REG - Norcros PLC - Proposed Acquisition of Grant Westfield

NorcrosAnnouncement

11/05/2022 16:45

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RNS Number : 1655L  Norcros PLC  11 May 2022

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THE UK VERSION OF EU REGULATION 596/2014, WHICH FORMS PART OF UK LAW BY VIRTUE
OF THE EUROPEAN UNION (WITHDRAWAL) ACT 2018 ("MAR").

11 May 2022

 

Norcros plc ("Norcros" or the "Company")

 

Proposed Acquisition of Grant Westfield

 

Acquisition accelerates Norcros' strategy to expand its bathroom

product offer through Grant Westfield's market leading position

 

Norcros, a market leading supplier of high quality and innovative bathroom and
kitchen products, is pleased to announce that it has conditionally agreed to
acquire Granfit Holdings Limited ("GHL" and, together with its subsidiary
undertakings, "Grant Westfield"), from the Sellers, for an enterprise value of
£80 million with an additional potential earnout of up to £12 million based
on certain performance criteria (the "Acquisition"). Grant Westfield is a
market leading designer, manufacturer and supplier of waterproof bathroom wall
panels in the UK.

 

The Acquisition is expected to be double digit earnings enhancing in the first
full financial year post completion of the transaction. The Acquisition will
be funded from the Company's debt facilities and the proceeds of a proposed
placing of new ordinary shares in the Company, to raise approximately £18
million (the "Placing"). The Placing will partially fund the Acquisition and
also ensure that the Group maintains a strong balance sheet to continue to
pursue its organic and acquisitive growth strategy.

 

The Placing is being conducted through an accelerated bookbuilding process,
which will be launched immediately following the release of a separate
announcement relating to the Placing. Numis Securities Limited ("Numis") is
acting as sole bookrunner in connection with the Placing. The Company and
Numis have today entered into a sponsor and placing agreement with respect to
the Placing and the Acquisition (the "Sponsor and Placing Agreement").

 

The Acquisition constitutes a Class 1 transaction under the Financial Conduct
Authority's (the "FCA") Listing Rules and is therefore conditional upon, among
other things, the approval of the Company's shareholders at the General
Meeting, which is expected to be held on 30 May 2022, and the Sponsor and
Placing Agreement having become unconditional. Further details of the General
Meeting and the Acquisition will be set out in a circular that is expected to
be sent to the Company's shareholders tomorrow (the "Circular"). Subject to
satisfaction or waiver of all conditions to the Acquisition, Completion is
expected to occur on 31 May 2022 following the General Meeting.

 

Transaction Highlights

 

•     The Acquisition is consistent with Norcros' strategy to expand its
bathroom product offer

 

o  Complementary to the Group's existing portfolio of products and brands,
represents a rare opportunity to add a growing, market leading, profitable, UK
focused and well positioned business to its existing portfolio

 

o  Broadens the Group product portfolio towards the aim of providing a 'one
stop shop' for bathrooms across Norcros' existing distribution channels

 

o  Increased capability to leverage the Group's products into new housing and
modular markets

 

o  Ability to leverage Norcros' expertise to drive operational efficiency
gains

 

•     Leading, differentiated and premium product in an attractive
growth market

 

o  The UK bathroom and shower panel market is a growing segment of the
broader UK bathroom wall coverings market, which the Board believes
represented approximately 30 per cent. of the estimated £330 million market
in 2021

 

§ Grant Westfield has a market share of approximately 12 per cent. of the UK
bathroom wall coverings market and approximately 40 per cent. of the UK
bathroom shower and panel market

 

o  Continued growth in domestic bathroom expenditure and new housebuilding
spend expected to remain robust

 

o  Relative to alternatives, panels are easier and faster to install and are
a high quality product that is waterproof and durable

 

o  Low lifetime cost, including low and cost effective maintenance

 

 

•     Attractive returns from a profitable and cash generative business
model operating in preferred channels

 

o  The Acquisition price represents a multiple of 7.9x Grant Westfield's
adjusted EBITDA for the year ended 31 December 2021

 

o  The Acquisition is expected to be double digit earnings enhancing in the
first full financial year post Completion

