Marlowe enters hygiene business with Ductclean acquisition

Support services group Marlowe has agreed to acquire Ductclean for a total enterprise value of up to £10m, it announced on Thursday.

The AIM-traded firm described Ductclean as a “UK market leader” in ventilation maintenance, ductwork cleaning and management, kitchen extract cleaning and contamination remediation services, including asbestos remediation.

It said the business, operating nationally from a head office in Welwyn Garden City, was founded in 1998 and currently employed 185 people.

Ductclean’s key customers included national hotel and leisure providers, airports, NHS trusts, universities, local authorities, and FTSE companies.

“The acquisition of DCUK represents Marlowe's first step into the air hygiene market, where it will form the basis of a new division to sit alongside the group's existing activities in fire and security, and water treatment,” Marlowe’s board said in its statement.

“The board believes that the air hygiene market shares attractive key characteristics with the fire and security, and water treatment markets, including a significant element of non-discretionary spend, strong regulatory and legislative drivers, a degree of operational and technical complexity which favours outsourcing, and the same channel to market, which provides opportunities for cross-selling.

“In addition to providing the group with a presence in a new complementary service sector, the market in which DCUK operates is currently highly fragmented and offers significant scope for consolidation.”

For the year ended 30 September 2016, Ductclean UK reported revenues of £16.7m, underlying EBITDA of £1.8m - adjusted for non-recurring items - and gross assets of £6.0m, including freehold property which has been independently valued at £1.5m.

Marlowe’s directors said they believe the acquisition would immediately enhance group earnings.

The acquisition of DCUK included cash consideration of £4m, which would be used in part to repay debt of approximately £2m.

“The acquisition of DCUK significantly extends the scope of the group's activities into a new complementary service sector with strong recurring revenues and where growth is driven by stringent health and safety regulation,” said chief executive Alex Dacre.

“The air hygiene market is currently highly fragmented and this will provide Marlowe with increased acquisition-led growth opportunities alongside our existing fire and security and water treatment businesses.

“We look forward to DCUK joining the group and to the substantial contribution that it will make to the continued development of Marlowe into the UK's leading provider of critical asset maintenance services.”

In addition, Marlowe said it will issue of 878,031 new ordinary shares of 50p each, at 393.88p per share, representing an aggregate value of approximately £3.5m, to the Ductclean management team who will lead Marlowe's new air hygiene division.

“The consideration shares are subject to a lock-up period of up to 60 months with orderly market conditions attached after this period,” Marlowe’s board confirmed.

“An additional earn-out is payable of up to £2.5m, which can be settled in cash or ordinary shares at the company's option.

“The earn-out shares would be issued at the market price at the time of issue and subject to the same lock-in period.”

Marlowe also announced an oversubscribed placing with new and existing institutional shareholders on Thursday, to raise approximately £10m.

The proceeds of the placing, along with the company's existing £18m debt facilities, would be used to fund the cash consideration for DCUK and to support plans for further acquisition-led growth.

Marlowe said it had approximately £17m of net headroom under its current debt facilities.