REG - Diploma PLC - Strategic acquisition in European Fluid Power

DiplomaAnnouncement

13/07/2023 07:15

For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20230713:nRSM8553Fa&default-theme=true

RNS Number : 8553F  Diploma PLC  13 July 2023

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION

 

13 July 2023

Diploma PLC

Strategic acquisition of European Fluid Power platform

 

Diploma PLC, the value-add distribution group, is pleased to announce the
acquisition of Distribuidora Internacional Carmen SAU ("DICSA"), a
market-leading distributor of fluid power solutions into the European
aftermarket for an initial consideration of ca. £170m (€200m).

·     A high quality business: DICSA has significant customer value-add
based on quality product, breadth of range, technical service, and speed to
market. This customer proposition has driven a long track record of
double-digit organic growth at attractive margins.

·     Strong strategic fit: the acquisition adds to our established
positions in the US and UK, expanding our aftermarket fluid power capability
and accessing key strategic markets in Continental Europe. DICSA is based in
Spain with good exposure across Europe, particularly France and Germany. With
small market shares in these significant economies, the differentiated
proposition can continue to drive strong growth.

·     Attractive valuation: the initial consideration of £170m
represents a multiple of 9x 2023 EBITDA. The acquisition will be earnings
enhancing and exceed cost of capital from day one, and the business will be
accretive to the Group's organic growth and margins. There are also material
revenue and cost synergies with our existing fluid power businesses in the UK
and US, accelerating the journey to 20% returns over the next three to five
years.

 

High quality fluid power aftermarket business in Continental Europe

The acquisition of DICSA builds on Diploma's established track record of
driving future organic growth through acquisitions at excellent returns and
fulfils the key characteristics we seek:

·     Fluid power product capability: DICSA is a value-add distributor
of a diverse range of hydraulic hoses, fittings and components, a product set
with which we are familiar, and similar to that offered by our UK Aftermarket
Seals business, R&G.

·     Attractive aftermarket business:  this is a model we like which,
together with a highly diversified customer base, has underpinned DICSA's
resilience.

·     Quality value-add business: similar to our other fluid power
businesses, DICSA's market-leading reputation and value-add is based on
breadth and availability of product; technical capability; and speed to
market. This is reflected in strong operating margins of over 20%.

·     Impressive organic growth track record, exciting potential: the
business has delivered long-term organic revenue CAGR of 11% and has
significant headroom for continued growth in fragmented markets.

·     Access to white space in Europe: DICSA is present in key European
markets including Spain, France and Germany. The business has significant
potential for further development in all European markets.

·     Excellent management team: a highly experienced management team,
led by Daniel Carmen, have successfully grown the business for over 30 years.
We are delighted that Daniel and his team will remain with the business under
Diploma's ownership, based at DICSA's existing headquarters in Zaragoza.

 

Compelling financial rationale

For the 12-month period ended 31 December 2022, DICSA generated revenue of
€87.7m and adjusted EBIT of €20.2m. Gross assets at the end of the period
were €78.9m.

 

The acquisition will be accretive to Diploma's organic growth and margins.
DICSA has achieved long term organic revenue CAGR of 11% with EBIT margins of
more than 20%. It will be immediately EPS accretive, adding ca.5% to EPS
growth during the first full year of ownership, and will cover its cost of
capital from the outset. We are also excited to accelerate performance and
returns with revenue and procurement synergies between DICSA and our existing
businesses:

·    cross-sell existing product from our UK Aftermarket business,
R&G, through DICSA's platform into Europe;

·    accelerate DICSA's growth in the US, leveraging our Seals North
American Aftermarket platform; and

·    deliver consolidated procurement synergies.

 

The initial consideration of ca.£170m has been paid in cash, funded from the
Group's recent equity raise and existing debt facilities. In addition, up to
ca.£19m is payable based on DICSA achieving stretch profit targets in 2024
and 2025. We remain disciplined and our balance sheet is strong, with
flexibility for continued investment; year-end leverage is expected to be
ca.1.0x, assuming no further acquisitions. We expect Group ROATCE to remain
strong, at around 18%.

 

The Group has also separately issued its Q3 trading update today for the nine
months ended 30 June 2023.

 

Johnny Thomson, Diploma's Chief Executive said:

"I am delighted to welcome Daniel and our new DICSA colleagues to the Group.
They have created an exceptional value-add business with a very strong market
reputation. We know and like the fluid power aftermarket model and DICSA
satisfies a key strategic priority: accessing large European markets. The
business is already generating strong performance and there are significant
opportunities to enhance returns by working together across Europe, the UK and
the US. This deal continues our strong track record of acquisitions that drive
organic growth at great returns."

 

 

For further information please contact:

 Diploma PLC                                +44 (0)20 7549 5700
 Johnny Thomson, Chief Executive Officer
 Chris Davies, Chief Financial Officer
 Kellie McAvoy, Head of Investor Relations

 Teneo                                      +44 (0)20 7353 4200
 Martin Robinson
 Olivia Peters

 

NOTE TO EDITORS:

Diploma PLC is a decentralised, value-add distribution Group. Our businesses
deliver practical and innovative solutions that keep key industries moving -
from energy and infrastructure to healthcare.

We are a distribution group with a difference. Our businesses have the
technical expertise, specialist knowledge, and long-term relationships
required to deliver value-add products and services that make our customers'
lives easier. These value-add solutions drive customer loyalty, market share
growth and strong margins.

Our decentralised model means our specialist businesses are agile and
empowered to deliver the right solutions for their customers, in their own
way. As part of Diploma, our businesses can also leverage the additional
resources, opportunities and expertise of a large, international and
diversified Group to benefit their customers, colleagues, suppliers and
communities.

We employ ca.3,000 colleagues across our three Sectors of Controls, Seals and
Life Sciences. Our principal operating businesses are located in the UK,
Northern Europe, North America and Australia.

Over the last fifteen years, the Group has grown adjusted earnings per share
(EPS) at an average of c.15% p.a. through a combination of organic growth and
acquisitions. Diploma is a member of the FTSE 250 with a market capitalisation
of c.£4.1bn.

Further information on Diploma PLC can be found at www.diplomaplc.com
(http://www.diplomaplc.com)

 

 

This Announcement contains inside information for the purposes of the Market
Abuse Regulation (Regulation (EU) No 596/2014), as it forms part of retained
EU law in the United Kingdom by virtue of the European Union (Withdrawal) Act
2018 ("UK MAR").

 

The person responsible for releasing this Announcement is John Morrison,
Company Secretary.

 

LEI: 2138008OGI7VYG8FGR19

 

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
 or visit
www.rns.com (http://www.rns.com/)
.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
.   END  ACQBIGDRUDBDGXD