rated Nordson NDSN after the company announced the acquisition of ARAG Group. The all-cash transaction implies a EUR 960 million enterprise value for ARAG, which reflects a multiple of around 16.5 times 2023 EBITDA (and 13.5 times 2025 EBITDA including synergies). Nordson expects the deal to close in its fiscal fourth quarter.

ARAG is a manufacturer of sprayers and accessories used in precision agriculture, and its products aim to improve crop yields and reduce waste of fertilizers and chemicals. ARAG’s product portfolio includes fluid components (including pumps, filters, and nozzles), smart components, and control systems, along with complementary software.

From a strategic perspective, we think the acquisition will be a good fit in Nordson’s industrial precision solutions segment. ARAG uses injection molding to produce fluid components, which is a core strength for Nordson. The deal will expand Nordson’s portfolio into the attractive precision agriculture end market, which has been growing at a high-single-digit clip. ARAG has a similar gross margin profile to Nordson, and management said on the call that around 40% of the firm’s revenue is recurring.

For full-year 2023, ARAG is expected to generate roughly EUR 155 million in sales and EUR 58 million in EBITDA (37% margin). We expect the deal to be accretive to Nordson’s revenue growth and EBITDA margin profile.