German forklift maker Kion Group AG agreed to buy robot maker Dematic for about $2.1 billion to expand in the U.S. and tap demand from Amazon.com Inc. and other online retailers as they look to automate warehouses.

Buyers are drawn to makers of robots, which are being used in a range of industries to increase the efficiency of manufacturing. Arlington Capital Partners purchased the defense and security business of iRobot Corp. (Nasdaq: IRBT); Auris Surgical Robotics Inc. will acquire Hansen Medical Inc. (Nasdaq: HNSN); and Lincoln Electric Holdings Inc. (Nasdaq: LECO) acquired Vizient Manufacturing Solution.

Dematic, owned by buyout firm AEA Investors and the Ontario Teachers’ Pension Plan, had sales of about $1.8 billion last year and the agreement is based on an enterprise value of $3.25 billion, Wiesbaden, Germany-based Kion said in a statement Tuesday. Kion shares dropped as much as 8.1 percent, the most since July, 2013.

The valuation “looks relatively high” compared with Kion’s, analyst Peter Rothenaicher at Baader Bank AG said in a note. “On the other hand, Dematic and the logistic systems business offer considerably higher growth opportunities than the industrial truck business.”

Kion Chief Executive Gordon Riske, now in his ninth year in charge, is moving the business into the realm of software-guided robots that can have a higher work rate and fewer demands on health and safety than traditional warehouse staff. As Internet shopping booms, the e-commerce market has moved to smaller, more frequent orders from a greater range of products, putting pressure on how goods are sorted at storage sites.

Riske, on a call with investors and analysts today, sought to soothe nerves rattled by the price paid for Dematic. The market for supply-chain automation -- where robotic arms in multi-million-dollar warehouses select and pack orders for anything from fruit to clothes -- is expected to grow about 10 percent annually through 2019, driven by digitalization and e-commerce, he said in phone interview.

“We like the longer-term logic of the deal and the accretion it brings, but think it will take some time for the market to become comfortable with the price paid,” Morgan Stanley analyst Ben Uglow and colleagues said in a note. “It remains to be seen whether the targeted industry growth can be sustained.”

The strategic benefits of the deal make the price tag “absolutely fair,” chief financial officer Thomas Toepfer said in the phone interview. Besides, the multiple is “fully in line” with Kion’s, based on 2017 estimates, and the transaction is only closing at the end of 2016, he said.

The deal combines two emblematic German brands that emerged out of large industrial companies. Kion was bought from industrial gas-maker Linde AG by Goldman Sachs Group Inc. and KKR & Co. and then listed through an initial public offering in 2013. Dematic, which has a legal base in Luxembourg, was part of Siemens AG until a decade ago.

Kion’s biggest shareholder is now Weichai Power Co., China’s biggest maker of heavy-duty trucks, and the announcement follows Chinese Midea Group Co.’s bid to increase its stake in German robot maker Kuka AG, which has provoked calls for an alternative European investor.

By adding Dematic’s activities in its largest acquisition to date, Kion will offer material-handling solutions ranging from hand pallets to forklift trucks and automated warehouse systems. As it seeks to surpass Toyota Industries Corp. as the world’s largest maker of forklift trucks, Riske is betting that Dematic’s market-leading position in the U.S. will open up access to new American customers.

“We can leverage that position to sell more forklifts, because the customers are the same,” the CEO said.

A group of Kion’s banks agreed to provide a bridge loan of 3 billion euros, and Kion said it plans to refinance the loan through equity, long-term capital markets and bank debt. The transaction is expected to close in the fourth quarter, subject to regulatory approval.

Kion worked with Goldman Sachs Group Inc. and the sale of Dematic was run by Deutsche Bank AG and Evercore Partners Inc. U.S.-based law firm Fried, Frank, Harris, Shriver & Jacobson LLP represented AEA Investors and Ontario Teachers’ Pension Plan.

 

-- Additional Reporting By Mergers & Acquisitions' Demitri Diakantonis

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