Columbus McKinnon’s ’B+’ rating on CreditWatch after Kito Crosby acquisition announcement - S&P Global

Investing.com -- On Monday, February 10, 2025, Columbus McKinnon (NASDAQ:CMCO) Corp. announced a definitive agreement to acquire Kito Crosby Ltd. (KCL), a manufacturer of lifting, rigging, and material-handling equipment. The transaction, valued at $2.7 billion, is expected to significantly increase the scale and scope of Columbus McKinnon’s operations through the full integration of KCL.

However, S&P Global Ratings has placed all ratings of Columbus McKinnon, including the ’B+’ issuer credit rating, on CreditWatch with negative implications. This is due to the anticipation that the acquisition will be primarily funded with debt, which could substantially increase the company’s leverage.

Columbus McKinnon has secured $3.05 billion in committed bridge debt financing for the transaction, including a $500 million revolving credit facility. Additionally, Clayton, Dubilier, & Rice LLC (CD&R) will contribute an $800 million perpetual convertible preferred equity investment and could own roughly 40% of Columbus McKinnon post-transaction.

Despite Columbus McKinnon’s history of reducing its balance sheet debt after acquisitions, the debt burden for the KCL acquisition is significantly higher than previous transactions. The company’s debt to EBITDA for the year ended December 31, 2024, was about 4.2x, and the pro forma leverage could increase above the current downgrade trigger of 5.0x at close.

The acquisition of KCL is expected to strengthen Columbus McKinnon’s competitive position in the global lifting and hoists equipment markets. With combined revenues exceeding $2 billion and an EBITDA of over $450 million (pro forma in fiscal 2026 on an S&P Global Ratings-adjusted basis), the acquisition will enhance the company’s scale, scope, and geographic diversity.

The addition of KCL could also improve Columbus McKinnon’s margins due to KCL’s stronger margin profile and the expectation of moderate cost-reducing synergies. However, potential savings may be diluted in the first one or two years due to the costs associated with integrating the companies.

Post-acquisition, moderate deleveraging is expected as the combined company will likely generate materially positive free operating cash flows (FOCF) and use most of this excess cash to reduce its debt load over the medium term.

S&P Global Ratings will resolve the CreditWatch placement around the transaction close, expected in the first half of fiscal 2026 (fiscal year ending March 31, 2026), pending regulatory approvals and satisfactory completion of customary closing conditions. The CreditWatch placement reflects the possibility of either lowering or affirming the ratings on Columbus McKinnon following the acquisition of Kito Crosby. If a downgrade occurs, it is likely to be one notch based on the available information.

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