Norcros agrees to buy Merlyn in £60m deal

Supplier of branded showers, taps, bathroom accessories, tiles and adhesives Norcros has agreed to acquire branded shower enclosure designer and distributor Merlyn Industries for total consideration of £60m on a debt free, cash free basis, it announced on Thursday.

The company also announced its intention to conduct a firm placing, and a placing and open offer to raise gross proceeds of £31.4m, to part-fund the acquisition through the issue of 18,254,161 new ordinary shares in Norcros at a price of 172p per share.

Norcros said it would be a “strategically and financially compelling” transaction for the company.

In the year to 31 March, Merlyn reported revenues of £30.7m and operating profit of £6.4m, the Norcros board pointed out, adding that the acquisition was consistent with its strategy to “enhance” its bathroom product portfolio.

It would result in the addition of a number of “well-established and market leading” brands to the group's existing portfolio.

Merlyn reportedly enjoys established multiple sales channels, which would provide end market diversification and future growth opportunities, with its management team to be retained, led by Charlie Soden.

The acquisition was expected to be earnings enhancing in the first full year of ownership, with the return on investment expected to exceed Norcros' cost of capital.

“The acquisition of Merlyn with its premium brands and market leading positions is an exciting addition to the group, substantially broadening our bathroom product offering,” said Norcros group chief executive Nick Kelsall.

“Merlyn's focus on design, new product development and its standard of customer service will significantly enhance the group's portfolio.

“I look forward to working with Charlie and his team, whose experience and enthusiasm for the business has impressed greatly, as we look to grow and develop the Merlyn business further.”

Norcros explained that, with the firm placing, and the placing and open offer, the placing price represented a discount of 5.9% to the closing price on 1 November.

It proposed to raise £10.6m through the issue of 6,165,312 placing shares pursuant to the firm placing, and £20.8m through the issue of 12,088,849 placing shares pursuant to the placing and open offer.

The capital raising will be used to part-fund the acquisition, with the balance of the consideration and associated transaction costs to be funded from the group's new £120m debt facility.

“I have admired what Nick and his team have achieved at Norcros, growing the business both organically and through its acquisition strategy,” said Merlyn founder and majority shareholder Michael Hoyne.

“I am sure that Charlie and the team will embrace the opportunities that being part of the enlarged Norcros family with its range of channels, products and international breadth will bring, as they look to drive the Merlyn business on to the next level.”