CPE to Buy 81% of A. O. Smith China Unit
The water-technology maker will sell an 81% interest in its China business, retaining a 19% stake and a long-term brand license as it concentrates on higher-return opportunities.
A. O. Smith Corporation (AOS) agreed to sell an 81% interest in its China business to CPE, a leading alternative asset manager, in a carve-out the water-technology company said will let it sharpen its portfolio focus while keeping a path to participate in later value creation in China.
A. O. Smith will retain a 19% interest and enter into a long-term brand licensing agreement, both of which allow it to participate in the business’s future growth. The transaction values the China business at approximately $400 million on a cash-free, debt-free basis, before taking into account the long-term brand licensing royalty stream. The total value, including the net present value of the ongoing licensing economics payable to A. O. Smith over the multi-decade period, is expected to exceed $500 million. In addition, the transaction structure will enable A. O. Smith to repatriate approximately $80 million in cash that is currently being held in China. The company intends to prioritize share repurchases as a use of the after-tax proceeds and repatriated cash following the closing.
The deal is expected to close in the first half of 2027, subject to regulatory approvals and other customary closing conditions. CPE will acquire an 81% equity interest in A. O. Smith (China) Investment Co., Ltd., the holding company for the China business.
Chairman and Chief Executive Officer Steve Shafer said the sale positions the China business for continued growth under experienced local ownership.
“We believe this transaction positions the China business for continued growth under experienced local ownership, while enabling A. O. Smith to focus resources on our highest-return opportunities and drive sustainable value creation,” Shafer said.
The company pointed to CPE’s recent strategic partnership with Restaurant Brands International to support the Burger King China business as evidence of the alternative asset manager’s experience partnering with multinational companies in China.
In the second quarter of 2026, Rest of World sales of $194.9 million decreased 19%, which the company attributed to continued weakness in China’s consumer appliance market. In the second quarter of 2025, sales of $1 billion declined 1% as higher boiler sales were more than offset by lower sales in China and lower water heater volumes in North America. The company had already initiated an assessment of strategic opportunities for the China business in that July 2025 update.
The sale follows a period in which A. O. Smith was adding, not trimming, in other parts of the water-technology stack. It completed the $470 million all-cash acquisition of Leonard Valve Company in January 2026, a deal valued at about $412 million after estimated tax benefits and funded with cash borrowed under a new credit agreement. Full-year 2025 sales were $3.8 billion, with net earnings of $546.2 million and diluted earnings of a record $3.85 a share. North America sales in the second quarter of 2026 of $820.5 million increased 5%, which the company said was driven by the Leonard Valve acquisition, 21% boiler sales growth and carryover pricing actions, partially offset by lower residential water heater volumes.
Shafer, who became president and chief executive officer in July 2025 and was named chairman in June 2026, has framed the China question as a resource-allocation call rather than a retreat from the region. The company said the transaction will enable it to focus resources on its highest-return opportunities. Closing is still ahead, in the first half of 2027, and remains subject to regulatory approvals and other customary conditions.