Great. Well, good morning. Thank you all for joining us. It is absolutely great to be here with you today for our 2026 Investor Day. I am really excited to talk to you about the future of Enerpac Tool Group, and a lot to share around our growth story today. You are going to hear a bit from me this morning, but a lot more from our management team who have built the strategy, who are executing it, and who are driving the results. I do want to kick off this morning by highlighting why we believe Enerpac is positioned to outperform, and why we think we represent a really attractive industrial compounder opportunity. Fundamentally, we believe Enerpac has a five-part investment thesis, and you can see that here.
First and foremost, we are operating in mission-critical applications that we are serving customers in very attractive end markets with really favorable growth tailwinds. We will talk more about that here shortly. Secondly, we have moved from ASCEND, our transformation program, to PROPEL, which is our next-gen profitable growth strategy, and you will hear a lot more around PROPEL from Phil, Mart, and Eric this morning. We are also expanding our technology and market leadership, specifically around innovation and continuing to drive the flywheel there, and you will hear Mart talk a lot in detail around innovation, the progress we have made, and the future that it holds for us. We are trying to do all this, continuing to drive top quartile returns for our shareholders, and all of this is underpinned and driven by an experienced and empowered management team that you will see and meet today.
Enerpac Tool Group, we have undergone a very significant transformation over the last five years. We have built an entirely new management team that is here with us today, and we have developed and are now executing on what we believe is a very compelling growth strategy. We have also executed a number of key portfolio changes over the last several years, and we have completed two significant acquisitions, DTA, a couple years ago, based in Spain, which is a business that manufactures automated guided vehicles for the industrial industry. Secondly, most recently, SFE, and we will talk a lot more about SFE, the deal that we just closed a week ago.
We have completed ASCEND, which was a major transformation program for Enerpac Tool Group, really foundational in getting us to this point today and setting us up for success in terms of culture change, in terms of process improvement in the business, in terms of the financial performance that we wanted to achieve by this point. Today, fundamentally, Enerpac is a stronger, more focused, higher-margin business with an improved ability to execute and scale. If you see just some of the results over the last four years, from FY 2022 to 2026, we have driven strong growth and margin improvement in this business.
And for an industrial business that is approaching roughly 50% gross profit margins, remember that our product business is accretive to that. We think that is a very significant differentiator for our company, and we think, frankly, it speaks to the value that we create for our customers every single day. We've also delivered exceptional free cash flow conversion, and we continue to maintain a relatively asset-light business model, where CapEx, on average, runs about just 2% of revenue per year, even inclusive of the SFE acquisition going forward. We've also outperformed what has been, in recent years, until very recently, a pretty weak or anemic industrial market, and I'll show you some more data on that shortly. At the end of the day, we think we are well on our way to becoming a true industrial compounder.
As I mentioned, the last few years have not been kind to most industrials until really the last quarter or two, and I think you can see that reflected in this macro data, just U.S. industrial production and European industrial growth data. But the fact is, for most of these years, Enerpac Tool Group has outperformed the industrial markets, and you could see, in particular, our product business growth has significantly outperformed. Shortly, in Darren Kozik's section later this morning, he'll share a lot more statistics on financial performance of Enerpac versus other industrial peers, close to 30 other peers that we track. One common misperception about Enerpac that I do want to address early on is this notion that we are a short-cycle business, and the reality is actually quite different.
First and foremost, we track longer-cycle projects, and we do that with a sales team of over 300 sales professionals around the globe, and by the way, more now on board with SFE. We also execute a very sophisticated commercial excellence program we call ECX, Enerpac Commercial Excellence, and Phil Jefferson will take you through a lot more detail around the mechanics, how that works, and the benefits that have accrued since we've implemented that program. Our team also drives specifications through deep customer relationships, and we do that by leveraging what I consider to be one of our secret weapons, which is our applications experts, who work with customers every day on pre-sales support, helping specify what kinds of equipment and technology they need to get a job done. Finally, we track opportunities, and we track them well ahead of orders, months, sometimes quarters, or even years.
In fact, Phil Jefferson will share a couple examples this morning of where that has come into play and been meaningful for us. Short version here is, yes, technically, in terms of order to revenue, it is short cycle, but the reality is we have a lot more longer-term visibility into market opportunities than you might otherwise imagine. Who are we as Enerpac Tool Group? Overall, we're about 2,600 team members strong around the world now with the addition of SFE. We basically operate essentially two parts to the business, what we call here Legacy Enerpac Tool Group, what was before we could close the acquisition of SFE, which is essentially our hydraulics business, and now with the addition of SFE, what is a fabrication tools business, and you'll hear a lot more about that this morning.
Notably, on a pro forma basis, 85% of our business is now a product business, and only 15% is service. It is important to note because the service part of our business is margin dilutive, and we will talk about the strategic importance it plays, but fundamentally, we are a product-based company with 85% of our pro forma revenue being product. We also enjoy very broad geographic diversification, but importantly, with a very heavy skew towards the Americas. You can see here on a pro forma basis, 54% of our revenue now coming from the Americas, most of that the U.S. We think that is very favorable over the midterm here as we think about just the overall macro dynamics and the fundamental regional strength here, particularly in the U.S. market. One of the things that we are really most proud of at Enerpac is our culture.
We call it our One Enerpac culture. As you saw on the video, our mission, we make complex and often hazardous jobs possible safely and efficiently. We do that every single day for our customers, and we do that by living five core values: safety, integrity, ownership, teamwork, and agility. If you ask anybody in this company, I think that they will tell you my very most favorite value amongst these five, which is ownership, because for us, that is all about owning the outcome for our business, for our partners, for our customers, own the outcome and the results, not just the activity. In fact, you will see that we have improved overall engagement in the company amongst our employees now for several years running.
We look at that through all sorts of different ways and metrics, but one of them is an engagement survey that we run roughly annually, and you can see in this chart that we have improved our engagement scores every single year, and now have reached above industry benchmarks. We are really proud of that. We think that our culture is a real key competitive advantage and a significant differentiator for Enerpac Tool Group. Now, the new Enerpac Tool Group, we offer a comprehensive portfolio of industry-leading products, as I talked about, both hydraulic solutions and fabrication solutions. We also have our Cortland Biomedical business. We will not talk much about that today. Happy to take questions, but that is about a $25 million-$26 million revenue business. It is our other segment. It is a high-growth, high-margin contract development and manufacturing partner for medical device equipment manufacturers.
It has been in our portfolio a long time, but it is growth and margin accretive to the business, and so we enjoy having that as part of our portfolio and happy to take questions on it. Now, diving a little bit deeper on the core of the business, the Legacy Enerpac Tool Group, or IT&S, Industrial Tools and Services, that represents just over three-quarters of our pro forma revenue. With this business, we have the most breadth and depth to be a real true one-stop shop partner for our customers around the globe. Now, we are most well-known for our pumps and cylinders. For those of you here today, you will see some of these products displayed and demoed live, and these are used for lifting or precisely positioning very heavy industrial loads, and you will see several examples of that today.
In fact, I think the display that we had up at the start of the session was showing just one recent application, which was a massive bridge project in Alaska. Please, for the folks in the room, take the time during the breaks and at lunch to engage with our team, our product experts, and learn more about what our products do during the demonstrations. The new part of Enerpac Tool Group is SFE, which represents just over 20% of our sales. SFE is primarily fabrication technologies used mainly, I say, on anything round, pipes and tubes. Turns out in the industrial world, there is a lot of pipes and a lot of tubes that need to be cut, beveled, welded together, and very interesting and very attractive end markets.
I do not want to steal Vinay Varma's thunder, but Vinay, the leader of the business, is here this morning, part of our management team, and he will give you a lot more insight into what SFE does, what makes them special, and why it made sense for us to come together. Our service business represents, on a pro forma basis, as I mentioned just now, about 15% of our overall pro forma revenue. Service is complementary to our product business. Important to note for those who are not familiar with it, service is not really an aftermarket business in a traditional industrial sense. We do have a small aftermarket business. Our service business is primarily either a rental business, roughly half of the revenue is related to rental, and we maintain a significant asset fleet where we rent tools around the world to customers.
We also have what we call a manpower business, which is where we have Enerpac field service engineers and technicians performing a job at a customer site utilizing our tools. Why does this business make sense in our portfolio? How is it complementary? Three key things. One is, it puts our tools out in the field every day in the hands of customers. Secondly, it is an additional channel to sell our products in the market. The third is, it is a valuable resource providing us direct input and feedback in our own R&D and innovation process for our product development. This is primarily under the Hydratight brand. The Hydratight brand is a premier provider in its space and every bit as premium positioned as Enerpac is in the product space. Most importantly, as I mentioned, this is complementary because it really helps deepen overall customer intimacy.
That is why we believe this really truly makes sense in our portfolio. We have been hard at work in driving improvements in the service business. We have been reshaping service to drive more consistent growth and higher margins in the business. In fact, we have taken several recent actions over the last year to do that, including sharper commercial focus. We have talked about some recent significant wins that have ramped in the business, and we also took some actions to right-size the cost structure of the business appropriately for what we see as the go-forward volume. If you follow what we did in fiscal 2026, sequentially, this business improved every single quarter, and then on our earnings call last week, we talked about in Q4 a sharp uptick, 9% organic growth in the service business. We are pleased with the progress we are making there.
More to do, but really pleased with, I would say, the stability now in the service business. Enerpac Tool Group overall operates in a very large fragmented market that we have sized at roughly $5.5 billion. That has grown by about $1 billion since the addition of SFE. We think that market is growing on average over the next four years 2%-3%. Our target as a management team is to outperform that market and drive 200 - 300 basis points above market organic growth. Darren Kozik will take you through the financial framework behind that later this morning. We are exposed to a number of favorable mega trends that we think are really solid growth tailwinds for Enerpac Tool Group.
Those include the infrastructure build-out, energy transition, data center and digital infrastructure, asset integrity, and finally, all the increase in A&D or aerospace and defense spending, and we participate in each of these markets. I will talk more about them here shortly. Fundamentally, we think we are really well-positioned to capitalize on these mega trends. Enerpac enjoys the strength in our brands and the diverse and broad market exposure that you can see here represented in this chart. We think these are real sources of strength for Enerpac, and in fact, we are excited about several of these key end markets, which we think offer very significant growth opportunities for the company. We are concentrating our resources on the most attractive end markets for Enerpac, and we looked at that based on really two key factors.
One are long-term favorable growth trends in each of these markets, and the second is our ability or our clear right to win, our current positioning, our ability to execute commercially and out-innovate our competition. These include really attractive end markets like industrial MRO, refinery and petrochem, data centers, power gen, and infrastructure. Now, I do want to touch on two of these and again, address a little bit of misperception that sometimes happens on these end markets with respect to our participation. First and foremost, infrastructure. We often talk to investors and they say, "Well, I think most of that spending has happened already." And what we say is, actually most of the benefit is yet to accrue to Enerpac Tool Group, and let me tell you why.
Yes, funds have been allocated, not just in the U.S., I remind you, but in many places around the world, deep infrastructure investments and funding is underway. But why does Enerpac participate on the tail end? If you think about a process for infrastructure development, yes, first, of course, you need capital. You need the funds to make that happen. Those funds have to get allocated. Then you have contractors, EPCs that have to bid on the work and win that work. Then they have to do permitting. Then they have to do all the civil design and engineering for the project development itself. Then they have to start ordering materials. A lot of these materials, think bridges, tunnels, have pretty significantly long lead times, and it is then and only then when those materials show up on site, that is where we come into play.
That is where Enerpac is relevant for our customers. Yes, although many of these funding bills and sources of funding might now be several years old, the reality is we are only now just starting to see that trickle through in terms of real revenue potential for Enerpac. Again, you will hear just a couple examples of that this morning. Second market I want to talk about is refinery and petrochem. Represents 19% of our pro forma revenue with SFE. I just want to remind folks, our participation there is truly downstream and maintenance-related, which is why we call it refinery and petrochem. Because of that, our activity and our business is not really tied to kind of new CapEx build-out, which means there is more stability and less cyclicality than you would otherwise imagine in an end market like this. So important to keep in mind.
At Enerpac Tool Group, we enjoy a number of structural competitive advantages at our company. I would say first and foremost is the power of our brands. Our brands, Enerpac, and the SFE brands as well, and several of our other sister brands in the company, are known for quality, durability, reliability, and safety. Secondly, what I talked about earlier, our secret weapon, which is our technical and applications experts, which I would say is unmatched in the industry in terms of the number, the scale, and the capability. Phil will give you some stats on that shortly. Those folks work with our customers on pre and post-sale support, because it turns out a lot of our products are pretty nichey.
Customers do not deal with them every single day, do not often have the technical expertise to make those decisions, and they rely on our applications experts to help consult with them to determine what they need to do the job properly. We also have an extensive channel partner network, just for Enerpac alone, 800 channel partners strong. As we come together with SFE, there is an opportunity to continue to optimize the channel and access channel partners that each of us may not have access to previously. All of this is underpinned by our business system, Powering Enerpac Performance, and ECX, Enerpac Commercial Excellence, and you will hear Eric and Phil dive deep on both of those operating systems today. Finally, we think ultimately all of these advantages translate into better customer loyalty, share gains, attractive margins, and sustainable returns for our shareholders.
This morning, we are proud to unveil our next generation growth strategy, PROPEL. Our team has spent the last roughly nine months building this strategy, and importantly, we are already underway on execution of this strategy, all with a singular focus on elevating our performance. PROPEL is built on three key growth pillars: grow, differentiate, and expand. As I mentioned, these are underpinned by PEP, Powering Enerpac Performance, and our disciplined capital allocation process. Phil, Mart and Eric are going to deep dive in a lot more detail on each of these pillars, but allow me to just touch on them briefly. First, grow. With grow, we will continue our deployment of Enerpac Commercial Excellence, not only within Enerpac, legacy Enerpac Tool Group, but also importantly within SFE.
We will also drive commercial synergies, of which we see many accruing to us in terms of synergies with SFE and all the growth potential, profitable growth potential we have in our aftermarket business together. Secondly, we differentiate, largely focused on continuing to accelerate our innovation program, and mainly focused on battery and connected technologies, and product standardization. You will hear Mart talk a lot more about that. Thirdly, expand. We will drive further optimization through Powering Enerpac Performance and our continuous improvement program, as well as higher margin service and rental business. As I mentioned, this is all fueled by PEP, Powering Enerpac Performance. Importantly, PEP, unlike ASCEND, it is not a one-time program. There are no one-time economics in PEP. All the costs and the benefits flow through our P&L, and we do this with 80/20 discipline.
