Stanley Black & Decker has made another tool acquisition with the purchase of the Craftsman brand from Sears Holdings.
The buy out follows a tool brand acquisition in October - $1.95 billion for Irwin and Lenox Tools - and the sale of the majority of SBD's Mechanical Security businesses last month, arguably indicating a focusing of the Stanley Black & Decker business.
The purchase of Craftsman will cost Stanley Black & Decker $525m at closing, then a further $250m at the end of year three, followed by annual payments on new Stanley Black & Decker Craftsman sales through year 15 (2.5% through 2020, 3% through January 2023 and 3.5% thereafter).
Existing sales of Craftsman products outside the Sears Holdings and Sears Hometown distribution channels, which will be assumed immediately upon closing by Stanley Black & Decker, were approximately $200 million over the last 12 months. The company expects the sale of Craftsman branded products to contribute around $100 million of average annual revenue growth for the next ten years.
As part of the agreement, Sears Holdings will continue to offer Craftsman-branded products, sourced from existing suppliers, through its current retail channels via a perpetual license from Stanley Black & Decker, which will be royalty-free for the first 15 years after closing and royalty-bearing thereafter (at 3%). Around 10% of Craftsman-branded products are sold outside Sears Holdings and the move means SBD will be free to significantly up Craftsman sales in these ‘untapped channels’.
US Manufacturing growth
In a move bound to please President Trump, the Stanley Black & Decker boss spoke of increasing US manufacturing following the acquisition.
"Craftsman is a legendary, American brand with tremendous consumer awareness built on a legacy of producing quality products at a great value," said Stanley Black & Decker President and CEO James M. Loree. "This agreement represents a significant opportunity to grow the market by increasing the availability of Craftsman products to consumers in previously underpenetrated channels. We intend to invest in the brand and rapidly increase sales through these new channels, including retail, industrial, mobile and online. To accommodate the future growth of Craftsman, we intend to expand our manufacturing footprint in the U.S. This will add jobs in the U.S., where we have increased our manufacturing headcount by 40% in the past three years.
"As we continue our growth trajectory as a diversified industrial company, we continue to look at opportunities to build upon our world-class portfolio of franchises and brands to create shareholder value. This transaction, which aligns squarely with this strategy, also reflects an effective allocation of capital particularly when viewed in the context of the recently announced Mechanical Security sale. We've essentially freed up capital trapped in a low-growth business to invest in organic growth and EPS accretion."
Sears Holdings' Chairman and Chief Executive Officer Edward S. Lampert added: "We are pleased to reach this agreement, after determining that externalizing the Craftsman brand would accomplish our goals of driving value for Sears Holdings and positioning Craftsman for future growth. This transaction represents a significant step in our ongoing transformation to a membership focused business model. Craftsman has a storied history as an iconic American brand and in Stanley Black & Decker we have found a great owner that is committed to expanding Craftsman and helping it to reach its potential outside of its current channels. It's important for our members to know that we will continue to sell Craftsman in-store and online at Kmart and Sears, and Sears Hometown, and the structure of the transaction will provide Sears Holdings with a significant upfront payment, another payment in three years and an opportunity to participate in the growth of the Craftsman brand in both our stores and at other retailers selected and managed by Stanley Black & Decker. Looking ahead, we will continue to take actions to adjust our capital structure, meet our financial obligations and manage our business to better position Sears Holdings to create long-term value by focusing on our best members, our best stores and our best categories."