Glasgow-based engineering giant Weir Group said it agreed to sell its flow control division to private equity firm First Reserve for an enterprise value of £275 million in cash.

The transaction remains subject to certain regulatory and other approvals, with completion expected in the second quarter of 2019.  

The flow control unit primarily provides highly engineered pumps, valves and other products used in power, industrial and downstream oil and gas industries. 

Weir said the net proceeds of the sale will be used “for general corporate purposes, including to further reduce leverage and to fund future investment in growth in our core platforms.”

The plan to sell the division was first announced in April 2018 alongside the acquisition of ESCO, which further strengthened Weir’s position in global mining markets. 

Once this transaction completes, on a pro forma basis, more than 80% of Weir’s revenues will be from aftermarket-intensive mining and upstream oil and gas markets. 

Weir Group CEO Jon Stanton said: “We are pleased to announce the sale of Flow Control to First Reserve. 

“This is a high-quality business with great people and I’d like to thank the team for their longstanding contribution to the group and dedication throughout the sale process.  

“The decision to sell Flow Control is part of Weir’s recent portfolio transformation which focuses the group on where we can maximise long-term value-building on our strong global leadership positions in mining and upstream oil and gas markets.”

Jeff Quake and Neil Hartley, managing directors of First Reserve, said: “First Reserve has deep historical experience creating value for our investors in the flow control space, and we are pleased to partner with Weir in this carve-out transaction.

“In our view, Weir Flow Control represents an attractive growth platform in a fragmented sector, with internationally recognized brands driven by recurring high-margin aftermarket parts and services which have proven to be resilient through multiple economic environments. 

“We look forward to supporting David Paradis and his talented management team to promote both organic growth and acquisitive expansion of the platform as we seek to drive value on behalf of our investors.”

After the sale completes, Flow Control will continue to be led by current president David Paradis and his management team. 

Weir will retain the UK defined benefit pension liabilities of Flow Control and accordingly has agreed with the trustees to make a £4 million one-off contribution from the proceeds of the sale to the group’s UK defined benefit scheme, which was closed to future accrual in 2015. 

In addition, certain of Weir’s US subsidiaries will retain the Flow Control legacy asbestos exposure together with corresponding insurance and will provide “customary indemnification” to First Reserve. 

In the year to December 31, 2018, Flow Control’s unaudited financial results included profit before tax of £23 million on a pre-exceptional items and intangibles amortisation basis.

As at December 31, 2018, Flow Control had gross assets of £394 million after the group recognised an exceptional charge of £45 million to reflect the fair value of the business less costs to sell, including separation expenditure and the transfer value of pension and other liabilities.

Weir will announce its financial results for the full year to December 31, 2018, on February 27, 2019.  The Flow Control division has been reported under discontinued operations since April 19, 2018.