Chart Industries Is Moving Fast With Howden Under Its Umbrella

Since 2020, Chart Industries GTLS has engaged in a very successful strategic pivot toward expanding its specialty portfolio of products toward high-growth areas such as hydrogen and LNG. It made several attractive investments and joint ventures with key partners that enabled it to materially increase the amount of in-house content for larger projects, lowering costs and providing more control over delivery timeframes. The greater degree of control over integrating its equipment and processes was also driving pricing power, lifting margins, and increasing customer switching costs. Three-year targets introduced at its 2022 Analyst Day included a 17%-plus CAGR on revenue, 25%-plus CAGR on earnings per share, and margin expansion of 300-600 basis points.

The Howden deal in 2023 has disrupted that highly successful growth formula for Chart, effectively doubling the firm’s size in a single transaction to over $1 billion in annual EBITDA. Now Chart needs to focus on extracting expected cost synergies—$175 million one year after close and $250 million by three years after close, plus expected revenue synergies of $350 million over the same timeframe, while still capturing the growth opportunities across its fast-growing spaces, including aerospace, cannabis, water treatment, and hydrogen. Investors have been initially skeptical of the deal’s financing (now resolved) and the price paid as the 12.9 times EBITDA multiple was more than twice the estimated 6-7 times EBITDA multiple KPS (the seller) paid for Howden when it bought it from Colfax in 2019.

While Chart will be focused on integration, the industrial logic for the deal is sound. There are some positives Howden brings, such as opening up new geographic regions, particularly Asia, and expanding its European footprint. The regional bases are essential given the size of the equipment, making transportation and delivery timeframes often dealbreakers when competing for projects, and they allow for high-margin aftermarket contracts. The significantly higher aftermarket revenue (45% at Howden versus 15% at Chart) provides a steady stream of earnings for what has historically been a lumpy order-driven business.