Emerson Electric Co. is selling a majority stake in its climate-technologies business to Blackstone Inc. in a transformational deal for the industrial company that would value the unit at $14 billion including debt and mark the biggest private-equity buyout in months at a time when such activity has been choked off by market volatility .
The deal, expected to be announced Monday, would give Blackstone a 55% stake in the unit, which sells compressors and other HVAC products and services used in commercial and residential heating and cooling as well as cold storage, executives from both companies said. Emerson would retain a 45% stake.
Blackstone and its co-investors would contribute $4.4 billion in equity toward the deal, which would be supplemented by $5.5 billion of debt financing. Equity that Emerson is rolling over along with a $2.25 billion seller note would account for the remainder of the price tag.
In a typical market, banks would provide the debt financing, carving it up and selling it off to a number of buyers. Banks currently aren't offering such so-called syndicated financing, however, as they grapple with a glut of debt from big buyouts struck before the stock market tumbled earlier this year.
Instead, Blackstone had to place the debt itself, selling it off to an assortment of direct lenders and others in a process that took the better part of a month, the executives said. It is a process the firm has undergone before during times of market illiquidity, most recently in the aftermath of the 2008-09 financial crisis, though never with a deal of this size.
Joseph Baratta, global head of private equity at Blackstone, said its ability to get the deal done illustrates the firm's competitive advantage as a trusted counterparty for an array of lenders.
"I think it will take at least six months for the credit market to normalize, and we will continue to transact in this market," he said. "We like to invest in these moments. This is when you can do interesting things."
An investment behemoth with $951 billion in assets across real estate, private equity, credit and hedge funds, Blackstone might be unique in its ability to break the financing logjam that has kept a lid on big-deal activity in recent months. Jonathan Gray, the firm's president, hinted this month on a conference call with analysts that it was working on creative solutions for putting together debt packages for coming transactions.
"If anyone can get a financing done somewhere, it's us, and I think you'll see some examples of that in the not-too-distant future," he said.
Bloomberg reported this month that Emerson was in talks with Blackstone about a deal involving its commercial and residential business.
Blackstone said it believes the business it is buying would benefit from a shift to more energy-efficient heating and cooling technologies as businesses and consumers upgrade their systems to be more climate friendly and cost-effective.
The unit, which comprises the majority of Emerson's commercial-and-residential solutions business, had about $5 billion in sales during fiscal 2022, which ended in September, and 18,000 employees. The majority of its sales are in the Americas.
Emerson opted to keep its professional-tools products from the division and roll them into its growing automation business.
The deal is the latest in a string of divestitures by St. Louis-based Emerson, which has been focused on streamlining its business and expanding its technology and automation offerings under Chief Executive Lal Karsanbhai.
The industrial-technology company, which has a market value of about $50 billion, recently said it would sell its food-waste-disposal business InSinkErator to Whirlpool Corp. In March, it announced an agreement to sell its Therm-O-Disc sensing- and protection-technology business to One Rock Capital Partners.
Mr. Karsanbhai said Emerson will collect roughly $18 billion in proceeds from three divestitures this year. He added that Emerson has embarked on a plan to become more of a pure-play automation business, and to create a portfolio that is more cohesive.
It began this transformation with the merger of two of its software businesses with Aspen Technology Inc. in a roughly $11 billion deal announced a year ago. Emerson has since made a number of technology-focused acquisitions for the business.
"We are aligning to where the growth is," Mr. Karsanbhai said. "Historically for Emerson the underlying growth was 1 to 1.5%, and now it has an underlying growth potential of 4 to 7%."
Emerson plans on Monday to report its fourth-quarter and full-year earnings, which were originally scheduled for Nov. 2. The chief executive said he would announce four additional segments the company will focus its investments on, including via mergers and acquisitions, at its investor day on Nov. 29.
The deal is a bright spot in a relatively quiet period for M&A. Deal activity has fallen sharply in the U.S. so far this year, down more than 40%, according to Dealogic.
Centerview Partners LLC and Goldman Sachs Group Inc. are advising Emerson, while Davis Polk & Wardwell is its legal counsel. Barclays PLC is lead financial adviser to Blackstone, with Guggenheim Securities and Evercore Inc. Simpson Thacher & Bartlett LLP is Blackstone's legal counsel.