Assa Abloy Completes Acquisition of HHI, Dealing Yale and August to Fortune BrandsJune 21st, 2023 by Drew Vass, Executive Editor
Assa Abloy announced yesterday it completed the acquisition of Spectrum Brands’ Hardware and Home Improvement division (HHI) and the divestment of its U.S.- and Canada-based Emtek and Smart Residential business to Fortune Brands Innovation Inc. HHI was consolidated into Assa Abloy as of June 20, officials said, for the total consideration of $4.3 billion USD on a cash and debt-free basis.
Emtek and the Smart Residential business, including Yale and August residential smart locks, represented sales of about $400 million in 2022, fetching a selling price for the divested business of $800 million on a cash and debt-free basis.
The deal to acquire HHI was announced in September 2021, as an “important step” in Assa Abloy’s development of its residential business in North America, but a year later drew the scrutiny of the U.S. Department of Justice (DOJ).
According to DOJ officials, Assa Abloy and Spectrum were two of the three largest producers of residential door hardware in a $2.4 billion U.S. industry, leading the department to file a civil antitrust lawsuit, seeking to block the deal. According to DOJ’s complaint, the merger would eliminate head-to-head competition between Assa Abloy and Spectrum, possibly leading to higher prices, lower quality, reduced innovation and poorer service. The complaint sought to enjoin the transaction under Section 7 of the Clayton Act, alleging that both companies competed for years to become leaders in the U.S. market.
“The proposed transaction would transform these markets, giving Assa Abloy a near-monopoly in premium mechanical door hardware and more than a 50% share in smart locks, leaving only one significant competitor,” DOJ officials said.
Assa Abloy responded to DOJ’s civil antitrust suit by initiating the sale of Emtek and its Smart Residential business in the U.S. and Canada, which the company suggested would “fully resolve” the alleged concerns over competition. Fortune Brands surfaced as a buyer in the deal in December 2022, agreeing to a total of $800 million. A month later, Assa Abloy’s plans drew the attention of a collection of law professors from around the U.S., arguing in an amicus brief that the company needed to show that its proposed remedy would eliminate the risk posed to competition. In March 2023, Assa Abloy and the U.S. announced they had come to a “narrow agreement,” but said they remained at odds over the deal due to a number of factors. U.S. officials told the court there were remaining issues that needed to be addressed at trial. After more than six months of deliberations, a D.C. District Court scheduled the matter for a bench trial, which began in April. A month later, that trial came to a sudden halt, with both parties reporting they had reached an agreement to settle, ending seven months of deliberation.
According to court documents, the U.S. did not contend that relief obtained through a Final Judgment will fully eliminate risks, but the company was allowed to proceed on the agreement that it make certain divestitures to Fortune Brands or another entity within a timely manner.
With one final hurdle to go, Assa Abloy announced that it received clearance from the Mexican competition authority on June 5.
“HHI is an excellent addition to Assa Abloy, complementing our existing business in terms of product offering and geographic scope, and I am delighted to welcome HHI and all its employees to Assa Abloy,” said Nico Delvaux, president and CEO of Assa Abloy. “I am also pleased that employees and customers of our divested businesses will be in good hands, and I wish them future success.”
For the fiscal year ending September 2022, HHI’s net sales were $1.7 billion with adjusted EBITDA margin of 15.6%. The EBIT synergies are expected to reach around $100 million within a five-year period, officials said. The preliminary divestment result, net of exit costs and prior to taxes, is estimated to be around $300 million.
For Fortune Brands, the net purchase price of $700 million for Assa Abloy’s Emtek and Smart Residential business is expected to generate net sales of $190 million to $210 million for the second half of 2023. Ultimately the company expects to generate net sales of $500 million to $550 million in the third full year following the acquisition.
“I am thrilled that Yale, Emtek, August and Schaub have now officially joined the Fortune Brands family,” said Fortune Brands CEO Nicholas Fink. “These world-class brands fit perfectly with our portfolio and will accelerate strategic initiatives across our organization. With this acquisition, we will increase Fortune Brands’ scale in connected products, drive innovation and expand our offering in the luxury home products market. We look forward to welcoming our new associates and are confident this acquisition will result in enhanced, innovative products for consumers and customers.”
Following this week’s deals, a monitoring trustee is set to track Fortune Brands’ success in competing in the market for residential smart locks with the assets acquired.