 

o  Return on invested capital expected to be in excess of Norcros' cost of
capital in the first full financial year post Completion

 

o  The Company will maintain a conservative capital structure and expects pro
forma 2022E post IFRS-16 leverage to be approximately 1.0x

 

•     Significant growth opportunities

 

o  Ongoing market penetration based on attraction of wall panels through new
product development

 

o  Scope to increase exposure to UK new housing (private and social), modular
and DIY channels

 

o  Geographic expansion of Grant Westfield in the UK and Europe

 

o  Utilisation of existing manufacturing capacity

 

 

Grant Westfield track record

Grant Westfield's audited financials for the 12 months ended 31 December 2019,
31 December 2020 and 31 December 2021 are shown below:

 For the year ended 31 December, £m 1  (#_ftn1)
                           2019                           2020  2021
 Revenue                   34.2                           32.3  42.2
 Adjusted EBITDA           5.8                            6.5   10.1
 Margin %                  17%                            20%   24%

 

Grant Westfield has a strong track record of organic revenue and EBITDA growth
and demonstrated a resilient performance through COVID-19. EBITDA margin
improvement has been driven by enhanced operational gearing through new
product development and strong trading. Grant Westfield is highly cash
generative (approximately 100% 2  (#_ftn2) cash conversion average FY19-21)
due to low capital intensity.

As at 31 December 2021, Grant Westfield had gross assets of £52.7 million.

Conditions to the Acquisition

Completion is conditional upon:

•     the shareholders of the Company passing the Resolution to approve
without amendment the purchase by the Purchaser of the shares in GHL (on the
terms and subject to the conditions of the Acquisition Agreement) on or before
30 June 2022 (or such later date as may be agreed);

 

•     the Sponsor and Placing Agreement not having been terminated or
rescinded and having become unconditional in all respects (including as to
Admission);

 

•     the Facilities Agreement not having been terminated or rescinded
and such amount as the Purchaser requires to borrow under the Facilities
Agreement in order to finance that part of the provisional consideration due
to the Sellers on Completion that is not being funded from the Purchaser's
cash resources, including those raised pursuant to the Placing, being
available for draw-down by the Purchaser under the Facilities Agreement; and

 

•     there being no material adverse change in the business or
operations of Grant Westfield

 

Commenting on the acquisition, Nick Kelsall, Chief Executive Officer, said:

'The acquisition of Grant Westfield with its premium Multipanel brand and
market leading position is a strategically compelling addition to the Group,
broadening our bathroom product offer. Grant Westfield's focus on design, new
product development and its standard of customer service will significantly
enhance the Group's portfolio. I am looking forward to working with the Grant
Westfield Managing Director, Sarah Law, and her team as we work together on
the next phase of growth.'

Also commenting on the acquisition, Sarah Law, Managing Director of Grant
Westfield, said:

'We are excited to be joining the Norcros family.  There are clear
opportunities to grow together and, as a leader in the waterproof panel
market, our Multipanel brand will be very much at home with their existing
bathroom brands. This represents an exciting opportunity to accelerate our
successful strategic growth plan in the UK and internationally through new
products and market penetration.'

Expected timetable

                                                                              Time and date
 Announcement of the Acquisition and the Placing                              11 May 2022
 Announcement of results of Placing through Regulatory Information Service    12 May 2022
 Publication and posting of the Circular                                      12 May 2022
 Admission and commencement of dealings in Placing Shares                     8.00 a.m. on 16 May 2022
 Placing Shares credited to CREST accounts (uncertificated holders only)      as soon as practicable after Admission
 Despatch of definitive share certificates in respect of the Placing Shares   no later than 23 May 2022
 (where applicable)
 Latest time and date for receipt of Forms of Proxy/CREST Proxy Instructions  10.00 a.m. on 26 May 2022
 General Meeting                                                              10.00 a.m. on 30 May 2022
 Date of Completion                                                           expected on 31 May 2022

 

For further information please contact:

 Norcros plc                                                Tel: 01625 547 700
 Nick Kelsall, Chief Executive Officer
 James Eyre, Chief Financial Officer

 Numis                                                      Tel: 0207 260 1000
 Richard Thomas
 Jonathan Wilcox

 William Baunton (ECM)

