Industrial is one of the highest valued stocks. Roper Technologies is selling a majority stake in its industrial businesses to a private equity firm.
The entire process technologies division, which makes pumps, compressors, and controls, is included in the deal. Roper plans to sell down its stake in the new entity over time. Roper has a multidecade strategy to refocus on higher margin and faster growing software businesses that are less sensitive to economic cycles. Business management software for law firms is one example.
Brian Jellison was the architect of the pivot to software and was the former chief executive officer of Roper. He referred to the wave of industrial companies suddenly proclaiming digital strategies as "Johnny-come-latelys".
General Electric tried to best software providers at their own game and sold digital technologies to a broad swath of industrial counterparts, but Roper has focused on niche applications. These businesses throw away free cash to buy other businesses.
Roper picks businesses based on financial characteristics and then allows them to operate on their own. It is more akin to a private equity firm or a company owned by Warren Buffet. The high tax bill was one of the reasons for this. Roper was helped by being lumped in with less illustrious industrial peers and being tracked by manufacturing analysts who looked at its returns.
Neil Hunn has been more aggressive about getting rid of Roper'slegacy industrial businesses. He sold Roper's TransCore tolling business to Singapore Technologies Engineering for over two billion dollars.
Roper will get 75% of its revenue from software after the sale to CD&R is complete, with 25% coming from medical and water related products. It is now part of the S&P 500 Information Technology index. In the past five years, Roper shares have more than doubled the return for the index's industrial companies, but lag the 150% gain for the index Roper just joined.
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