Fortive Corp (NYSE:FTV) unveiled plans to execute a tax-free spin-off of its Precision Technologies segment, resulting in two independent, publicly traded companies. This strategic move is intended to establish businesses with concentrated business models and distinct investment and capital allocation strategies.
The President and CEO of Fortive, James A. Lico, highlighted the company's growth and innovation over the past eight years and emphasized that the spin-off will enable Fortive to concentrate on recurring revenue and software businesses.
This shift is expected to accelerate growth and consistently increase earnings and free cash flow. The newly formed Precision Technologies company will focus on key growth trends in technology, benefiting from mission-critical technologies in test and measurement, specialty sensors, and aerospace and defense subsystems.
Post-spin-off, Fortive will retain its Intelligent Operating Solutions and Advanced Healthcare Solutions segments, boasting a portfolio with roughly 50% recurring revenue. The company plans to follow a disciplined capital allocation strategy, focusing on mergers and acquisitions that boost recurring revenue, growth, and free cash flow, while balancing acquisitions and share repurchases.
The Precision Technologies business, to be known as NewCo after the spin-off, will continue to leverage the Fortive Business System to foster growth and value. NewCo is set to take advantage of secular tailwinds in its end markets and will aim for organic growth investments, shareholder returns, and selective mergers and acquisitions that align with its core strategy.
In conjunction with the spin-off, Fortive announced a leadership succession plan. James A. Lico will retire as President, CEO, and director upon completion of the spin-off. Olumide Soroye, currently President and CEO of Fortive's Intelligent Operation Solutions segment, will take over as President and CEO of Fortive.
Tami Newcombe, currently leading the Precision Technologies and Advanced Healthcare Solutions segments, will become President and CEO of NewCo. Additionally, CFO Chuck E. McLaughlin is set to retire by the end of the first quarter of 2025.
Fortive also revealed its capital deployment strategy leading up to the spin-off completion, planning to use approximately 75% of its available free cash flow for incremental share repurchases. The remaining funds will support quarterly dividends and debt reduction, aiming to maintain strong, investment-grade balance sheets post-separation.
Finally, Fortive reaffirmed its third-quarter and full-year 2024 outlook, with the expectation that its share repurchase program will contribute to EPS growth in 2025.