In fact, we show just a few examples on this slide of where we have applied 80/20 in practice in our business over the last several years to drive simplification. You can see that in the number of SKUs, the number of suppliers, and the number of distributors, and we are not done yet. These have all, in concert with PEP, helped us drive strong productivity gains through continuous improvement and continuing to leverage our scale. Fundamentally, as a management team, we see more opportunity and more upside for margin expansion, and you will hear more from Eric and Darren around that. All of this, again, is underpinned by a rigorous and disciplined approach to capital allocation, all through the lens of the shareholder.
We are prioritizing the most attractive returns on invested capital when we make any decision in terms of capital deployment, and Darren will go into a lot more detail on how we think about that. At a high level, our priorities are first and foremost continue to invest in the business, continue to invest in accelerating organic growth. That includes innovation, that includes ECX, that includes lifecycle revenue. Secondly, we will continue our M&A program, our disciplined M&A program, to enhance our platform.
We have a number of key strategic filters that we are looking for when we evaluate target opportunities, but at the end of the day, we are looking for high-quality businesses with a demonstrated track record of organic and inorganic growth, great margin profiles that could be improved further, being part of Enerpac, businesses that give us access to additional customers, more market reach, more potential, businesses where we see true commercial and operational synergies that we can underwrite in the deal model, and businesses that have premium brand platforms, just like SFE did. At the end of the day, those are all important because they are going to help us deliver that strong and attractive ROIC that we are looking for. Let me just briefly recap SFE. This is the acquisition that we announced in July and just closed last week. Purchase price, $472 million.
That represents just a little over 10.5x the EBITDA, trailing EBITDA from March, or 9.5x if you take into account the synergies they were expecting to achieve by the end of year three. Business is about $170 million of revenue, again, trailing 12 months March with $44 million of EBITDA. Why were we so excited about this deal? I think fundamentally, this is a business that's expanded our SAM by about $1 billion. It strengthened our growth profile, and it's also an opportunity for us to leverage ECX and PEP further, now being part of our platform. We will recap the deal and the status of the integration. Darren will talk about that, Vinay Varma as well, but we think this is an extremely compelling opportunity to add a high-quality business to our portfolio.
We see significant opportunity for revenue and cost synergies. We laid those out in July, $4 million-$6 million. We are committed to those targets. The deal just closed last week, end of October, and again, you'll hear from Vinay Varma shortly, who will take you through not just an overview of the business, but how we think about the overall integration process itself. This morning, I do want to give you an outlook, midterm outlook, and fiscal 2030 targets for the business. Darren Kozik will take you through a lot more detail, but at a high level, we're targeting to grow on average 4%-6% organic growth CAGR over this four-year period, which we believe would allow us to outperform the market by 200-300 basis points.
We're targeting to grow 10%-13% EPS CAGR over that period and drive greater than 100% free cash flow conversion. I think as many of you know, Enerpac, that's a real hallmark in terms of our ability to drive very strong cash flow, all with the ultimate goal of continuing to be top quartile return on invested capital player. This is the team that will be accountable for delivering on PROPEL, for integrating SFE, and for achieving the targets that I just shared. You're going to hear a lot more from this team this morning behind all of our detailed growth plans. Importantly, each of these leaders has decades of experience and a passion for serving our customers every single day.
Importantly, they're supported by our next level leadership in the company we call the GLC, or Global Leadership Council, which is over 35 leaders strong around the globe. All of these folks, including myself, will be available during the breaks, during Q&A, and during the product demonstrations and lunch, so please come with your questions. With that, I will turn it over to Phil Jefferson, our Chief Commercial Officer. Thank you.
Thank you, Paul. Good morning, everyone. Thanks for joining us today here at the New York Stock Exchange. I am Phil Jefferson. I have been with the company just over three years. Today, I am going to give you a bit of a perspective on our commercial strategy and why I believe we have still got room for above-market growth, as Paul has just talked about. Over the last few years, we have strengthened talent in the commercial team. We have developed a common commercial operating system, and we have created real direct engagement with our end users and our distributors. We have been very deliberate about where and how we target that engagement, and we have seen results. We are seeing the results. However, there is still significant runway ahead for this commercial team, and today, I want to tell you why. The commercial strategy is essentially three pillars.
Firstly, scaling our Enerpac Commercial Excellence, ECX program, globally now under one leader. Two, having targeted initiatives under PROPEL's grow pillar, having specific owners, who, what, where, how, when, to drive above-market growth. Thirdly, enhancing customer value through real solution-led selling, account development, deeper channel partnerships, increased share of wallet, and we are building this to sustainably outgrow the markets that we serve. So what gives me confidence? Well, two things really. One, our people, and secondly, our proximity to the customer, which is close. I am going to tell you why. So we have got 305 global sales professionals spread across the three regions who spend over 80% of their time with customers and end users, which is really important. We will go onto that in a second.
We also have 38 very specific knowledgeable people, application engineering experts, with an average of over 10 years with Enerpac and over 25 years average industry experience. This is critical because those people engage with our customers very early on in sales cycles. Paul mentioned years, and that is true. In some cases, it is years working on opportunities, asking not what tool do you want to buy, but what problem are you trying to solve, and how can we support and help you and do that? This is an extremely experienced team who engage early, specify solutions, and connect through the channel. We have got global scale. We have got an even bigger global scale now with the acquisition of SFE, who bring a really strong commercial team and global coverage to the Enerpac Tool Group business as well. We have great customer intimacy.
Customers share what they are trying to achieve, not just next week, but also next quarter, next month, next year, maybe five years' time. I am going to give you a great example of that later on. I think we have got unrivaled expertise. This is super difficult to replicate, and this is why we add huge amounts of value to our customers. In addition, we have a huge differentiator, and that is how we extend that expertise. Enerpac has eight global training centers, over 120 online modules, training modules available for customers, end users, distributors, and employees. We train over 800 customers annually through those centers. We build application and maintenance and safety expertise with the customers, which really strengthens the relationship we have with the channel. It reinforces those relationships. They do not see us as an equipment supplier.
They see us as an application partner, which is absolutely critical when it comes to shaping brand preference, which we want to obviously make sure is Enerpac. Again, this is really hard to replicate and built on decades of delivery. However, underpinning all of that, we need a system. We need a common operating system. Our common operating system is Enerpac Commercial Excellence. It creates discipline around opportunity creation, funnel management, strategic account development, coaching, cross-selling, even more important now with the acquisition of SFE, and real focused execution. It helps both sales cycles, short sales cycles. We can identify and can then convert demand almost immediately. On the longer sales cycle, it gives visibility to the organization, the projects that we're engaged on, that we're working on, and then we can build credibility, pulling in other elements of the business in to support the customer as well.
Since the launch of Enerpac Commercial Excellence, we've seen 68% growth in the funnel and a 56% increase in win rates. We are seeing results. Why are these results important to me and to the company? They're leading indicators for growth. Bigger funnel, higher funnel velocity, more wins. Here's some stats on that. Since FY 2022, we've added more than $4.7 billion of pipeline added to the funnel. More than 11,500 end user opportunities. This is super important for us as an organization, being engaged with the end users and not just relying on our distribution. Those 11,500 end user opportunities were almost 2x since FY 2022, moving to FY 2026. That is real progression, and those are our key leading indicators for long-term success. These metrics, for me, demonstrate a real systematic approach in building a consistent revenue.
What's the scale of the opportunity? Paul's already talked about the $5.5 billion of SAM with the additional $1 billion from the SFE Group acquisition. The objective is to consistently achieve that 200-300 basis points of above-market growth. The key word there is consistently. This isn't about one product or one geography or one end market. We've developed this system and this engine to be a repeatable playbook. Whether you're working in the service business, the product business, the heavy lifting business, the DTA business, we're using the same playbook, aligning our capability against our most attractive opportunities. ECX isn't a sales process, it's a growth platform. You've seen the three pillars already from Paul. You're going to hear more on differentiate and expand from Mart and Eric. My focus as Chief Commercial Officer is clearly on growth.
We have a set of targeted initiatives I talked about earlier from PROPEL. We've been working on those already. These are going to translate that growth, that top-line revenue growth, also into expanded margins. Let me make some of those concepts more tangible. Paul's already talked about data centers. We've clearly identified data center, not just data centers, but the whole AI infrastructure build-out and the ecosystem around it as an opportunity for us to drive growth in the short, medium, and long term. We haven't just identified this market as an opportunity for growth, and then we're just waiting for the business to come to us. We're deliberately building our position. We've added dedicated U.S. commercial resources where the opportunity is the highest.
We have now direct engagement with the largest asset owners, EPCs, and contractors, and we are seeing significant momentum in orders in hydraulic gantries, and particularly our E-mover solution, which is the photo on the screen there. We have seen some great recent wins, a $5 million win with a leading modular design and manufacturing company, $1.5 million with a leading U.S. engineering contractor, and an $825,000 order with a heavy equipment rental provider. In addition to that, we are enhancing our go-to-market by deploying an enterprise selling initiative. If I go back over the last three years, historically, we have relationships with key customers in the three geographic markets that we have. Historically, we have not been particularly well-connected. Now, we are running a program to deepen our strategic relationships with those highest value global customers that have to meet a criteria to be an enterprise account.
Now, we are much more aligned and coordinated for that engagement, not just globally, and within the different regions, but also moving up the value chain with our customer engagement. So we have access to higher level decision makers that can make decisions maybe in one region that impacts another. For me, the growth equation is pretty straightforward. We are scaling with the stronger channels, we are faster in our execution, and we are deepening our market penetration. I want to talk about our service business for a second, just following on from Paul. We are building a higher margin, more recurring revenue platform. We are investing in specific areas of our business, such as leak sealing and hot tapping, with our design, building, and technical capabilities. We are scaling those service capabilities, particularly in refinery and petrochem, and also power generation.
I also want to specifically highlight aerospace and defense as an area that we are seeing a particular amount of success in at the moment. Since 2006, we have executed over 500 nuclear industry projects. Recently, we invested and became CMMC certified, which is a cybersecurity requirement now for working with some of the biggest defense contractors and Department of Defense.
We have now got an opportunity with SFE to expand customer value, where we share customers in this critical and attractive end market, and we are working very closely with Vinay and his team already on opportunities there. I just wanted to highlight one particular win with a leading defense contractor, who I cannot name, but a $1.1 million contract providing mission-critical marine applications. As you can see there, it is not just one solution. It is across a host of applications. For me, the real critical thing is here is credibility.
These jobs are not about getting it wrong. These jobs are about not getting it done on time. You have to get it done right the first time and every time, because these are absolutely mission-critical applications in this industry that drive then long-term growth for us in these attractive end markets. E-commerce. Last year in FY 2026, we delivered $7 million of e-commerce sales, a 55% CAGR since FY 2022. This is pure incremental growth for the company, and it also drives commercial productivity. I will come on to that in a second. That growth, that $7 million revenue growth, is high-quality revenue as well. This is growth at full list price, so it is high margin, strong margin business. We have had no real channel conflict.
This is customers who ring us up, they want, or go online, they want a $20,000 tool or a selection of tools. They will pay with a credit card, and we deliver it the next week. There is no conflict with the channel here. There is an opportunity with SFE. They do not currently have an e-commerce capability, so we are looking at which products would be most suitable for growth in our e-commerce business as well. This is not about replacing sales team with e-commerce. This is about more interaction with customers. This is about enabling our sales team now to focus on higher value, more attractive, longer-term opportunities as well. We did invest in a new platform, which is going to give us greater functionality. That greater functionality will enable us to expand and accelerate our growth in markets outside the U.S. as well.
What excites me about this e-commerce is we are still very early in e-commerce. We have big plans. Paul talked about the 80/20 in action. If I look at the way our distribution and channel engagement is evolving, we have rationalized from 2022 - 2026. We have gone from 1,000 distributors down to 800. It is not about having less distributors, it is about having a more productive distribution base. We want to invest in our highest-performing channel partners. We want to have targeted marketing support and joint commercial activity, a greater concentration of our business with fewer distributors that want to go out and win with Enerpac. I like to think of it as winning with the winners, and the distributors that we are currently working with fully support that.
If you look at the business results over the last couple of years, or since we have been rationalizing, this is having a positive effect on our business. Better focused engagement with an enhanced toolset and improved support system. I want to give you two examples now of the deep application and expertise coupled with ECX, and how it has driven business for us, and how it continues to drive business. The Fehmarnbelt Tunnel, it is the world's longest immersed tunnel. It connects Denmark to Germany. It is the equivalent to 600 soccer football fields. We engaged early with the customers, really early. Literally years before this opportunity came to light. We had a deep understanding of their project requirements. We engineered a real integrated hydraulics and control solution.
Basically, what we are doing is, there are tunnel elements, which are like the little component parts of the tunnel. They float them out into the ocean, they drop them down, they align them up, and then they seal them up. We are doing the alignment and the sealing, so it is pretty important, again, that we get this right. We are delivering a complete supporting system, including controls, hoses, couplings, cabling, testings, and after-sales support. We secured an initial order. It was $3 million. We continued engaging with the customer. We continued working on the issues and problems that they were seeing as they went about doing this hugely complex problem. Over the last two years, you can see on the screen, that $3 million order has expanded to over $13 million worth of revenue.
We have been using our repeatable commercial playbook for winning these complex projects, and now we are supporting it. This is not lifting a car. We make complex, often hazardous jobs possible safely and efficiently. This is the value that Enerpac brings to our customers. The next example I want to give you is with a, well, I think it is the world's global leading electricity provider. In February 2024, we won an eight-year frame contract to deliver a really complex, mission-critical application. This is not just tools again. This is a real complex application for multi-stud tensioners. Again, our engineers, our application specialists engaging early, understanding the problem, working with the customer to identify what that solution may be, and then delivering it. Since 2024, we secured $4.8 million of orders, a $4.8 million order, and then just in September, we won another, sorry, orders of $1.4 million order.
The frame is for eight to 14 systems. We have got four so far. We have got 4- 10 to go, with a value of between $6 million and $15 million. Not just that, but on the back of the credibility that we built with the customer, on the back of the relationships we have with the customer, Paul talked about the DTA business that we acquired a couple of years ago, the AGV business for use in industry. Because we had that relationship with the customer, we were able to engage with them in a completely different application, with a completely different solution set and win a $400,000 incremental DTA order with this mission-critical customer. I think that, for me, demonstrates real cross-selling potential at the highest level and certainly expanded share of wallet, which I have already talked about.
