Hill & Smith buys Freeberg: deeper into US data centres and power
Hill & Smith has agreed to acquire Freeberg Industrial Fabrication Corp., a US designer and manufacturer serving data centres, power generation and wider infrastructure. It’s an 80% stake upfront for $36 million (c.£27 million), with the remaining 20% tied to an earn-out through to 31 December 2031, up to $50 million (c.£37 million). Completion is targeted for the second quarter, subject to US regulatory approvals, and it will be funded from existing borrowing facilities.
This is a classic Hill & Smith move: a targeted bolt-on in a high-growth niche that sits squarely inside its US Engineered Solutions portfolio. The Board expects the deal to be earnings enhancing in 2026, which in plain English means it should lift earnings per share once consolidated.
Deal terms and structure: 80% now, 20% on performance
The $36 million buys 80% of Freeberg on a debt and cash free basis. That phrase simply means the price excludes any net debt or excess cash on Freeberg’s balance sheet – you’re paying for the business itself, not its financing.
The final 20% is contingent on profitability delivered up to the end of 2031, capped at $50 million. That’s a substantial earn-out, signalling Hill & Smith’s confidence in growth but also ensuring the founder-CEO, Marc Brown, stays highly aligned – he’s remaining in post to lead the business.
For context, the initial price implies a full equity value around $45 million for 100%. On Freeberg’s unaudited adjusted EBIT of $5.3 million for the 12 months to 31 December 2025, that’s roughly 8.5x EBIT at the initial stage. If the earn-out maxes out, total consideration could reach up to $86 million, which would bake in much stronger future profitability than today.
What Freeberg makes and why Hill & Smith wants it
Based in Escondido, California, Freeberg makes custom enclosures and engineered solutions used in data centres and power generation – including large-scale electro-mechanical assemblies such as genset packages. These are the sort of behind-the-scenes components that keep mission-critical facilities powered and protected.
Demand is rising fast, particularly from data centres. Freeberg is already expanding with a new 160,000 sq ft leased facility in Arizona, designed for large-scale assembly, and set to be operational in the second half of 2026. Post completion, Hill & Smith expects up to $12 million (c.£9 million) of capital expenditure to complete this build-out through 2026 and 2027.
Strategically, this slots neatly into Hill & Smith’s US Engineered Solutions division and increases exposure to its higher-growth priority end markets. Management also sees Freeberg as a platform for further inorganic expansion in the US.
Financial snapshot: revenue, margins, capex, and EPS impact
| Initial consideration (80%) | $36m (c.£27m) |
| Earn-out for remaining 20% (to 31 Dec 2031) | Up to $50m (c.£37m) |
| Freeberg revenue (12 months to 31 Dec 2025) | $31.7m |
| Adjusted EBIT (same period) | $5.3m |
| Implied EBIT margin (based on the above) | c.16.7% |
| Target operating margin once integrated | At least 18% (Group financial framework) |
| Arizona facility capex (post completion) | Up to $12m (c.£9m) in 2026–2027 |
| Funding | Existing borrowing facilities |
| Timing | Completion expected in Q2, subject to US approvals |
| Earnings impact | Expected to be earnings enhancing in 2026 |
Quick jargon check: EBIT is earnings before interest and tax – a measure of operating profit. “Earnings enhancing” usually means adding to earnings per share after integration. The Group also flags that, once integrated, Freeberg should hit operating margins at least in line with its 18% framework – implying scope for uplift from the c.16.7% shown in the latest unaudited run-rate.
Why this matters for investors
- Stronger exposure to secular growth: Data centres and resilient power are long-cycle, investment-heavy areas. Hill & Smith is leaning into exactly the end markets it highlights as priorities.
- Margin trajectory points up: Management is aiming for at least 18% operating margins post integration, above the most recent unaudited margin. If achieved, that supports cash generation.
- EPS uplift flagged: Earnings-enhancing in 2026 is a positive near-term signal, even with capex stepping up for the Arizona ramp.
- Founder staying on: Marc Brown continues to lead Freeberg. The sizeable earn-out keeps incentives aligned through 2031.
The positives and the prickly bits
What looks good
- Clear strategic fit with US Engineered Solutions and potential to be a platform for more US bolt-ons.
- Visible multi-year demand backdrop cited by the Board, especially in data centres.
- Sensibly structured deal: majority now, performance-based earn-out later. That helps derisk overpaying upfront.
What could go wrong
- Regulatory approvals: Completion is subject to US approvals. Routine, but still a gate.
- Execution risk on the Arizona expansion: 160,000 sq ft is a big step-up. Delays or cost overruns would push back the earnings inflection.
- Earn-out optics: The remaining 20% could cost up to $50m. Great if profits surge, but it’s a chunky future cash call.
- Integration discipline: Lifting margins to the 18% framework level requires tight operational execution.
What to watch next
- Q2 completion: Any updates on the US regulatory process.
- Arizona capex cadence: Spend is “up to $12m” through 2026–2027. Timelines and milestones will matter.
- Order visibility in data centres: Management references “significant increased demand” and multi-year visibility. Look for evidence of backlog strength.
- Margin progress: Signs that Freeberg is trending towards the 18% operating margin target post integration.
My take: a sensible bolt-on with a growth kicker
This reads like a classic Hill & Smith bolt-on: disciplined on structure, strategically tight, and aimed squarely at high-growth infrastructure adjacencies. The initial multiple looks reasonable on the latest unaudited numbers, while the earn-out leans into upside if Freeberg scales as expected.
The moving parts are execution and timing – regulatory sign-off, factory ramp in Arizona, and conversion of demand into margin-rich output. Get those right and 2026 being earnings enhancing looks achievable, with further runway if Hill & Smith builds a US platform around Freeberg.
Net-net, I’d mark this as a positive, growth-accretive step with manageable risks. Worth keeping on the watchlist for progress updates through H1 and detail on the Arizona rollout in the second half of 2026.