 George De Felice

 Hudson Sandler                                             Tel: 0207 796 4133

 Charlie Jack
 Sophie Miles

For the purposes of MAR and Article 2 of Commission Implementing Regulation
(EU) 2016/1055, this Announcement is being made on behalf of the Company by
Richard Collins, Group Counsel and Company Secretary.  In addition, market
soundings (as defined in MAR) were taken in respect of the Placing with the
result that certain persons became aware of inside information (as defined in
MAR), as permitted by MAR.  This inside information is set out in this
Announcement.  Therefore, those persons that received inside information in a
market sounding are no longer in possession of such inside information
relating to the Company and its securities.

IMPORTANT NOTICES

This Announcement is not being distributed by, nor has it been approved for
the purposes of section 21 of the Financial Services and Markets Act 2000, as
amended ("FSMA"), by, a person authorised under FSMA. This Announcement is
being distributed to persons in the United Kingdom only in circumstances in
which section 21(1) of FSMA does not apply.

Persons (including without limitation, nominees and trustees) who have a
contractual right or other legal obligations to forward a copy of this
Announcement should seek appropriate advice before taking any action.

This Announcement has been issued by, and is the sole responsibility of, the
Company. No representation or warranty, express or implied, is or will be made
by Numis, or by any of its partners, directors, officers, employees, advisers,
consultants, affiliates or agents as to or in relation to, the accuracy or
completeness of this Announcement or any other written or oral information
made available to any interested person or its advisers, and any liability
therefore is expressly disclaimed. None of the information in this
Announcement has been independently verified or approved by Numis or any of
its partners, directors, officers, employees, advisers, consultants,
affiliates or agents. Save for any responsibilities or liabilities, if any,
imposed on Numis by FSMA or by the regulator regime established under it, no
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for any errors, omissions or inaccuracies in such information or opinions or
for any loss, cost or damage suffered or incurred howsoever arising, directly
or indirectly, from any use of this Announcement or its contents or otherwise
in connection with this Announcement or from any acts or omissions of the
Company in relation to the Placing.

This Announcement is not for publication or distribution, directly or
indirectly, in or into the United States of America.  This Announcement is
not an offer of securities for sale into the United States.  The securities
referred to herein have not been and will not be registered under the U.S.
Securities Act of 1933, as amended, and may not be offered or sold in the
United States, except pursuant to an applicable exemption from registration.
No public offering of securities is being made in the United States.

Numis, which is authorised and regulated in the United Kingdom by the FCA, is
acting solely for the Company and no-one else in connection with the
transactions and arrangements described in this Announcement and will not
regard any other person (whether or not a recipient of this Announcement) as a
client in relation to the transactions and arrangements described in this
Announcement. Neither Numis nor its partners, directors, officers, employees,
advisers, consultants, affiliates or agents are responsible to anyone other
than the Company for providing the protections afforded to clients of Numis or
for providing advice in connection with the contents of this Announcement or
for any other matters referred to herein.

Cautionary statements

This Announcement may contain and the Company may make verbal statements
containing "forward-looking statements" with respect to certain of the
Company's plans and its current goals and expectations relating to its future
financial condition, performance, strategic initiatives, objectives and
results. Forward-looking statements sometimes use words such as "aim",
"anticipate", "target", "expect", "estimate", "intend", "plan", "goal",
"believe", "seek", "may", "could", "outlook" or other words of similar
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uncertainty because they relate to future events and circumstances which are
beyond the control of the Company. As a result, the actual future financial
condition, performance and results of the Company may differ materially from
the plans, goals and expectations set forth in any forward-looking statements.
Any forward-looking statements made in this Announcement by or on behalf of
the Company speak only as of the date they are made. The information contained
in this Announcement is subject to change without notice and, except as
required by applicable law or regulation (including to meet the requirements
of the Listing Rules, MAR and/or FSMA), the Company expressly disclaims any
obligation or undertaking to publish any updates or revisions to any
forward-looking statements contained in this Announcement to reflect any
changes in the Company's expectations with regard thereto or any changes in
events, conditions or circumstances on which any such statements are based.
Statements contained in this Announcement regarding past trends or activities
should not be taken as representation that such trends or activities will
continue in the future. You should not place undue reliance on forward-looking
statements, which speak only as of the date of this Announcement.