Both examples give a great example of deep knowledge and application expertise, really, like I said, helping the customers understand what the problem they face. When I combine this with the ECX commercial operating system, it creates a flywheel. The flywheel for me starts with that deep customer engagement. It moves on then to greater customer credibility as they see what we can deliver and understand the value that we can bring, which leads to more qualified opportunities that we put into the funnel. We track how that funnel moves down through in terms of velocity and size, and we build that stronger funnel. We win, and we win more, and we are winning more than we won before. There is a great example on the right-hand side of a territory manager, one territory manager in the U.S., an individual seller, and I think those stats are compelling.
Utilizing ECX, one of our strongest performers on ECX, delivered 29% growth year-on-year, 119% of sales to plan, 115% funnel to plan, because we set targets for this. When I combine that with that deep application expertise, like I said, it creates that repeatable execution cadence and that flywheel. Every turn of that flywheel makes the next turn stronger. I just want to leave you with three things. We have strengthened our commercial capability. We now have a solid global commercial operating system. We have a set of targeted initiatives that is working. We are seeing the results already, and we have the evidence for that. We have a more productive commercial team, a more productive distributor network, and an e-commerce platform that is poised for future growth. We have deep customer relationships. I am very proud of what we have achieved over the last few years.
Phase 1 was about building the system. Phase II now is about accelerating and scaling it. There is runway ahead. I am confident that with this team and with the capabilities we have got, that we are going to drive significant revenue and margin expansion and long-term shareholder value. I want to pass over to my brand new colleague, Vinay Varma, to talk to you about SFE.
Sit down. Thank you. Hi. Good morning, everyone. I am Vinay Varma. I am President of SFE, and I am really excited to be here in front of all of you this morning as part of the Enerpac team now. Let me start briefly about myself. As you all know, I recently joined the Enerpac team with the SFE acquisition. Before that, I have a background of leading business verticals for a lot of large equipment manufacturers in the energy, oil and gas, and OEM space. That is enough of me. I am here to talk about SFE. As Paul mentioned earlier, for us, SFE and Enerpac coming together is a milestone moment. Leading SFE for past so many years, I know firsthand the strength of our brands, our people, and the great relationships we have built with our customers and distributors and partners around the world.
What really excites me joining the Enerpac team is to build on the strong foundation and use the strength, the capabilities, the scale, and the global reach of a much larger organization to build on this strong foundation. I am here today to actually tell you why SFE is a differentiated business, how our solutions complement Enerpac's existing portfolio of solutions, but more importantly, how we plan to unlock new growth opportunities as a combined business. Let us dive in. All right. If nothing else, I want all of you to take away five key messages from my presentation today. First, SFE accelerates Enerpac's strategy of being a pure play industrial solutions provider by complementing their vast portfolio of fabrication solutions, but also diversifying their revenue streams.
Second, we as SFE also operate on a very strong platform of very premium brands with strong margin support, but then also have a very successful history of both organic and inorganic growth. We already have a very strong M&A pipeline which is being vetted. Third, our combined businesses increase the addressable market for us and the growth opportunities supported by the resilient financial strength of Enerpac. Our complementary businesses actually increase our exposure to a lot of key and very attractive end markets like industrial and MRO, power generation, and data centers. Finally, we see a very meaningful opportunity to increase our growth even further by recognizing several synergies in the commercial and the revenue side of the business. Right. Let me give you a quick snapshot of SFE.
I know Paul gave you a brief snapshot as well earlier, but SFE was founded in about 1936. Today, we operate a premium platform of 12 brands that support the customers in a lot of mission-critical challenges, at solving mission-critical challenges, being part of three major product families. One is the pipe beveling and on-site machining. The next is orbital welding and cutting, and the third is tools and lifting equipment. As you see, we have a very diversified exposure over very key end markets, very attractive end markets, and also over a pretty good geographical diversification as well. Primarily heavily skewed towards Americas, which is a great asset in the midterm, like Paul mentioned earlier, with the good tailwinds that we have got.
So in order to show the differentiated capabilities of SFE and why we have a strong right to win, I would like to show you a quick video about what we are about. Cool video. I really like it. So just to reiterate what you saw in the video, SFE basically supports our customers to solve mission-critical challenges. That involves fabrication and welding pretty much for any round surfaces like tubes, pipes, but also some of the flat surfaces as well. More importantly, three things are really, really important for the customer: safety, reliability, and precision. As you Oh, okay. Perfect. As you see, we have several industry-leading positions across our portfolio that you see in the bottom of the slide, basically.
More importantly, all of these solutions actually complement Enerpac's existing solutions, and we see a great fit as we come together as a company. In fact, for all of you who are here in New York with us, I really encourage you to visit our very educational product displays during your breaks and lunches and meet with our product experts, our commercial experts, to see how and better understand how our products solve some of these problems for our customers. All right, so let us talk about what gives SFE the right to win, and why is it important for Enerpac? It all starts with our product excellence, which is the core of our business. As I mentioned earlier, we provide very highly differentiated, highly customized solutions for our customers, especially when three things are very critical for them: safety, reliability, and precision.
More importantly, we win because of our deep subject matter expertise on in-place machining and welding solutions, on-site machining and welding solutions, which help the customer in solving a lot of challenges that they have. In addition to that, we have a very differentiated channel network, very, very strong channel network, which is very similar to Enerpac, which provide deep application expertise and great customer relationships, which helps us address some of these very difficult end markets. In addition to product excellence, we also have service excellence, which is also a very strong reason why and how we win with our customers.
Now with the service expertise that we get from the Enerpac side, we only see these opportunities growing a lot further, being able to address a much bigger customer base with our tools and our broad solutions, servicing the customer together with the service capabilities of Enerpac. More importantly, the reason we win is also not just selling the capital equipment. In addition to selling the capital equipment, we support the customer with a very strong technical expertise, with a very reliable supply of parts and services, and then also a very strong training, which includes two state-of-the-art experience centers, one in Germany, one in Houston, catering to customers on both sides of the ocean. I saw earlier in Phil's presentation, together with eight customer experience centers around the world with Enerpac, now we have a very combined strong presence around the world to support our customers.
Basically, that is what our strong right to win, our product excellence combined with service excellence. In order to give a real-life experience of what this means for the customer, I would like to highlight two key examples here. One of them comes from aerospace and defense, very key end market for us. This is a particular example where the customer required to machine a vessel propulsion shaft. Traditionally, this type of an exercise, this type of operation would require them to take out the propulsion shaft outside of the vessel, which of course makes it a lot more complex, a lot more time-consuming, which is not necessarily very desirable in day-to-day. Our engineering team designed this very highly customized tapered shaft lathe that helps them do the same operations in place without having to remove the propulsion shaft.
As you can imagine, the results were very significant. We were able to bring down the production time from 21 days to three days, which is a significant reduction in downtime, but then also achieved very high quality with surface finish that were not achieved before consistently, while also reducing the whole complexity of the operations. The customer was ecstatic about getting this solution. For us, the success or the solutions given to the customer doesn't stop there. What makes it a lot more attractive is the repeatability of it. This initially is a customized solution, but then it becomes a standard product solutions offering that we can take to any vessel, any shipyard around the world.
Now with Enerpac's commercial reach, the opportunities are only getting more attractive to take it to a lot larger customer base and a lot more shipyards around the world. The next one comes from power generation, which is again, a very attractive end market, both for SFE and Enerpac with very established capabilities there already. In this case, it comes from a customer for hydropower, where they're required to machine some parts of turbine inside a dam. Because of the geometry or the complex setup, it was not easy to bring these parts out of the dam to be able to machine them. It required in-place machining, and that's why our team came up with this highly engineered circular mill, which allowed them to do these type of operations in place with actually multiple machining happening at the same time with one single setup.
That reduces, one, the complexity of the operation, but more importantly, reduces the downtime. As you can imagine, a hydropower plant being down is not a very comfortable situation, so they want the downtime to be as short as possible. That helped us reduce the downtime from eight weeks to three weeks, while we achieved a lot better quality than they expected. Like I said, it also reduced the whole complexity. The solution was significant, the results were significant. The customer, again, was very excited to get this, but we were more excited because, again, a customized solution of almost a $1 million, $1.5 million opportunity can be scaled to any hydropower customer around the world.
You can only imagine the scalability of this system, and especially now with a much bigger global commercial reach of Enerpac, we can propel the opportunities even further. With these two examples, you can understand our approach is very simple. We identify a complex problem that the customer has, a complex challenge that the customer has, provide a great fit-for-purpose solutions, customized solutions, and convert that into a repeatable and a very profitable opportunity. That's basically how we succeed, and that's our strong right to win. Let's talk about integration and some of the next steps. As we come together as a company, the intention is not to change what has made SFE successful in the past, which is a strong culture of a very entrepreneurial approach, agility, and having a very customer-centric focus, which is actually a great fit for Enerpac's culture.
We do not intend to change anything that has made SFE successful. All we want to do is provide the scale, the tools, and the capabilities that Enerpac brings so that we can increase the success story manifold. For example, I would love to work with Phil and his team to grow our commercial responsibility, our commercial opportunities, and deliver on strong execution. I would love to work with Mart and team to differentiate with their strong innovation engine to launch more products, but also to reduce the time to market. Then I would love to work with Eric and his operations team to be able to expand on our ongoing continuous improvement efforts with SKU rationalization, portfolio optimization, but then also in general increase our efficiency and deliverability.
As you see, the intent is not to change anything for SFE, but it's more to give them the right to give us the right tools, give us the right scale, give us the right capabilities to be able to expand more on what we are already good at. Strategic fit is a great start point, but what matters is to deliver measurable results, measurable financial results. For that, we have a very strong and disciplined integration roadmap, like Paul mentioned earlier. Starting with the SS phase, which is the first 100 days of the businesses coming together. As you know, the ink is still fresh on the signed documents from last week, but the integration planning and process has already started. We are well in advance of planning and putting together a disciplined integration governance plan.
We have already appointed an integration leader, which is going to manage the whole process. We are already very well into the SS process where we are working with the teams on both sides to be able to identify very quick commercial and operational opportunities. Talking about the next 3 - 2-month plan, we are going to take these same opportunities, use the tools like I talked about, the PEP ecosystem, and the ECX ecosystem to be able to use these tools and operating systems to be able to identify and prioritize some of these key opportunities for very initial low-hanging fruit, very quick wins.
But also kind of set the base for the next two to three years, where the plan is to only accelerate and elevate a lot of these opportunities for a much bigger gain, with an objective of delivering about $4 million-$6 million in adjusted EBITDA synergies over the next three years, or by year three. Darren is going to talk more about it in his presentation, so I would also not like to steal his thunder right now. Look forward to hearing more from Darren on that. Basically, the message for the investors is, we have a very disciplined roadmap where we plan to execute it to perfection in order to recognize incremental growth opportunities, and basically deliver very measurable financial results. I would like to close my presentation with the same key takeaways that I started with.
SFE accelerates Enerpac's strategy of being a pure play industrial solutions provider. SFE as a platform also has very premium brands which support strong growth margins, but also we have a very strong history of, and a proven history of organic and inorganic growth supported by a strong M&A pipeline. Our combined business not only increase our addressable market, but also increases our exposure in very key end segments like industrial MRO, power generation, and data centers. Finally, we have a very disciplined roadmap to recognize a lot of these synergies that we will talk about a lot through all our presentations. Basically, I am really excited of what the future holds for us as a combined business and how we can address more customers, we can solve more problems, more complex problems for them, and deliver a durable and a profitable growth.
With that, I would hand over to Christian, who can walk us through some basics of the next Q&A session. Thank you again for being here today and listening to me.
Thank you so much. At this point, I want to invite Vinay, stay up here, Paul, and Phil. We are going to start the Q&A session. Instructions for the Q&A, for those of you here in the audience, we have two microphones and our team members, if you can just raise your hand, they will come to you. If you could just state your name and company, that would be very helpful. For those of you who are in the webcast, there should be a Q&A box where you can put your questions there at any time during the Q&A session, and then we will get to them if we run out of questions here live. With that, we have the seats, we have the key executive managers, so please, if you have any questions, just raise your hands and Lucas and there you are.
We will come to you, please.
I think we got one question there. Yep.
Hi. Good morning. This is Will, CJS asking. Question for Vinay. Just what makes the Enerpac-SFE partnership great? When they approached you, why did you think it was a good home for SFE, and what have you learned about the company this early on?
Can you just repeat the question?
Yeah. I think, just repeating the question that you had. I think what, according to me, is the attractiveness of SFE combining with Enerpac?
Yeah. Just kind of repeat itself. Yep.
As I mentioned during our presentation, I think for us, SFE had a very strong foundation with a lot of things that we were doing good. I think we had a very good commercial network. We had great products, great relationships with customers, and great teams and brand. But what we were missing is the scalability, the scale of We are global, but having a much stronger global network, many more resources to be able to propel what we already are doing, both on the commercial side and on the operations side. I think that's what is really exciting about Enerpac, of course, given the size and the capabilities that Enerpac has, makes it a great fit. As you saw, the portfolio of solutions is very complementing to each other, I think it really plays to our strength.
But then also, it's the tools and the existing operational tools that they have, whether it's the PEP or the ECX, that kind of drives more disciplined growth for us. So I think all of that kind of makes it a really good fit, both from a cultural perspective, but also the actual execution on ground, both in front of the customers as well as in our operating facilities. I hope I answered your question.
Yes, definitely. That's super helpful. And I was follow up, can you expand on kind of the pipeline for M&A that SFE brings? What's in the pipeline, and how much EBITDA do you think you could acquire at SFE over the next five or so years?
What I can talk about is that we have a strong M&A pipeline that we look at certain criteria on how we identify a potential target. So we definitely look at something that's a fit for us from a portfolio perspective, strong brand, strong market presence, delivers to the same end users, same addressable market, but also kind of gives us a little bit more add-on capabilities, and goes through the market through same sales channels to the same end customer. So, that's how we look at how we identify a target and how we put in the M&A pipeline. But more specifics on the M&A pipeline definitely will come out as we assess the companies together. Should be coming out in the year.
