Grafton has strong M&A pipeline; targeting existing geographies
Grafton Group (GFTU:LN), the Ireland-based building materials group, has a good acquisition pipeline and sees further opportunities in the UK and Belgium, according to CEO Gavin Slark.
During his prepared remarks on Tuesday’s 4Q14 earnings call, Slark described the company’s financial position as “robust,” putting it in an excellent position to invest in growth.
“And we have got a good pipeline of acquisition opportunities,” he continued. “But what I would say on acquisitions is, we will only buy businesses and bring them into the group, if we believe we're getting them for a price that is good value and that they bring incremental shareholder value to the group, as opposed to just being bigger.”
A presentation slide shown on the call said Grafton had a net worth of GBP 902m, including cash of GBP 182m and undrawn facilities of more than GBP 200m. It added that the company’s net debt of GBP 75m was its lowest level since 1999.
In the Q&A session, Citigroup Global Markets analyst Aynsley Lammin asked if the company’s M&A efforts would focus on existing geographies or if it could seek to enter a new country or region.
“[W]e're predominantly looking in the existing geographies. So certainly in terms of the UK and Belgium,” the CEO replied. “[W]e are looking at other European geographies and, at some point, we will find the right deal at the right price in the right geographic territory, with the right management team that brings the right value into the group.”
Slark noted that while he would not be surprised to find a deal in a new region, Grafton would not rush to find one.
“Whatever we do, it'll be well thought out, it'll be well planned, it'll be well managed and hopefully when we come to the market with whatever that move is, you'll all look at it and think it's quite sensible in terms of continuing to grow the Grafton Group, but there are still opportunities for us in the UK and in Belgium,” the CEO concluded.
In a follow-up question, the same analyst asked if the company could look to buy a specialist kitchen business in the UK. Slark said Grafton already had a significant presence in the market via its existing merchant chains, selling a lot of kitchens through its Buildbase operations and In-House brand.
During his prepared remarks, the CEO noted that Grafton had made three small UK bolt-ons last year, namely, Beaumont Forest Products, Crescent Building Supplies and Direct Builders Merchant (DBM), with the first company providing it with a specialist in the timber market.
He said the company’s two Belgium-based buys in 2014, MPRO and Ginion, gave Grafton a good spread across the country. Slark added that the company’s recently announced purchase of UK-based TG Lynes fit well with its Plumbase Industrial business, predominantly in the commercial plumbing and heating market.
Grafton operates in the Merchanting, DIY Retailing and Mortar Manufacturing markets in the UK, Ireland and Belgium.
The company announced earlier this month its purchase of TG Lynes. In December, it bought Crescent, a three branch merchanting business with revenue of GBP 10.5m, while GBP 4.8m revenue DBM was acquired in September and Beaumont in June. The terms of the deals were not disclosed.
Grafton also bought Binje Ackermans, a six branch builders’ merchanting business trading under the MPRO brand, in June for EUR 20.5m. Gedimat-Ginion, a single branch general merchanting business with revenue of GBP 3.2m, was bought in October for an undisclosed sum.
Last year was Grafton’s most acquisitive since 2005, when it made a number of purchases in Ireland. The company’s M&A efforts have been relatively light in the intervening years.
Squire Patton Boggs was retained for several of Grafton’s most recent acquisitions, according to the Mergermarket M&A database. Arthur Cox was previously used on a number of buys from 2003 to 2005, while Lyons Davidson advised on multiple earlier transactions.
Grafton’s 2013 annual report names Arthur Cox, A&L Goodbody, Norton Rose, Lyons Davidson and Squire Sanders as its solicitors. The latter merged with Patton Boggs last year.
Grafton has a market capitalisation of GBP 1.7bn.