Smiths Group Acquires DRC Heat Transfer for £164m to Target Data Center Growth

Smiths Group moves deeper into data centres with DRC Heat Transfer buy

Smiths Group has agreed to acquire DRC Heat Transfer for £164m, paying 10x adjusted EBITDA for calendar year 2025. DRC is a US-based designer and manufacturer of custom heat transfer and cooling solutions used primarily alongside power generators for data centres. It generated £73m of revenue in 2025 and will slot into Smiths’ Flex-Tek industrial heat division.

The logic is simple and compelling: more data centres mean more mission-critical back-up power and thermal management. Smiths wants a bigger slice of that growth, and DRC broadens Flex-Tek from heating into cooling and wider thermal solutions.

What Smiths is actually buying

DRC brings over 50 years of engineering heritage and a business built around keeping power reliable for essential infrastructure. Its kit helps safeguard power security and uninterrupted operations in data centres and other industrial, transit and energy settings. In plain English, when data centres switch to back-up power, DRC’s cooling and heat transfer systems help keep the generators and equipment running safely and efficiently.

The company is near Chicago with 250+ employees and an engineering-led, customer-intimacy model. That should fit neatly with Flex-Tek’s industrial heat business, which already serves demanding end markets.

Deal terms and valuation – 10x EBITDA, ~2.2x sales

Smiths will pay £164m, which represents 10x DRC’s adjusted EBITDA for 2025. Adjusted EBITDA is earnings before interest, tax, depreciation and amortisation, tweaked for one-off items. With £73m of 2025 revenue, that price implies:

• Implied adjusted EBITDA of about £16.4m
• An implied EBITDA margin of roughly 22%
• An implied revenue multiple of about 2.2x

On the face of it, 10x adjusted EBITDA for a business exposed to structural growth in data centre back-up power looks reasonable. You are not paying private equity-like prices for a niche label either. The disclosed numbers suggest a healthy, profitable mid-sized asset.

Why this fits Flex-Tek’s strategy

Smiths says the deal is consistent with building into high growth adjacencies – adjacent markets that are close to the core but growing faster. Two things stand out:

• DRC extends Flex-Tek from heat into cooling applications, adding broader thermal solutions. That improves the offering to existing customers and opens new doors.
• It strengthens Smiths’ position in power generation where data centre back-up is a clear structural growth trend, alongside other mission-critical applications.

In short, this is more of what Flex-Tek already does well, just in a fast-growing niche where reliability is everything.

The data centre angle – power security drives spend

Data centres cannot afford downtime. As capacity expands, operators are investing heavily in resilient back-up power and the thermal systems that keep it running. DRC is tailored to that need, with solutions focused on reliability and scalability. Smiths is effectively buying a ticket to a bigger addressable market in data centre infrastructure, without straying too far from its engineering core.

What could go right

• Cross-sell and scale benefits – Smiths can put DRC’s products through Flex-Tek’s channels and bundle broader thermal solutions for a wider customer set.
• Structural tailwinds – Smiths explicitly cites significant structural growth in data centre back-up power. If that persists, DRC could compound nicely.
• Portfolio balance – more exposure to critical-infrastructure spend that tends to be less cyclical than general industrial demand.

What to watch

• Integration execution – DRC will be integrated into Flex-Tek. Bringing teams, systems and product roadmaps together always brings risk.
• Customer concentration – not disclosed. If a few large data centre customers dominate, that could raise volatility.
• Regulatory approvals and timing – completion is expected in the second half of fiscal year 2026 and is subject to customary approvals. Delays would defer any earnings contribution.
• Margins post-integration – the price implies c. 22% adjusted EBITDA margin today, but post-acquisition performance is what matters.

Timeline and next steps

Smiths expects completion in the second half of FY2026, subject to customary approvals. DRC will then be reported within Flex-Tek’s industrial heat business. No financing details, cost synergies or integration costs are disclosed.

Key numbers at a glance

Purchase price	£164m
Valuation	10x adjusted EBITDA (calendar year 2025)
Implied adjusted EBITDA	\~£16.4m (2025)
Revenue	£73m (2025)
Implied revenue multiple	\~2.2x
Business focus	Custom heat transfer and cooling solutions for power generators used in data centres and other mission-critical applications
Integration	Into Flex-Tek’s industrial heat business
Employees	250+
Location	Near Chicago, United States
Expected completion	H2 FY2026, subject to customary approvals

Is the price fair and what does it mean for shareholders?

Paying 10x adjusted EBITDA for a profitable, niche US asset with direct exposure to data centre resilience looks sensible. The numbers imply solid margins and a business that should slot straight into Flex-Tek. Crucially, the acquisition extends Smiths’ thermal capabilities and widens the addressable market in a segment underpinned by structural demand.

On the flip side, we do not have disclosure on synergy plans, integration costs, or the financing mix, so it is hard to judge the full earnings impact and timing. Completion is in H2 FY2026, so any contribution this fiscal year will be limited or none, depending on timing.

Overall, I view this as a strategically positive bolt-on at a reasonable multiple. It adds growth, enhances the product set, and deepens Smiths’ position in mission-critical infrastructure. If management executes the integration cleanly, this should be a tidy value creator over the medium term.

Jargon buster

• Adjusted EBITDA – earnings before interest, tax, depreciation and amortisation, adjusted for one-off items. A proxy for operating cash profitability.
• Adjacency – a closely related market that a company expands into from its core business.
• Mission-critical – products or systems that are essential for safe and continuous operations.

Josh’s take

This is Smiths playing to its strengths – engineering-led, reliable kit for customers who care about uptime. The data centre angle gives it a growth kicker, and the valuation looks grounded. Keep an eye on integration and any updates on synergies, but the direction of travel is encouraging.