Maybe just to add a couple points onto what Vinay said. I think, that was definitely part of our attraction to SFE initially, was the fact that they not only a strong organic grower, but they have a demonstrated track record in inorganic growth, and that they did come with their own pipeline. So, a couple key points. One, the founder of the business is continuing on with us, is joining Enerpac, and his primary role will be the front end of M&A activity for us, not only for SFE, but for legacy Enerpac as well. He has lots of relationships and great network across the industrial sector, and that will be his focus. He was really kind of one of the key primary drivers of the M&A engine for SFE.
I would say secondarily, I happen to be with Vinay and the founder and a few others at one of their major trade shows in Vegas, just very recently, FABTECH, and it was great to see the opportunity set that they are already thinking about. In fact, we spent a bit of time at the SFE booth, which showed, by the way, extremely well, particularly on the innovation. The team will talk about some of those products. Customer reception was terrific to see in terms of SFE's play at the show. Most of our time was spent walking the show, going shopping, frankly, and there is a long shopping list. So we are super excited about our ability to continue to deploy capital. In the near term, that will likely be smaller bolt-ons and tuck-ins, but there are many of those on the list.
Great. Thank you. Then one more for me, and I will pass it back. I do not want to front-run Darren, but just on the guidance, does just EPS CAGR of 10%-13%, does that include any benefit from future M&A?
It does not. So everything we showed in the guide is truly organic. Darren will cover that. There is upside, and we have a slide that we will talk about, additional capital deployment and what we could do from an M&A perspective.
All right. Thank you.
Thank you.
Any other questions from the audience? While we wait for the audience, I will, Paul and team, I do have a few questions that are coming up on the web.
Sure.
The first one, and I will paraphrase, on the topic of PROPEL, could the team identify what you believe are the biggest challenges and the biggest opportunities with PROPEL?
Yeah. I am super excited about PROPEL, as I mentioned. I mean, we spent the last nine or so months building this out. I think the opportunity set for us is clear. It is continued deployment of ECX. It is all the innovation. Obviously, you have yet to hear from Mart, but you will shortly. Super exciting. We have a real flywheel effect going on in terms of innovation, and really market-leading, I would say, in terms of our activity and our results, and our ability to help solve customer problems in very meaningful and significant ways, with truly incremental innovation activity in our space. I think as any business probably, the challenge is twofold. One is priorities, picking the critical few. We cannot do everything and do it all meaningfully well, but that is the beauty behind PROPEL.
We spent a lot of time filtering and sifting through lots of great things we could go do, and we picked the ones that we thought were the most important, the most impactful, with the highest returns, and where we have the right to be successful and win. The second is talent. I think that ultimately comes down to, look, we think we have a great franchise. We have terrific business model, we have great brands, we have great products and technology. We're fortunate to have really strong, long-lasting customer relationships. We got this great channel partner network. Now we get SFE on board. All that's great, but if we don't have the talent to execute on it, none of it matters.
We are fortunate enough, we have a terrific and highly engaged team, but that is the absolute critical focus for us, is making sure we continue to empower that team, retain them, keep them very motivated and engaged, and continue to bring new talent as we grow. I think that is absolutely critical in terms of executing on PROPEL.
Great. Thank you. Audience, any questions? We have one in the back.
Yeah. Good morning. Justin Bergner from Gabelli Funds. I have a question on the financials I'll save for later, but in terms of the organic outgrowth goals for 200-300 basis points, how would you frame that as an acceleration relative to what you've seen over the last few years in terms of outgrowth?
Yeah. Look, I think we are targeting to outperform the market. We are taking a view on what we think the market will do. We have talked about 2%-3% growth. We cannot control what the market does. We can control what we do, and we have built PROPEL specifically to help us drive outsize accelerated growth. I think that 200 to 300 basis points, our target is to do that consistently, kind of year in, year out. I think you will see that underpinned by all the initiatives we talked through today. We got lots of different pieces of the puzzle working together to make that happen, with the synergies that will accrue from SFE as well. I think that makes us even stronger together.
That is actually the tagline we use internally, "Stronger together." That just gives me increasing confidence in our ability to continue to outperform and deliver on this acceleration versus what the market may be handing us at the end of the day.
Would you say that over the last couple years, your outgrowth has been there, but maybe not to the same degree as 200 to 300 basis points? I mean, are we in the 100 - 200 basis points bucket?
Right
Kind of this just completed year and the prior year? How much are we accelerating?
Yeah. I think it's varied more by year. I will say, I think, in the past, it's probably been a little bit more balanced with price and volume, whereas I think the go forward, and Darren Kozik can talk to this when he presents later, our view is that on the 4%-6%, we're definitely leaning in pretty heavily on the volume growth piece. Obviously, there will be pricing. We haven't talked a lot about that so far this morning. Darren Kozik can cover that. We do take strategic pricing increases, one or two every single year. This PROPEL growth strategy is built on market share gains and volume growth at the end of the day. Yep, we have a question over here.
Good morning. Maybe a question for Phil Jefferson. I thought the territory manager data points were quite interesting there. Maybe you could just talk about, and I assume a sales force is all, it's a bell curve to some extent, so you're probably cherry-picking the best numbers there. Maybe you could just talk about where you are in shifting that bell curve to the right. How experienced is the sales team with using the tools? Maybe a baseball analogy in terms of what inning you think we are in terms of leveraging ECX to get the sales team where it needs to be.
You might have to translate that to cricket then.
I'll be good. I'll be good. Go Brewers, right? No, great question. Thank you. Since the launch of ECX, I would say the U.S. is probably the most mature in terms of utilization of it. We have had some churn as we've sort of policed and made people use these tools to great effect. I think we've got a good sales commercial team now in the U.S. that are using the tools well. However, we've just hired a new sales ECX leader, global ECX leader, who's already making an impact, bringing a whole new way of looking at it. Already, like I said, making an impact and bringing more rigor, discipline, and cadence to the program on a weekly basis, which is having another impact as well. I think if you look at EMEA region, we're kind of less mature there.
The service business has not really been using ECX, and we have an opportunity there. In general, less rigor, less discipline, less cadence, less coaching. So, huge opportunity there for us to improve on as well. In APAC, I would say probably it is in its early stages. This is what I believe is the greatest opportunity for us now, being one commercial organization that spans the three regions, bringing the success stories, the best practice across the region as well, being able to show how utilization of these tools can really drive performance. That is a great example, but it was not the only one. I picked that one because it was actually someone who was not performing particularly well before, who then used the tools in FY 2026, and we saw a massive difference in their performance. So, it gives me great faith.
Yeah. The other point, I agree with what Phil said, is I do think there is a bell curve, obviously, but I do see it shifting to the right, and I think that is two respects. One is we have people that self-select out, especially early in the process of ECX deployment that say, "I do not sell that way." We said, "That is fine, but that is the way Enerpac sells, and that is how we need you to perform." So, we have been able to refresh some of our sales talent based on that. Then, by raising the bar every single year in terms of holding people accountable with objectives and performance management program and the system that we have. So, I think both of those have resulted in a shift to the right on that.
I am going to say third inning.
Okay. All right.
Fourth.
Out of how many?
Nine. I know nine.
Thanks, Phil. Any other questions for the audience? I think with that, given that we are just a tiny little bit behind schedule, let us close this Q&A session. Let us take a 10-minute break, and then we are going to have a second Q&A session with the whole executive team. So, we will be back here in 10 minutes. Thanks so much for the questions. Thank you for the answers.
Thank you.
All right. Thank you, everybody. I hope you had a good break. I hope you had a good chance to engage with our product specialists. Now it gives me great pleasure to introduce you to our EVP of Innovation, innovation man, Mart, who will tell you about everything we're doing, have done, but most importantly, what we'll do in the future. With that, Mart, please.
Yes. Thank you, Christian. Good morning, everybody. My name is Mart Hinnen, EVP of Innovation and Heavy Industrial Technologies. I've been with Enerpac for almost 19 years in various leadership roles, including leading the ASCEND transformation that Paul mentioned earlier. During ASCEND, we've seen the power of having a bold, actionable strategy executed with rigor and discipline. Today, I'm going to tell you how we're applying the lessons from Learn to PROPEL our growth strategy. Works. The main message I want to share with you today is that innovation for Enerpac is not a simple R&D activity, because we see it as the engine and the driver of repeatable and profitable organic growth, and with that, delivering shareholder value. Innovation for us expands addressable market, it increases our differentiation, it strengthens customer relationships, and with that, it supports margin expansion.
Some of the key messages I want to share with you, and I will connect back to Phil, I think we're building from a position of strength, and we are using our product leadership position to further expand into attractive applications, and with that, strengthen our competitive position. Second, we're advancing the PROPEL differentiate pillar. Innovation is how we expand in attractive end markets, like data centers, power gen, infrastructure, and aerospace and defense. Last, growth only counts if it's repeatable and profitable. I will explain our disciplined stage-gate process that we have for NPD, as well as the other structures, systems, teams, and culture in order to drive innovation on time, on budget, and at scale. Agility, ownership, and teamwork, they're not just our core values. They're at the heart of ASCEND's success, and they will be equally critical to how we turn innovation into impact.
As both Paul and Phil said, we have a leading portfolio of innovative product families. You can see them here. Industrial tools, heavy lifting technology, and torque and tension, or bolting. It's a very powerful platform that's enabling us to serve different applications across various attractive end markets, and some of you have seen already. Let me dig in a little bit more. Industrial tools to start with, which is the majority of our business. We are the number one global leader. Industrial tools is a high velocity, mostly distribution-led business where demand follows a recurring OPEX business cycle. Some of you asked me the question before the meeting, what's the difference between IT and HLT? Industrial tools is mostly distribution-led. Heavy lifting is end-user focused. Heavy lifting, which is the capital equipment side of our business, as I said, is mostly end-user focused. We sell direct.
We serve our customers direct. Demand for heavy lifting is mostly focused on, mostly coming from projects or project-driven customers investing in larger scale infrastructure or mission-critical equipment, and also in things like data centers and data center equipment. We are number one in Europe, and we're scaling rapidly in U.S. We've seen double-digit growth just for HLT in U.S. for the last few years already, and more to come. Last, torque and tension, or bolting. We're not a leader yet, but we have a very strong right to win. We see big opportunity to further grow torque and tension globally, and that's also a reason we are making torque and tension a big focus during our PROPEL growth journey.
The reason I'm presenting this is that we have a very strong installed base, and that installed base can serve as a launchpad and a foundation for our innovation growth. We have premium brands, I must say, global distribution networks, very strong customer relationships, as well as the secret sauce or the secret weapon that Paul mentioned, application expertise, which will allow our innovation to scale using this existing footprint. As Vinay Varma, Phil, Paul said, PROPEL is our long-term profitable growth strategy based on three pillars: grow, differentiate, expand. My focus is mostly on differentiation by innovation. Differentiation matters because it creates profitable growth. More differentiation means higher barriers to entry, pricing power, share gains, margin expansion, greater customer loyalty, and with that, new growth opportunities. The innovation focus, our innovation priorities are all focused on developing solutions customer value and on solving increasingly complex market customer applications.
Ultimately, we believe that innovation will help us win more business today while strengthening loyalty and increasing barriers to entry to protect and extend our market leadership. Let me walk you through the innovation priorities that we have that are part of this differentiation pillar. As you heard now from Paul, Phil, PROPEL calls for growth in attractive end markets, and we have therefore concentrated our resources on four priorities: battery expansion, digital ecosystem, solution selling, and platform standardization. First, with our focus on battery expansion, we can change how customers work. Battery-powered tools change how customers do their job. By focusing on this, it will help us participate in the ongoing transition towards cordless job sites. Second, digital ecosystem. By developing data-connected products, we can drive customer stickiness, unlock new recurring value models, business models through connectivity. Third, solution selling.
By bundling capabilities, we can address larger, more complex customer applications. I am very much excited about the addition of SFE. We are even having a bigger opportunity to bundle capabilities. Fourth, platform standardization. Repeat versus invent. Vinay said that. We customize for one customer, then we repeat it and apply it somewhere else. By doing that, we can lower cost, accelerate time to market, and still offer customized offerings which customers value. We think the combination of these priorities makes our innovation strategy both growth as financially very attractive. I will review all the four priorities in a little bit more detail, starting with battery expansion.
As you can see on this slide, battery product sales has seen a strong CAGR over the last four years already, 26%, which in my view is a great example of customer adoption, but also our ability to scale this type of technology over our product families. Because as you can see on this slide, we are applying the battery technology not just to industrial tools or not just to torque and tension, or not just to heavy lifting technology. We apply it over all these product families. Batteries bring improved portability, safety, and productivity by the reduction of external power, and elimination of cords makes tool easier to use in remote or constrained environments. Customers like that. From a deployment perspective, we are not developing these battery systems ourselves.
We are leveraging selective partnerships to drive faster development, shorten the time to market, reduce execution risk, and extend technology across the portfolio. We cannot just select one battery because you may see some of them are very small, like the ones we are using in hydraulic pumps, but some of them are also really big, which you can see in the battery-powered split flow pump, in the E-mover, or in our AGVs, which are way bigger batteries than just single hand tools. The extension of battery technology is one example of how we are extending our portfolio. Another one is for digital connectivity. Digital connectivity enhances the value of our products through the customer's workflow. Historically, many of our tools were purchased, used, and largely disconnected from the customer after the sale. They were doing the job, and that is it. We are changing that through Enerpac Connect.
Enerpac Connect is an integrated digital platform designed to integrate products and data across the full job lifecycle. This can help customers improve how they manage critical applications. This is especially valuable in industries or markets where safety, precision, and documentation are essential. Think about wind, think about nuclear, but also think about oil and gas. We have unveiled our first product, our first data-connected product, just a few weeks ago at WindEnergy in Hamburg, Germany. End of September, it was. That launch triggered a lot of excitement, both with our customers as well with our internal teams. For customers, having, let us say, one connected platform replace the fragmented multi-supplier systems that happen right now. We make life easier for them, and they like that. For investors, this platform, it creates deeper, longer-term customer relationships. It will increase retention, and with that, recurring revenue and customer stickiness.
The third, solution selling. This is one of my favorites. In line with what Phil and Vinay said, I think one of the largest growth opportunities involves selling complete solutions rather than just individual products. Data centers and power generation are excellent examples of end markets where we started to apply that already and are successful there. You have heard it from Phil. For data centers, the rapid expansion of AI is driving investment in new facilities and supporting infrastructure. Our complete solutions support applications from ranging, controlled transport, final positioning, and installation of data center equipment. For power gen, rising power demand is driving investment, perhaps partly coming from AI or data centers, but next to that, power gen is growing anyhow.
