Shares of Regal Rexnord dropped as much as 9.5% in trading today and are at their lows for the day at 1:30 p.m. ET. Altra Industrial Motion's shares were up as much as 48.8% today and are currently up 48.4%.
The transaction values Altra at $4.95 billion in total and is 13.6 times the trailing-12-month adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). The companies say that they will have $7.2 billion in revenue on a pro forma basis in 2022 with adjusted EBITDA of around $1.5 billion.
According to management, the justification for the merger is an expected $160 million in annual cost synergies. These synergies rarely materialize, but are often used to justify acquisitions.
If this is such a great deal for Regal Rexnord, why is the stock down today? Often acquirers fall after a deal is announced because acquisitions don't typically live up to expectations. The real winner is the company being acquired, which is what investors are seeing with these two stocks today.
One notable thing is that Altra Industrial Motion's stock is trading at nearly $60 per share, indicating that investors think the deal has a high likelihood of closing in the first half of 2023. That seems likely given the companies' complementary products, but for Altra investors that may be reason to take some money off the table just in case the deal falls through.