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$13 Billion Acquisition

Eaton partners with American Appraisal for business combination valuation needs related to its acquisition of Cooper Industries plc.

In May 2012, power management company Eaton announced plans for the $13 billion purchase of Cooper Industries plc, a global electrical equipment manufacturer and supplier. Alexander M. Cutler, Eaton chairman and CEO, called the acquisition – the largest in Eaton’s 101-year history - “a transformational milestone that expands our market segment reach, broadens our portfolio of products, services, and solutions, and strengthens our global geographic footprint.”

The acquisition’s announcement set into motion Eaton’s selection of a valuation firm with demonstrated industry expertise and the capability to value tangible and intangible assets around the world.  For this important engagement, Eaton turned to American Appraisal – another firm with an established operating history and global geographic footprint. American Appraisal had previously served as Eaton’s valuation consultant on a number of engagements, and performed the purchase price allocation service for Eaton’s recent acquisition of Moeller Holdings GmbH in April 2008.

Soon after the announcement, American Appraisal was engaged to assist with a pre-acquisition purchase price allocation service.  Typically, this service is performed through a limited amount of due diligence with the to-be-acquired management team. However, that was not available to American Appraisal because Cooper was an Irish company and Irish business transaction rules are highly protective of companies targeted for acquisition. Thus, we relied on American Appraisal’s industry practice experience and various published information.  Specific challenges in this limited-visibility environment included determination of reasonable remaining lives of to-be-acquired intangible asset groupings, such as customer relationships and brand-related intellectual property, and estimating an appropriate plant, property and equipment (PP&E) step-up factor where tangible asset specifics were not known beyond limited publicly disclosed data.

To clear these hurdles, American Appraisal’s U.S. team was able to draw upon the experience of its global PP&E practice leaders to estimate the value of the tangible assets.  Likewise, intangible asset valuation issues were discussed, and estimates made, amongst our practice leaders based on our collective valuation experiences with other large multinational transactions in the industry.

All pre-deal estimates were then trued up with a post-closing purchase price allocation service that involved significant sampling, inspections and valuation of personal and real property assets performed by our staff of local-country tangible asset appraisers.  Inspections were conducted in Eastern Europe, the UK and China, as well as many plant locations of significant scale in North America. In addition, post-closing intangible asset due diligence involved discussions with functional business leaders from each of Cooper’s seven reporting units.  Given the global asset array and scale of 18 million controlled plant square feet, these tasks were challenging - but fully within the capabilities of American Appraisal’s global operations.