Customers require a reliable and complete solution to lift and position heavy components, generators, turbines, transformers, often in environments where conventional cranes, like overhead cranes for inside use or mobile cranes for outside use, are not feasible. That is where we play a big role. Since Enerpac spans multiple product families, we can address the full workflow, and that results in greater project content, bigger customer spending, bigger revenues, and also stronger margins and better returns. I am very excited how we can apply this growth platform, also now including SFE. Good thing to add here is that we are not entering this solution or these markets from scratch. We are applying known technology, known products, known solutions, and we are bundling them together. There we are. Our fourth priority is platform standardization, repeat versus invent, which is essential to make innovation scalable as well as growth profitable and executable.
Previously, highly engineered solutions required a lot of customization, increasing development time, complexity, execution risk, as well as cost. Our new approach is to standardize the core technologies. We call those modules. We configure customer-specific applications and scale that across multiple product lines. This allows us to maintain the differentiation that customers value while improving the efficiency of how we develop and manufacture these products. I think the benefits are clear. We can capture growth via configuration or via targeted customization. This is how we and expand our portfolio. We offer more versus what we had, while improving profitability at the same time. It is also keeping my colleagues happy because we are not adding a lot more SKUs or we are not adding a lot more complexity, and the finance teams will applaud me for that. From an execution perspective, growth cannot just depend on a few breakthrough ideas.
It must be repeatable. ASCEND showed us the power of having rigorous execution, and we are applying that same rigor and discipline for innovation, just turning our priorities into a repeatable engine for profitable growth. The process we have in place, you can see here: discover, define, deliver, deploy. Under discover, we work directly with customers to understand their applications and to identify unmet needs and evaluate opportunities. We go on site, we see what customers are doing, and we evaluate what can be done better. During define, we translate those insights into product concepts using rapid prototyping, design engineering, and also leveraging capabilities like our new innovation lab at our headquarters in Milwaukee. I will show you that in the next slide. From a deliver perspective, we manufacture, test, and we prepare products for more serial production. Finally, during deploy, we launch with a bang.
We ensure we are prepared to bring products to market with an inventory availability, train channel partners, and coordinated marketing support. Like you heard from my colleagues, we are very excited to show some of our recently launched products over there. There is a great team of my direct colleagues here who would like to demonstrate this to you. If you have the opportunity after the session or during lunch, please walk by because we would love to demonstrate it. We are proud of it. To bring one concrete example of our NPD process, through direct customer engagement, we identified demand for a lightweight, easy-to-use electric bolting pump, very much specifically designed for maintenance applications. Working directly with these customers and validating the design through early field trials, we had prototypes out, we evaluated them, and we modified. We developed the LU-Series Torque Pump.
Which you can see over here. Some may say it is not that much lightweight, but for the applications where this is used for, it is very much lightweight. Our solution delivers improved portability, ease of use, and optimized performance without compromising durability or reliability, something we are known for as Enerpac. After the introduction in August of this year, we already received about $400,000 in new orders, incremental new orders, which is an encouraging early indication of demand as well as customer adoption. A key advantage for Enerpac as well is that innovation has become a dedicated global capability. We built an organization designed to scale systematically, exactly in line what Phil was saying for ECX. I am standing here representing a group of people from U.S., Spain, U.K., the Netherlands, India, China, and now with the addition of SFE, it is even more.
With having new lab capabilities, we have enabled faster prototype development, a significant reduction in outsourced prototype machining, and by the saving in time, we can do many more design iterations in that same timeframe. We have become way more efficient. These improvements allow our engineers to evaluate more concepts, to go on site, take the learnings from that, and incorporate that feedback more quickly, and also make better-informed development decisions. We do not need to rush. We can make well-informed decisions. Just as important as having this capability and these teams is how we work. We are customer-driven and application-led, with clear governance, a disciplined roadmap, and evidence-based decisions. I think this slide shows our core innovation engine and our right to win.
It took time to develop to where we are right now, but I think the combination of talent, infrastructure, processes, and structure will set us up for success and to pursue much more innovation in the future. Growth and innovation requires speed, and we have materially increased ours. In the spring of 2025, we have opened our new innovation lab at our headquarters in Milwaukee. If we would have done this Investor Day in Milwaukee, I am sure we would have taken you all to the innovation lab to showcase that. The new lab is about 3,000 sq ft, or 300 sq m for the European people here. The lab is not simply an R&D investment. We believe it is an investment in a growth infrastructure.
It enables us to validate ideas faster, reduce development time, mitigate communication risks, not unimportant, and shorten the path from initial customer insight to true commercial revenue. With our increased in-house capabilities, we have demonstrated launching products way faster to market versus the past, but also versus our competition. I think for investors, this new setup means a stronger innovation engine and a better capacity to pursue organic growth. Some of the best opportunities, like I said, come from observing how customers work, how they do their job, identifying challenges they face, and with that, developing solutions that help to make their complex jobs more efficient and more safe. First, by embedding innovation teams on customer site, we have observed how our tools were being stored, moved, and stacked, and we have seen clear opportunities for improvement.
That was the starting point of our Armor Stack basis, the platform you can see later today. Second, direct customer validation. By working alongside operators on live job sites, we validated our early concepts faster and better. That is how the LU-Series Torque Pump was developed. Third, with a custom to standard development pathway, a little bit in line or exactly perhaps in line with what Vinay said, we have developed a custom E-mover, and after having the first custom product made, we have standardized it and we have launched it. Within one month after launching that, we got $1 million of new orders in for data center companies who are going to use this type of technology for their operations as well. I think this clearly demonstrates the value of taking a proven application-specific solution and scaling it across a broader customer base. Vinay said that well. For investors, the opportunity is clear.
We are leveraging customer insight to reduce development risk, accelerate adoption, and create scalable growth opportunities. At the more bigger perspective of this, we are also applying this for the more engineering complex projects. Let me highlight two examples that demonstrate the value of our engineering capabilities and how we are applying those to make complex, often hazardous jobs possible safely and efficiently. The first one you can see here, and perhaps you have seen it outside already, is Juneau Creek Bridge in Alaska, where a 1,000-feet bridge needed to be placed in a remote canyon. We have developed a customized hydraulic bridge launch system with integrated digital controls and real-time monitoring. We supported from early concept to execution on site. We have been involved the whole process. The result was a safe, precise, and controlled bridge launch with far better schedule certainty.
Of course, we deliver direct revenue impact, but it also demonstrates how engineering expertise creates high-margin opportunity, and it brings our mission to life. I think this is a clear example of how we make complex, often hazardous jobs possible safely and efficiently. We've been doing this for many years in Europe, and some of you may remember the Millau Viaduct in France. We're also focusing now on using this, focusing on other applications in the globe, with a focus on U.S. Our second example is the HS2 high-speed rail bridge in U.K., where multiple highway bridge sections need to be installed in a weekend closure window. We consulted upfront with our customer, selected the right solution, as well as execution plan. Customer selected our JS500 Jack-Up System, a solution we developed, and the execution was done with support from our Enerpac teams, the field teams.
What would normally take weeks or months of work was done in one weekend. It reduced execution risks, it drove better schedule certainty, and also improved safety and precision. I think the pattern across both cases is the same. Mission-critical work where reliability and safety matter most. That is where we win, where margins are strongest, but also where infrastructure spending is expanding. Exactly what Paul said. Key takeaways, final slide. First, we are building from strength, and we're using our product leadership position to expand to attractive applications, and with that, strengthen our competitive position and support margin expansion. Second, our innovation priorities are directly aligned with PROPEL and focused on expanding markets and gaining share in attractive end markets like data centers, power gen, infrastructure, aerospace, and defense. Third, we've built a disciplined innovation engine that consistently turns customer insights into commercial success. We're proud of that.
Innovation is not a simple R&D activity. It's the engine and the driver of repeatable and profitable organic growth, and with that, delivering shareholder value. We believe it will continue to be a meaningful contributor to long-term profitable growth and much more to come. Innovation is also a true team sport, not just between the innovation and the commercial teams, but also between the innovation and the operations team. Being a football player all my life, or a soccer player for some of you here, I know the importance of having trust in your team, having trust in your colleagues to make the job done. Let me hand it over to my colleague, Eric Chack, EVP of Operations, who'll tell you more of how we're executing this. Thank you.
Thank you, Mart. Good morning, everyone. Eric Chack. I support the operations and supply chain functions for Enerpac. I'm in my third year here. Prior to Enerpac, I've spent a good bit of time in the industrial space with companies like IDEX, SPX, and Briggs & Stratton. Since I've been here, it's been a pleasure to watch Mart and Phil, who you guys both met, and their teams and their ability and execution going out quarter over quarter, growing this business and enjoying those successes.
As my team has watched those, we have come together and asked, "How can we contribute to those successes and make sure that as much of that growth is cascading down to the bottom line in the form of margin expansion?" That is what we are going to talk to you guys about today, is how we contribute to that and how we fit into the strategic plan. Thematically, there is kind of four key focus areas for us, and the first one is really foundational, and I would generally characterize it as measurement systems. I am a big believer that that which is measured improves. We have worked very diligently to build business acumen and financial acumen into every operational leader within the ops organization.
We do that through partnership with our financial business partners, leveraging the P&Ls and utilizing KPIs for those critical processes and delivery outcomes, using both leading and lagging indicators to ensure that we are driving the right outcomes for the business. The second focus area probably is not a surprise for anyone. I think generally in every business, the largest pool of spend is in your material spend. It is essential, especially with large global footprints, that you get that spend organized, consolidated, categorized by spend type. You bring in the right talent and subject matter experts by those different commodity types. You organize those bids, you get them out globally, you target low-cost regions, and then you convert those opportunities into savings. The next focus area, Paul talked about PEP earlier. I love PEP. It is a really well-structured and rigorous continuous improvement tool.
It helps us get organized and have a good monthly cadence around all of our continuous improvement projects. Everything all the way down to the shop floor level in terms of line-level lean activities, all the way up to high-resource, high-return-on-investment strategic projects like footprint rationalization and plant consolidations. Lastly, we tie all of that together with a structured monthly cadence. We bring the right teams together functionally and regionally. We sit down with our finance business partners. We go through those P&Ls line by line. We look at it month-over-month, year-over-year versus plan, figure out where we are winning and losing, challenge the teams, ask the right questions, drive the right countermeasures. Same thing on the KPI side. What are the critical deliverables that we are trying to drive and outcomes we are trying to achieve? How do we measure those things?
How do we measure those with leading indicators instead of lagging indicators? Then how do we keep our finger on the pulse of the progress for those projects month-to-month, week-to-week? When we think about operational excellence, in terms of how we go forward and how we execute, it really is important for us, especially with a global footprint, to have everybody speaking the same language. So a standardized process, a North Star that we can all share, a measurement system and an ecosystem where we are all kind of marching to the same beat. We like to leverage the 80/20 principles, get the biggest bang for the least resource investment. But again, leaning on those P&Ls and those KPIs to drive the right behaviors.
We pull all of this together and we get organized with an annual goal-setting process where we will do a diagnostic on the previous year's results. Where were we winning? Where were we losing? Where is the focus for next year? What are the strategic targets? Get those things identified, get them ranked, assign out owners, define resources, establish timing and targets, and then move forward and execute. What has that delivered for us? On the productivity side, we have been able to more than offset our inflationary headwinds from GWI wage increases and overhead inflation each year with operational productivity. We have been able to transform what was historically a financial headwind in terms of material inflation into a financial tailwind, and we continue to accelerate those savings.
Finally, we have gotten organized around and we have been working diligently around launching some large-scale strategic footprint rationalization activities that we will be able to share more details with you guys in the quarters to come. From a KPIs perspective, what are some of the results there across the key focus areas? You will see our safety incident rates are about half the national average, which is fantastic. Our PPM flows through at best-in-class results. We are able to fill our orders for our critical products, our standard products off the shelf in less than two days. We turn those products more than 12 times a year.
We have been able to save $2 million-$3 million in operational productivity each year with our continuous improvement initiatives through PEP, and we have been able to support Mart and his teams with 11 new product launches last year, and we have got an appetite to do more this year. When you take a look at our global footprint, and I think it is important to note, this is the legacy Enerpac footprint. This does not include SFE, but I think if you mapped SFE, you would see a very similar outcome, right? They are very similar to us. We have got 11 global manufacturing and distribution locations worldwide. Of note, basically 55% of what we do and what we produce comes out of our Wisconsin operations.
What that leaves you with is a lot of smaller regional locations across the globe, which is great for market presence and order fulfillment within those regions, but it can be a challenge from a capacity utilization and fixed overhead perspective, which is what is driving some of these opportunities and some of this focus for us for plant consolidations. This is where we find our home in the strat plan. I think you guys heard earlier, and what I have seen, Phil and his team leveraging ECX, going out there and getting great results growing the business. Mart and his team, through the innovation funnel, differentiating our products. It is a lot easier for us to go out and attack our core responsibility within PROPEL to expand those margins when those guys are winning.
We appreciate everything they are doing, and it is enabling more and more for us on the operations side. I want to get a little bit more into deeper detail around four key areas here. We will talk a little bit more about the background and the journey in the sourcing arena and how we got to where we are. We will talk about a newly launched program, VAVE, which is meant to supplement those efforts in the sourcing arena. We will share a little bit more detail around ops productivity initiatives, and then we will talk about the most exciting area for me, which is the new acquisition with SFE. I see a ton of runway and a ton of opportunity for us partnering with these guys. First one, sourcing.
If you rewind the clock maybe three years, with our global footprint and disparate operations, we have a lot of different operations doing different things, sourcing different things, and really working in regions. Effectively, they were more of a procurement function. They were buying in-region for the region to keep the plants running. What we did not have was a centralized sourcing function where we had all the commodities mapped, had subject matter experts by commodity, organized large RFQs. What we saw was a lot of in-region buying for the region and not a lot of leveraging low-cost regions. Year one, we spent a lot of time and effort top-grading that talent, transitioning that structure from a regional model to a centralized model, building the data lakes, getting organized, and putting ourselves in a position to start launching some of those RFQs and harvesting that savings.
In year two, we saw those results accelerate. I mentioned earlier, year one, we flipped from a net headwind in terms of inflation to a net tailwind in terms of savings. In year two, we compounded those savings and accelerated those savings. We are going into year three with a very large project hopper, and we are shifting more of our focus from building the hopper to executing and converting that hopper. In order to do that, we have to invest. We have to invest in the right areas and the right resources to convert those opportunities. We have put that money into our labs and into our engineering resources to help us accelerate that. Those same resources are also assisting us with our plant consolidation efforts. VAVE.
For those of you that are not familiar, I mean, if you think about how most businesses and NPD and innovation functions work, there is generally more of an emphasis on speed to market than there is on design for manufacturability.
As we've had some of these product families out in the market for years, maybe even decades, we've never really gone back and taken a look at those things and tried to figure out, "Hey, how can we make these better, cheaper, faster without compromising quality?" What we've done is we've pulled together those cross-functional teams with the folks in the plants that are building the products, the folks in sourcing that are sourcing those products, the design engineers, and the product managers, and we've launched a program where we're going family by family and doing diagnostic events, tear downs, bill of material reviews, and identifying opportunities to take costs out of our product families. We launched our first product event in Q4 of last year, and the results were tremendous.
What we saw was a greater than 30% takeout reduction in material COGS for the family that we targeted. Do we think we'll replicate 30% across all the product families? Probably not, but I think from a proof of concept perspective and sort of reinforcing the hypothesis, this gives us great encouragement that we want to replicate this and do this more going forward. We're targeting 6-10 product families this year, and this will be a continued activity that we'll do throughout FY 2027, FY 2028, and FY 2029. This is an ongoing living process that we'll kind of carry on in perpetuity. This is also, as you think about exhausting those sourcing opportunities and driving those savings and building that sourcing funnel, and as you convert out of that sourcing funnel, this will be the largest mechanism for us to continue to replenish that funnel. Ops productivity.
I mentioned, our big goal here is to offset our wage inflation and our overhead inflation each year. We've had a really good structured process of doing the annual diagnostic there, building out the project hoppers, identifying in excess of target those opportunities, meeting monthly through our business reviews, holding people accountable to the outcomes and to the timelines, and those results have flowed through each year, exceeding our targets for cost savings and offsetting those inflationary headwinds. It's also enabled us to get really structured and organized around those large strategic projects, like the site consolidations that I mentioned earlier. Lastly, SFE. I've had plenty of opportunities in the diligence phase and in the early weeks to be able to meet with Vinay Varma and some of the key leaders in the operations space. Two things have become very apparent to me very quickly.
First, there are tremendous similarities between SFE and Enerpac in terms of the types of things that we manufacture, how we manufacture, what we source, how we source, and effectively applying our playbook to their playbook. The second area is, there's a clear appetite and enthusiasm on both sides of the fence to get after these things. I'm excited to be able to take what we've built from a processes and the centers of excellence perspective and be able to apply that very quickly, early and out of the gates for SFE and help deliver some results and success for them. In addition to some of those long runway activities, there's a lot of low-hanging fruit and sort of immediate day one opportunities for us too.
Some examples to illustrate that would be utilizing our FedEx and UPS rates to bank 20% savings for those guys immediately, leveraging our ocean contract rates instead of having to buy on the spot market, pooling both of our spend volumes with national accounts to drive higher annual rebates and get incremental savings to the business. There is a lot we can do there, and I am very excited to have those guys coming into the fold and being able to help accelerate what we are doing from an ops and a CI perspective. I would like to share a couple of practical examples with you as well, just generally how we approach continuous improvement projects, the things that we are focused on, and some of the results that we have been able to drive.
The first one is SKU rationalization, and I think generally, when people think SKU rationalization, it is generally approached for a cost savings initiative. Yes, we have cost savings opportunities with SKU rationalization, but for us, the primary target was really more improving our ease of doing business for our customers. Like most companies, over time, we accumulated a fairly large SKU portfolio, 30,000 finished goods SKUs. What we did was we pulled together, again, a cross-functional team. We wanted representation across the business from the different functions and regionally across the globe, and we were able to go through and diagnose and find an opportunity to reduce roughly a third of our SKUs without impacting any top-line sales. The key thing here is, this is not just a one-off exercise to kind of go clean out the cupboard, right?
This is an annual exercise that we will refresh and iterate and fold it into our product lifecycle management processes and keep it ongoing. Now, where it gets really interesting for us is we realized in the process that we are a solutions provider, and it is important to our customers to be able to provide those solutions when they need them. While we were working on SKU rationalization, we also worked on developing demand shaping tools, and what we were able to do is leverage some knowledge-based tools and some large language models to build a substitute SKUs reference tool.
Our customers will be able to inquire into the system, and whether the SKU has been rationalized or it simply is not even available today on the shelf, we will be able to provide those customers with recommended suggestions for alternative SKUs that match the specs that they are looking for that are available today. We think that is going to be a differentiator for us in terms of doing business with Enerpac. The next focus area, Mart talked about HLT. I think this is one of the best success stories in the company. HLT has been growing double-digit growth the past three years. As we have watched that growth and seen that business accelerate, we have pulled our resources together and asked, "How can we help? How can we accelerate that growth?
What can we do better in the plant?" We identified one big area of impact for us, which was, we just need to get some of this non-core business out of the building so we can focus on what is core, critical to quality, our secret sauce, those types of activities. We started with our less technical welding sub-assemblies. We worked to outsource those things, and honestly, we would have been happy probably if it was a break-even on the cost side, but what we found is, we can actually save money with some of these things too. We found a 15%-20% reduction on the welding sub-assemblies. We were able to bring down our working capital.
We were able to shorten our project cycle times, and we were able to free up a bunch of floor space to be able to reallocate to more strategic focus areas under the PROPEL strategic plan, like aftermarket sales support. We are looking to replicate that through another 11 target areas in the plant this year, and we do feel like we are on pace to have that completed probably in the later half of FY 2027. Lastly, and this is one of the more exciting ones for me because we do not always get a chance to help sales growth in the operations space, but as we looked at our tensioners, what we heard and what we saw was a product family in decline.
When we probed it and diagnosed it, what we found was, we were probably a little bit too expensive in the market, and we did not have product available when customers needed it. To attack the cost side of the equation, we relocated this product family to our India production facility to take some of that cost out. We started running larger batch quantities to bring some of the material costs down, and we invested in the stocking programs to get the materials on the shelf. The results were immediate. We saw a 6X increase in our funnel, and we saw a 35% increase in our win rates.
Now, that is significant within the tensioner space, which represents about a $1.4 million-$2.2 million increase in our annual sales, but it is more significant because as part of the PROPEL strategy, we want to replicate this across more product families and larger product families like our torquing tools. Looking forward to taking this playbook and replicating it across additional product families where we see the fit. I would close with this. I am very proud, I am very excited about what my team has been able to do, the processes that they have put in place, the results that they have been able to drive in the last couple of years, but I am more excited about the path forward.
I think we're at a point where we've built the foundation, we're getting momentum, but the hopper of opportunities, both in the sourcing space and in the continuous improvement space, is at its largest point since we've been here, and we're just getting to our peak kind of momentum. In addition to that, as we transition from building that hopper up to executing and flowing those opportunities through, we're going to flow in more opportunities with VAVE and with SFE. So, I see the next three to five years as a target-rich environment that we're going to have plenty of opportunities to execute on and convert savings for the business. Thank you. With that, I'll turn it over to Darren, our CFO, who will run you through the financials.
Thanks, Eric. Darren Kozik, CFO of Enerpac Tool Group. I'd say a couple things. I'm excited today to share kind of our financial roadmap for success in the future. But I think before we do that, it's important to understand our track record of execution, which I'll take you through briefly, and then it's really that translation of the PROPEL strategy into what the future could look like for us. That is what we're comfortable with, we're confident in, and we're excited to start to launch here. As we think about the key messages, number one, you heard from a lot of my peers today, we are increasing our exposure to high-margin, high-growth markets. SFE was a piece of that, but we're also organically investing where we need to invest. We're investing behind those macro trends and those secular tailwinds to help us in the future.
That's a large part of the growth strategy. Second, we'll show you what we've invested in the past and what we're going to invest in the future. We look at our business, and we do have some really high-return organic growth investments, and we'll take you through what those are in grow, differentiate, and expand. What does all that lead to? A financial algorithm that we like. For the future, that is 200 to 300 basis points above market and almost 200 basis points of margin expansion through FY 2030. In addition, that's the organic side. Inorganically, we're on our way to becoming a high-quality industrial compounder. We look at SFE, that is just the start of where we want to go. We'll take you through our capital allocation philosophy, where we spent it, and what the future looks like as well.
But I think it's been pretty evident, we can't do all this. I know Paul's got his favorite values, mine are ownership and teamwork. We've got ownership for our growth strategy in this room, and you see an ELT aligned to deliver those. As we think about PROPEL, and I always think about a good strategy, what does a good strategy do? It plays to your strengths, creates competitive advantage, and is something you can execute. PROPEL is that for us. It will lead to profitable growth and above-market growth. One of the things you're probably looking at is 4%-6% growth. Well, how does that translate? We like to think of it as 200 - 300 basis points above market. If the market's faster, we're going to grow faster. That's what PROPEL is going to enable us to do.
Now, back to that track record of execution and success. If you look at the last five years, we have grown sales annually 3%. If you think about that 2022 to candidly early 2025 time period, the industrial market was very, very slow. It was slow. We knew that. It started to pick up the last couple quarters. We are very proud of our Q4 where we grew 10% organically. That is the start of good growth for this business. I think the important part of this slide is our track record of execution. We grew 3% on the top line. When you look at our adjusted EBITDA dollars, they grew 17% annually, almost six times as fast. We had leverage in the P&L because we were driving the right investments, the right returns, and margin. On top of that was 920 basis points of margin accretion.
Now, you see we dipped a little bit in FY 2026, but as we told many of you, we started to invest in PROPEL because we saw the market and we saw the opportunity, so we started to put those investments back in the business. Not only did we grow a CAGR of 17% on EBITDA dollars, you take that down to EPS, that was 23%. Even stronger on the EPS line. While we did all that, it was done at an ROIC in the low teens. I will take you through our peer set. We think we are a couple hundred basis points better of an ROIC versus our peers, and the data proves that out. How do we do this? It is disciplined capital deployment and operational execution. ASCEND was a great program. It taught us how to execute and drive things.
We are going to do the same thing with PROPEL. We are going to do the same thing with the SFE integration. We have got the tools and the resources and the team to do it. As we think about our capital-light business, that drives tremendous free cash flow. We spend about 2%-3% a year in CapEx. I will tell you, as we look at FY 2027, it may be a little richer because we have got some opportunities with PROPEL to invest back in this business.
Similarly, at FY 2025, you heard Mart talk about the new innovation lab, our new Milwaukee headquarters. We invested back in the business. We are seeing the returns from that, not only in speed to innovation, but talent we can attract to Milwaukee with our new headquarters. CapEx is just a part of the free cash flow equation. There are three other things that go into this.
One, the margin accretion, which we talked about on the prior page. Second, we think about working capital. You have got Phil, you have got Phil's team driving collections, driving commercial activity, partnering with the collections team. Phil has got a weekly cadence. Trust me, if there is a customer overdue, it may come to the CFO and CEO, and we start calling for our money. We have got that rigor in our business on the cash side. Expand that to inventory. You just heard from Eric, plan for every part, SKU rationalization. We have got the right behaviors in the business, the right operational cadence to drive working capital. That leads to what you see here, a 29% CAGR in free cash flow, and over the period, 119% free cash flow conversion. That is one of the hallmarks of Enerpac.
We love our cash, we collect our cash, we manage our inventory, and we drive free cash flow, which has set us up for success. What do we do with all that capital? This is the last five years, $874 million. A large chunk of that was a big check we wrote last week for Vinay Varma and friends at SFE. We are very proud to have that addition to the family. In addition to that, we spent 37% of these dollars in share repurchase. We bought back $321 million of shares at an average share price of $29. We are trading well above $40 today. We think that has been a good return for the business, and we will continue to do that in the future.
As we think about CapEx, this is one of the places that Paul and myself, we look at all the leadership team. Do you have CapEx needs for this business? What is CapEx? One, lowest execution, two, highest return. We are consistently investing back in the business, whether it be R&D, prototyping, operational improvements in the plant, IT systems, IT improvements to make things better. We are always striving to put CapEx in the first position. Then we will shift to M&A or share repurchase. Both of those are levers we have. Obviously, with M&A, last week, we wrote that big check. We are a little bit more focused on debt paydown now, but as we think about the near term, could we do more deals? Yes. I will take you through that math. Could we buy back more shares? The answer there is yes as well.
We are consistently looking at that. One of the hallmarks of our share repurchase program is really offsetting management dilution, so do not be surprised as we look at that FY 2027 and beyond, because we think that is key for our shareholders. Finally, the dividend. The dividend is a small expenditure every year. We will maintain that dividend for the near future. It is about $2 million a year. As we think about capital allocation for the future, high return organic investments, strategic acquisitions, opportunistically repurchasing shares. That is the hallmark. That is what we do with our capital. Over the summer, while we were also working the SFE transaction, we also needed to renew our credit facility. So, we did that. What we did do is we expanded that facility. It is now up to $850 million.
That is a $300 million term loan and a $550 million revolver. Importantly behind that, the pricing got better for us, which enables more flexibility in the future, and the key terms we had in our last credit facility, we kept and actually improved. So, we were very, very happy with the outcome. In addition, all returning lenders increased their commitments to Enerpac. Equally important, the banks were behind us. Where do we stand today? We are about 2.3 x levered, given the SFE acquisition last week. Our target is 1.5 - 2.5. We are within that range. As we think about the future, yes, we will pay that down, but we do have flexibility. Flexibility is also inherent in that credit facility, because another important part is the accordion feature we have.
That gives us the ability to borrow $425 million more for some holidays and periods associated with that. From a balance sheet credit facility perspective, Enerpac is in a fantastic position with this new facility. Where could we put that credit facility to work? We have talked a lot about M&A this morning. We have talked about what Vinay Varma brings to the table, but we have some key strategic criteria and financial criteria we want to make sure we hit with every deal. More importantly than this, I think many of you are aware, we have discipline in our process, and we are patient in our process. We will not overpay for a deal. We will not chase a deal. We want to go find good deals that create shareholder value. When I think of SFE, it comes with a couple key criteria. Strong brands, good gross margins.
Those are things that look like Enerpac. We want to buy more industrial tools, industrial solution companies. That is our knitting. That is what we do well. That is what we will continue to look at. People often ask, "What is the size of the funnel? Where are you going next?" I would say our funnel has things that are small. We think as small as $15 million, $20 million, $25 million, $30 million companies. We have medium-sized companies in there, and we have larger companies in there. For the next 12-18 months, we will be focused on that small and medium size. We need to do that. We need to pay down our debt. We need to integrate SFE to become that high-quality industrial compounder. The financial criteria I have on this page, they are not just our criteria. This is our board's criteria.
When we take a deal to them, they want to understand what the cash flow looks like, what does that say it is worth? Then we are looking at the ROIC in year three. Is it greater than WACC? Check. Are the gross margins strong, or the ability to get there? Some of those smaller, medium-sized companies, they do not have the purchasing power or the tools that Eric Chack can bring to the table.
But if they have that pricing power and they have that premium name brand, they are in our funnel. Finally, accretive to adjusted EPS. SFE is there in year one. Our goals are within two years, typically. That is where we are going to put some of this capital to work in the future as we look to become a pure play industrial tools and solutions compounder. Here is that prime example. We wrote this check last week.
It has been a busy week for Enerpac folks. Earnings, writing a check, coming to Investor Day, but we wanted to share all this good news with all of you. We think of SFE, we look at the financial criteria, 10.5x, $170 million of revenue, $44 million of EBITDA, very attractive margins to add to the Enerpac portfolio. Strategic criteria, I could not say any more. All check marks. This hit what we want to do for deals. Financially, yes, there are a couple open things there, but I guarantee you the deal model will hit these, and we are going to execute to that deal model. From an integration perspective, this is a bigger deal for us, but we have invested new PMO resources, consulting firms to help, and we are really deploying the two-in-a-box method. HR from each side, finance from each side, IT from each side.
We have the right people from each side of the organization to implement this successfully. We are excited about this one. I think the market has rewarded us over the last week or so for deploying capital in a very wise manner. As you think about the firepower, I talked about what we can do currently, is probably something on the smaller size. We do not have the capability. We do have the balance sheet. We have the credit facility. We think of in the next six, nine, 12 months, a $250 million deal, yes, we could do that. Guess what? We stay below that 3x leverage. Our target leverage is 1.5x-2.5x. If we had a stretch, would we go to 3x? Yes, we would consider it.
It is important in the near term for us to get that debt paid down. Longer term, obviously, as we continue to grow, add more EBITDA to the company, we could do bigger deals in the future. All this also comes with, do not forget, our accordion feature if we need to do this. So we have the capacity, and we are building the skills, and we have the skills to implement deals in our company. Now, I guess let us kind of go back to why we are here today. We talked a lot about grow, differentiate, expand. You heard from all my peers. This underpins who we are and how we are investing in the business. I do not know if they were sheepish, but my peers in this room, we have the cadence to execute this. It is weekly, it is monthly, it is quarterly.
We are tracking all of our investments. We track the ROI, we pivot, we adapt, we are agile in our processes. That is what is going to make PROPEL successful for us. As we think about the business, we have talked a lot about this new portfolio, new end markets. We look at an $835 million business. Now we have got hydraulic tools with legacy Enerpac, we have got fabrication solutions with SFE. A nice mix to add to our portfolio. From a geography perspective, we are now over half in the Americas. When you think about the near to medium term, that is the market we think you need to be in if you are an industrial player. That market is strong. We grew really strong in Q4, and we expect big things in the future from the Americas region. End market-wise, I call your attention to legacy Enerpac.
We have talked a lot about infrastructure power gen. Those have increased for us. Now, as we bring in SFE, we have specialized applications. You heard Vinay Varma talk about data centers. We are bringing more of that in. Semiconductors, mining, aero, defense, power gen, infrastructure. Those are the markets we are going to play in in the near term, because they have the right macro and secular trends behind them. Our largest market, industrial and MRO. We talked a little bit about today, but there is a tremendous amount of reshoring activity going on, and we are seeing a lot of bright spots there, particularly in the U.S. I think the growth story is clear.
PROPEL is not just a growth story, it is also a margin story. As you think about each one of these initiatives, take sales growth. Yes, we are going to win. Yes, we are going to use ECX.
We also have pricing rigor, analytical pricing tools, where we can capture value-based pricing to drive more margin. Think about innovation. You heard Mart talk about it. Speed to value. We are down below 18 months to launch a product. We have standardized platforms. All of that drives a margin benefit for the company. Then, of course, Eric, he has talked about the programs. I mean, the improvements in our supply chain in the last two years have been fantastic. That is the thing that just keeps feeding the engine when you have a supply chain that is working. Finally, we think about SG&A, the functional spend in the business. Eric talked a little bit about AI he is using in operations. We have our HR team using it in our HR platform.
We are bringing in new tools and new automation from a functional perspective to be able to scale in the future. Standing behind that, we have our center of excellence in India, where we can put transactional work to do on a much, much more favorable cost profile. As we think about the business model, it is important to talk about the incrementals and decrementals. As we go into this growth period, we look at these incrementals around 40%. Those can materialize in the business rather quickly. As we go into a growth trajectory, we will see this flow. What I will tell you is with PROPEL, we are going to invest back in the business, because we will invest back in the business to get that above-market growth. As I take you through the financials, keep that in the back of your mind.
There will be investment back in the business to get that growth. On the decremental side, if markets were to turn, going way back to the beginning, we have a track record of execution. If we need to take cost out of the business in a slower market, we will. We have proven an ability to execute that lever. As a reminder, this is our FY 2027 guidance, $825 million-$845 million, 4%-6% growth. Baked in that, importantly, is 10 months of SFE. We are excited about that coming into the family. As we think about the growth profile for FY 2027, I would say on the higher end, Americas will grow, SFE is going to grow, power gen, infrastructure, A&D, those will be at the higher end of the 6%. What is going to be a little bit slower for us?
Europe, still a slower market overall, but a tremendous synergy opportunity with SFE because they have very little presence in Europe. Our services business, we are still stabilizing that. There is still a conflict in the Middle East that we will work our way through, but that business is better positioned where we are today. That is the makeup of the FY 2027 baseline. That will flow down to EBITDA at the midpoint, about $200 million, which is 24%, which we are very, very proud of from a margin perspective. The focus for 2027, hit these targets, integrate SFE, execute on PROPEL. That is very, very clear what we need to do in 2027. Paul flashed this up earlier. This is as we think about the longer term. This 4%-6% growth, this is based on a market that is growing 2%-3%. This is the organic growth rate.
Organic growth rate. M&A is on top of this growth. If markets pick up, we will expect to grow faster. But where we sit today, 2%-3% market, 4%-6% growth, 200-300 basis points better than market. That will flow down to EPS at 10%-13%. Over the period, free cash flow conversion of over 100%. I say over the period because in FY 2027, we may be investing back in the business as we integrate SFE. How do we get there? This is the walk from where we sit in FY 2026 to near $1 billion in FY 2030. First, we have the market. This is a market growing 2%-3%. With our incrementals we talked about, that will flow to the bottom line, drive about 40 basis points of EBITDA margin accretion. Then we will get to grow with Phil.
Here you have commercial excellence, but in the broader sense, we have already funded 10 initiatives here. Distributor excellence, app-based sales, e-commerce, aftermarket, the things you heard Phil talk about, we are already funding to drive this growth. That will fall down to the bottom line at about 50 basis points of EBITDA margin accretion.
Next, we will jump to differentiate. Over the period, we expect to launch 20+ NPDs. We have got some of those in motion, we got those in flight. Those will differentiate us in the market, and they are not me-too products. Hopefully you heard that as Mart talked about these products. They expand our markets, they solve problems, and they are solutions. It is not just a new color or a new tool. Those will be margin accretive too, falling to the bottom line at about 30 basis points. Finally, with expand, a little bit less revenue here.
This is a lot of operational excellence and improving services, but with that, you get a significant margin lift of around 50 basis points over the period. As we step back, we see ourselves in FY 2030 organically as a $1 billion business at a 26% EBITDA margin. It is also important to understand how that growth looks by product line. Standard product, this will become about a $750 million business. That is our pumps, our cylinders, it is SFE, it is more of the OPEX tools that we expect to grow 4%-6% through the period. HLT, you heard a lot about today. This business has been performing very, very well. We think this will grow faster than our standard product business through the period. Finally, our service business. Our service business, we expect to grow 2%-3%.
As you heard today, we are disproportionately investing larger dollar amounts in our product business because we think it can grow faster at higher margins. Again, this is the organic playbook. Anything inorganic would be on top of this. It is also important to understand, we deliver that, are incentives aligned? Quick answer to that is yes. When you look at our short-term incentive plan, we have nearly every employee on this plan. There is four levers to it: cash, EBITDA margin, EBITDA dollars, organic growth. Those align very well to what we just talked about from a PROPEL perspective. We have our employee base aligned to delivering these in the short term. From a long-term perspective, one of the benefits of Enerpac, and I think one of the things that helps us grow, is we have almost 10% of our employees in our equity program.
That means they are shareholders in this business. They want to see us succeed. How do we measure that? A third adjusted EPS, a third ROIC, and a third TSR, metrics that are aligned to the long-term health of the business. As we think about those long-term plans, any employee that gets greater than $20,000 in equity, it is half RSUs and half PSUs. The PSU component is important. We drive performance and accountability in our business. We have talked a lot about our peers and how we measure performance. This is the chart we look at quarterly. We have roughly 30 industrial peers that we benchmark against. As we look at this over the past period, adjusted EBITDA margin, we are 220 basis points better than our peer set. Margin expansion, we are six times better than our peer set.
With that margin expansion comes free cash flow generation, 29%. Our peers are 17%. That is the median of the peer set, okay? Now, granted, we look at the median to judge our performance. Are there people better than us? Yes. That is what we are aspiring to be, and that is what PROPEL is going to help us do. We do all this with a strong ROIC. You can see we are four points better than our peer set at 13.5% versus 9.3%. Now, I would say on the sales side, the peer set was a little bit faster. We recognize that. As we unpack that, it is important to note our product business was growing very strong through this period.
Service, especially recently, we have talked to many of you about the Middle East conflict, which is about 30% of our business, as well as some macro events in the U.K. slowed that business down of recent, but we have taken some cost out and repositioned that business. This is how we measure success for us in the market. Now, we turn that to valuation. You can draw your own conclusion there. I think from a valuation perspective, we think there is some opportunity here, especially with PROPEL as we begin to drive those returns in the future. As I think about it, you have growth drivers, profitability drivers, directly aligned to PROPEL and directly aligned to a leader in this room.
You couple that with a free cash flow generating engine, a strong credit facility, ability to do M&A, you have a high-quality industrial compounder, and that is what we are looking to become. With that, I will turn it back to Paul.
Great. Thanks, Darren. I will close out, and then we will move to the Q&A session. I think the team did a great job of highlighting why we are so excited about Enerpac and the go-forward plan and strategy, and just excited about the future and the compelling value creation opportunity for our shareholders. I just want to remind folks of the five core reasons to invest in Enerpac. Firstly, we are serving customers in mission-critical applications and attractive end markets with favorable growth tailwinds. We have moved from ASCEND to PROPEL. You have heard that term PROPEL a lot today, but we are really excited about the strategy that we have built and the strategy that we are executing on. We are expanding our technology and our market leadership with a deep, deep focus on innovation and solving customers' problems, pain points, unmet needs. You heard that from Mart.
We are doing this driving sustainable top quartile returns. We are leveraging those competitive advantages, and Darren talked about our very disciplined capital allocation process. This is all being driven by this team, this experienced and empowered management team that you see here today. We are super excited about what we believe is a very compelling multi-year financial algorithm that Darren took you through. It is focused on profitable, above-market organic growth, very strong margins, top quartile ROIC, and exceptional free cash flow. Today, Enerpac is better positioned than ever before in our history, I think, to create meaningful and durable shareholder value. Thank you all for joining us, for those here in person and for those on the webcast. Now I will invite the rest of the management team to join me up here for some Q&A.
I will take that.
Give us a sec as we arrange all the chairs.
Nice work. Good work. Oh, that's way too close. Pull those chairs apart.
Yeah, just-
Let's go fix this.
Just All right. Oops. Thank you very much.
Thank you, gentlemen.
Alrighty. Okay, as our management team takes their seats, we are going to follow a similar approach for the Q&A session. If you have any questions here in the audience, please raise your hand. We have our team members with two microphones. If you are in the webcast, please just use the Q&A chat option, and then you can put your question in, and we will try to get to as many as we can. With that, let's open it up for questions. Please.
Yeah, thanks. Is it on? No. I do not know if you can hear me with this, but, yeah, thanks, guys, for taking the time. Nate Burggraf from Capital Group. I was curious on the M&A, the things that you outlined look really attractive, but I would imagine you are not the only one that would be interested in businesses like that. How many are out there that you have on your list? I know you will not want to give an exact number, but is it five? Is it 25? Is it 100? Is it more? How do you find them?
Yeah. Well, I can address that. I think Darren and even Vinay Varma can also comment a bit. This whole management team is involved in every aspect of our M&A program, from early stage identification to cultivation to obviously the diligence, and then, of course, integration. To answer your question, we have a pretty large funnel. We have, I would say, well over 100 targets in there. Obviously, some of them are at various stages of discussion, some further along, some are just ideas at this stage. To Darren's point, they are small, medium, and we have larger opportunities in there. The key is that they have to look like Enerpac, right? They could be smaller, but we are looking for premium position industrial solutions businesses, trying to stick close to our knitting.
We are pretty agnostic geographically, and also to a degree in terms of end markets, but obviously, we want to lean in where they have very interesting growth dynamics in the markets that any given business is serving. We get ideas from all across the board. We certainly source those ideas proactively ourselves, utilizing this team, utilizing our commercial team that is out in the market engaging with our customers every day. We get ideas from them about what kinds of products, solutions they are already buying that could be complementary in our portfolio. Obviously, we also engage with third parties who bring ideas to us proactively as well. I would say the vast majority of things in our funnel are proprietary. They are things that we have identified or are having conversations.
We will evaluate and sometimes participate in processes where there might be multiple buyers, but the important thing to remember is we remain extremely disciplined at the end of the day, and I think you have seen us do that and hold our dry powder for quite a while until we can find the right opportunity.
You want to go first? Go ahead.
No, I would just echo what Paul said. I would say the patience and discipline is key. I do think M&A at Enerpac is a team sport. To Paul's point, a lot of ideas come through the innovation funnel. When we have our engineers out there in the field looking at tools, looking at tool cribs, when they come back in and say, "I saw this, I found this," that is how the ideas resonate. A lot of those ideas are with companies that perhaps maybe look more like DTA, what we have done in the past, where they are family-owned companies, $20 million, $30 million. It takes time to cultivate that relationship, and we will do that over time. That goes back to the patience aspect, because you cannot pull the trigger on some of those right away, but we have the patience to wait.
Well, I can only say that Enerpac has great choice because they picked SFE. On a more serious note, during the whole diligence process, even when we were a potential target, I have only seen discipline, which is what Paul stresses on more. It is a very disciplined approach on how they pick a potential target. As you saw, hopefully, through my presentation and all the other presentations today, SFE is a great fit for Enerpac, and that is what it is. It is a cultural fit, it is the scale, it is the diversity, it is the end markets, it is the global reach. All of that, premium brands, great margin. I think all of that has been a good checklist that Enerpac has had in order to pick the potential targets. I am a good example, or SFE is a good example of it.
When we have discussed with them the potential M&A pipeline that we had, the discussions have only gone in the same direction. Paul was saying, he was there with us in Vegas not too long ago, walking around trying to build a shopping list, or we had a shopping list and kind of just vetting it. The questions we got from Paul, and with Darren and the other management team members over the months that we have spoken with them, I clearly see a very kind of baseline of very strong discipline on how we identify targets and hopefully identify more going forward, and then execute on them.
I will No, please go ahead. While you get to it, because we got a question online that is related, so just take advantage of it. Darren, as maybe guided to you, along Nate's question, do you show the capacity of how much there is to spend? The question is, with the accordion, how much would the company have together with the existing capacity to spend on acquisitions?
I would say a couple things. In the near term, our focus is really on integrating SFE, because we need to be successful there. Number two, we are still shopping, because it takes a long time for deals to come together. Specifically to the accordion, that is an incremental $425 million. I think where we sit today, our shopping list is more on the small and medium. If we were to exercise that accordion, it would probably be once we get through an integration, maybe a couple small bolt-ons or tuck-ins, because that would be another large deal, and we need to nail SFE, because we have got a great integration plan underway.
Great. Thank you.
But I will emphasize on the smaller deals, we do have active discussions underway with all sorts of interesting opportunities. So, don't be surprised if you do see us transact on smaller bolt-on or tuck-ins here, even in fiscal 2027.
Thank you. I think there was a question there. Thanks. Ben?
Ben Bryan from Jennison. Maybe for Darren Kozik, two margin questions. So you're investing in fiscal 2027, that's going to keep margins somewhat under check, if you will. I just want to confirm that that spend is likely to be limited to 2027 based on what you laid out in terms of the margin expansion through 2030? Or kind of a corollary question is, how do we think about that 200 basis point expansion being linear or back-end loaded? Then the second question is, with the different category growth rates, the 4%-6% and the HLT growing faster than that will be a margin drag on gross margins, but services growing slower, that's also a margin drag. Like, how do those net out in terms of how do we think about the gross margins over the planning period?
Yeah, I would say, just to kind of get everyone grounded from our three business lines, the first position, our standard products business, tends to run a little bit north of our portfolio average from a margin profile. If you think of our portfolio average around 50%, our standard products are a little north of that. Our HLT business, just given the capital nature of it, tends to run in the low 40s, and then our service business tends to run around 30%. As you think about this time horizon, different growth trajectories, you have a mix play there that will impact those margins. HLT, to your point, will be a little bit of a margin drag as we see some of that growth come through.
But one of the things that we talked about today, we are also developing aftermarket solutions, other solutions for HLT to help that margin profile. Those are other PROPEL initiatives that we have that we will start to launch and fund as we see things materialize. Now, I would say the shape of the margin profile, FY 2027 is an investment year back into PROPEL. You saw 40% incrementals. If you do the math, it's a couple points lower than that because we're investing back in the business to get the growth. We're also investing back in working capital. You heard Eric talk about torque and tension, some of the other things we're doing where we need more inventory to get that growth.
In terms of the out years, 2028, 2029, 2030, Ben, I think as we think about it, as we see success, if there's opportunities to drive more success, we'll double down on investment to capture that growth. So, we'll play it kind of over the next 6-12 months to see what materializes, what markets grow. But 2027 will be a bit towards the lower end. I don't know, Paul, if you want to add to this.
Yeah, the only thing I would add is it's not a hockey stick on margin. We've given guidance for 2027. You can calculate the midpoint there. I think in the out years, you can expect for us to see margin improvements generally each year. It's not like we're waiting till fiscal 2030 for that. Obviously, unless other things, market conditions or other opportunities or challenges present themselves. The only other point I was going to make is, yes, HLT is a bit margin dilutive. Obviously, it's been growth accretive for us. It's a great business. We like it. But we're planning to continue to drive margin improvement across the portfolio, including HLT. One of the things that's made HLT extremely successful is not only our technology, but also lead times.
In the data center and AI and the related power gen space, we are helping customers solve problems with HLT. One of the reasons they are coming to us is because we can deliver very, very quickly. Said differently, price is secondary in terms of consideration. So, we have opportunities not just on cost, but price as well to continue to improve our margin position on HLT.
Great. Question in the back row.
Hey, guys. Ross Sparenblek with William Blair. A lot of good information today, so thanks for putting this together. Maybe just to start off on this concept of visibility, we talked a lot of growth buckets around new products, connectivity, streamlined sales and marketing. Where is kind of the biggest lift for driving that visibility throughout the portfolio, and how do you expect it to broaden over time?
I think if you kind of look at the financials we put out there, I think the largest lift and the biggest opportunity we have is in the grow bucket. If you think about speed to value from a commercial perspective, you can execute a lot of those things faster, Ross. A lot of our early investments have gone into Phil from a commercial perspective, because we also have the underpinning of an operating system with ECX. So, I think one of the things you need to remember is growth of the initiatives underpinned by ECX, which is the rigor you need to succeed in those growth initiatives. Phil, you might want to articulate, even enterprise selling or kind of what we are doing in some of these to give Ross a flavor.
Yeah, I think I put it on the presentation. There's a number of PROPEL initiatives, but underpinning that is ECX, and there are things like enterprise selling. I think when we had the three regions and operating separately, probably a little less coordinated than we are now. We've got a real opportunity. We're making specific investments in targeted areas like the data centers, which we'll see returns, and in our service business, investments in the North Sea that we're making, which are already delivering returns as well. I agree with Darren. For me, that's the biggest and most immediate focus area, as we've just sharpened our focus and put investments in there, underpinned with ECX and some of the wider initiatives like enterprise selling, strategic account selling, et cetera.
And I would just make two follow-on points linked to that. I think one is cross-selling, clearly with SFE, big opportunity for us within our sales organization and within the channel that we serve as well. Then I think more broadly, as we do add more capacity in the sales organization, Phil talked about several headcount additions in the U.S. market for data centers, for example. With ECX and with all the Enerpac Academy and the capability we have, we can ramp up that commercial talent pretty quickly to be very productive in the market. So, those are pretty sort of more near-term opportunities for us to see real revenue impact.
Yeah, no, I think that's helpful. Then just one more on the SFE synergy targets. We do get some pushback on the timeline and kind of a lack of bite there. Today, we spoke about a lot of margin levers. Feels like there's still room to go. It seems like there's a lot of opportunity noted within SFE as well. So, can you just maybe speak to the decision to not upgrade those targets and how we should expect that message to evolve over time?
Yeah, maybe I'll start. I think Darren can comment more on the status of the integration itself. Look, I think we set those targets in July when we announced the deal. We just closed. Now, we've had time, obviously, to work with the SFE team on integration planning, which has given us increased confidence in our ability to hit the targets that we established. We haven't changed those numbers yet because we only owned them for a week, and we need to see how that progresses. What we say is, every dollar is green. We will certainly go for more if there is more to be had. This is what we can see that's identifiable in our roadmap that we know we have the resources to go tackle and action behind. Is there more there? We'll see over time.
I'd say the only other comment is, when we looked at the overall deal economics of the transaction, we felt it was good value for what we were able to get in terms of the purchase price of the business. For the deal economics to still be very attractive for our investors at the end of the day and generate a strong return profile, it's not like we needed to have some very significant stretch targets on synergies to make those economics work. But rest assured, this management team will go for every dollar available, and as we find more, we'll obviously update our investors accordingly.
Yeah, the only thing I would add, Ross, is we think about the year. As we talked about FY 2027, it's hit our financial targets, integrate SFE, execute PROPEL. As in our quarterly rhythm with our quarterly earnings, expect to hear a lot more about updates on those to keep you all abreast of latest movements, what we're learning, what we're seeing, and what we're driving.
Great. Thanks, Ross. Any other questions in the audience? Got another one with Will.
Hi, Will again. The results in Q4 in the Americas was extremely strong. The language for the market is bullish. Can you just expand on what you're seeing and why the current environment appears durable?
Yeah, Q4 was great for Americas. There was a lot of focus by the commercial team, particularly with our core distribution and with national accounts as well. If you see some of our national accounts, they are also performing well. We had very strong focus there. In addition, we have talked about some of the large orders that we had from data centers and the AI infrastructure build-out, so we had it particularly strong there. Also, the U.S. services business, we made some investments in Q3 in some people to improve our position on approved vendor lists, for example, particularly within shipbuilding and defense, and that started to have an impact as well in Q4. That is particularly exciting, and I am looking forward to seeing that continue as we head into FY 2027.
Yeah, I would just add comments to that, which is, the market is clearly helping, but when you saw our product growth in the Americas in Q4, I do not think the market is growing clearly that strongly. So, to Phil's point, we are outperforming, but I think we are seeing not just the dynamic play out of power gen and AI data centers, but to Darren Kozik's point earlier, a lot around reshoring activity in the U.S. market, and I think we are seeing the benefits of that as well.
Great, thanks. Just one more. A lot of great examples in the slides of developing a new solution with the customer, making that into a standardized product you can sell to others. You have brought down development times. So, what does new product vitality look like in recent years, and where do you think it can go from here?
We do not disclose, let us say, a specific vitality number because we are focused on, let us say, launching products, launching faster, and launching more to the market. Let us say the mix of products we have launched, the time lag for them to get accepted, most products also take, let us say, some absorption time before, let us say, the new technology, the new method is directly turning into revenue. Some of the products, and a good example is the Cube Jack. We have launched that product many, many years ago, but it took many, many years to ramp to get accepted as a method statement by, let us say, the heavy lifters to execute that job. So, just focusing on a single NPVI number, we are not disclosing it anymore.
Our biggest focus is for now launching more products, launching them more quickly, and with that, let's say, as the leading indicators, drive more true incremental revenue growth.
I would maybe just a couple points to add from what Mart said. I think one is another way to look at a measure, our progress we are making on innovation, well, two things. One is just the number of product launches and the acceleration, 11 launches in fiscal 2026 versus five the prior year. And frankly, we are on pace for in fiscal 2027 to do similar, if not better, to what we did in 2026. The second is you can see annually in our Form 10-K, we report our investments in R&D, and we are increasing the pace of investment in R&D generally every single year. Also, some people do the math and say, "Take that number, divide by total revenue for Enerpac, and look at that percent." I would remind you that R&D is almost exclusively focused on our product business.
If you do the math, the denominator is not our full revenue, it is really our product business. I guess the only other point I would make is when I joined Enerpac a little over five years ago, we did have vitality rates that we looked at internally, and I think at one point even disclosed externally. But actually, it ended up driving a lot of sort of bad behavior because what we had was a lot of stuff that was me too, it was not incremental, it was cannibalistic, and teams were really focused on activity of product launches, getting revenue from new products, but it was not really incremental. It was not all solving customer problems or pain points or unmet needs.
It was not really meaningful, needle-moving innovation for us, and we just want to direct our team to help customers solve problems every single day, do that with differentiated technology, make great margins, and have a big meaningful impact in our P&L. We think vitality rate is not necessarily the right way to look at that.
Any other questions? Let me get one here that I just got online for Eric, for you on the operational front. The question is, how quickly do you think you can leverage opportunities that you've converted with Enerpac and apply them to SFE?
Yeah, I don't think the timing could be better. We had a head start with the Enerpac effort, right? So we've had a year and a half, two years to build those systems, bring the talent in, get some repetitions, get the momentum going, get to a point where we're shifting from kind of building that muscle to executing. It's perfect timing now for SFE to merge in. We don't have to recreate that sourcing function. We don't have to recreate those data pools. Those guys are going to be very much plug and play for us. I mean, really, the only task for us is finding the right champions on that side of the business that we're going to partner with to drive those savings. I think we're going to see a much quicker uptake and conversion rate for SFE.
Yep. I was going to say yesterday, but that's a better answer.
Thanks, Eric. Okay, any other questions from the audience? I have one more here for Paul. I think it touches on something you already talked about when you were answering Will's question. They see the graph that you showed with the pro forma geographical distribution of Enerpac plus SFE growing the Americas. The question focuses on, as you pursue new acquisitions, how do you foresee this geographical mix changing or staying the same?
Yeah, look, I think we are generally agnostic geographically. I think we think more about the future potential of any acquisition as opposed to necessarily where their footprint is today, particularly as we think about smaller bolt-ons and tuck-ins. At the end of the day, what we are looking at is we may find an opportunity, it might be a privately owned, family-owned business that operates largely in one region, maybe they are a European business, but we can take them to the Americas or U.S. market and help them grow. So we would not say we are not interested because they are not playing in the Americas. Rather, we would say we are quite interested because we can help them expand geographically. We still have diverse geographic exposure. Yes, a heavy skew to the Americas.
We like that for the foreseeable future, but we do like the global nature of our business today, and we do want to maintain that. So if you look in our funnel today, you will see U.S.-owned businesses, European-owned businesses, some Asian businesses, et cetera. At the end of the day, it is really around the quality of the business and what we can do together and help them grow.
Thank you. As we are coming close to time here, any other questions from the audience? Okay, because we do not have any more here. With that, I want to say a couple of things. The presentations are available on the website. There is going to be a replay of this webcast on the website as soon as we are done. If there are any questions left on the webcast, just reach out to me in investor relations, and we will take care of that. Any questions left here, you have a great opportunity now with the luncheon to engage with the whole management team. With that, we thank you so much for your participation here on the webcast, and we bring the program to a close.
Great. Thank you all for joining us. Appreciate it.
Thank you.
Thank you, everyone.