No statement in this Announcement is intended to be a profit forecast and no
statement in this Announcement should be interpreted to mean that earnings per
share of the Company for the current or future years would necessarily match
or exceed the historical published earnings per share of the Company.

Neither the content of the Company's website (or any other website) nor the
content of any website accessible from hyperlinks on the Company's website (or
any other website) is incorporated into or forms part of this Announcement.

 

Definitions

 

 "Acquisition"                     the proposed acquisition of the entire issued share capital of GHL pursuant to
                                   the Acquisition Agreement
 "Acquisition Agreement"           the agreement dated 11 May 2022 between the Sellers, the Purchaser and the
                                   Company pursuant to which the Purchaser conditionally agreed to acquire the
                                   entire issued share capital of GHL
 "Admission"                       the admission of the Placing Shares by the FCA to listing on the premium
                                   segment of the Official List and by the London Stock Exchange to trading on
                                   the Main Market
 "Announcement"                    this announcement
 "Board"                           the board of directors of the Company for the time being
 "Circular"                        the circular which is expected to be sent to the Company's shareholders
                                   tomorrow
 "Companies Act" or "Act"          the Companies Act 2006, as amended
 "Company" or "Norcros"            Norcros plc
 "Completion"                      completion of the Acquisition in accordance with the terms of the Acquisition
                                   Agreement
 "Directors"                       the directors of the Company or the directors for the time being of the
                                   Company, as the context requires, and "Director" shall be construed
                                   accordingly
 "Facilities Agreement"            the agreement relating to the Company's revolving credit facilities
 "FCA"                             the UK Financial Conduct Authority
 "Form of Proxy"                   the form of proxy for use in connection with the General Meeting
 "FSMA"                            the Financial Services and Markets Act 2000, as amended
 "General Meeting"                 the general meeting of the Company proposed to be held at the offices of
                                   Eversheds Sutherland (International) LLP, Two New Bailey, 6 Stanley Street,
                                   Manchester, M3 5GX at 10.00 a.m. on 30 May 2022 to approve the Resolution,
                                   the notice of which will be set out at the end of the Circular
 "GHL"                             Granfit Holdings Limited, incorporated in Scotland with registration number
                                   SC021183
 "Grant Westfield"                 GHL and its subsidiaries and subsidiary undertakings, and, where the context
                                   requires, its associated undertakings
 "Group"                           the Company and its subsidiaries and its subsidiary undertakings and, when the
                                   context requires, its associated undertakings from time to time
 "IFRS"                            International Financial Reporting Standards, as adopted by the EU
 "Listing Rules"                   the rules of the FCA relating to the admission to the Official List made by
                                   the FCA under section 73A(2) of FSMA
 "London Stock Exchange"           London Stock Exchange plc or its successor(s)
 "Main Market"                     the London Stock Exchange's main market for listed securities
 "Notice of General Meeting"       the notice convening the General Meeting which is set out at the end of the
                                   Circular
 "Numis"                           Numis Securities Limited of 45 Gresham Street, London, EC2V 7BF
 "Official List"                   the Official List of the FCA
 "Ordinary Shares"                 the ordinary shares of £0.10 in the capital of the Company from time to time
 "Placing"                         the placing of the Placing Shares by Numis in accordance with the terms of the
                                   Sponsor and Placing Agreement
 "Placing Shares"                  the new Ordinary Shares which are to be issued pursuant to the Placing
 "Purchaser"                       Norcros Group (Holdings) Limited, a wholly-owned subsidiary of the Company
 "Regulatory Information Service"  one of the regulatory information services authorised by the FCA to receive,
                                   process and disseminate regulatory information from listed companies
 "Resolution"                      the resolution set out in the Notice of General Meeting
 "Sellers"                         Iain MacDonald and Calmeg Limited
 "Sponsor and Placing Agreement"   the sponsor and placing agreement dated 11 May 2022 between the Company and
                                   Numis, details of which will be set out in the Circular
 "subsidiary undertaking"          the meaning given to it in the Companies Act

 

 1  (#_ftnref1) Grant Westfield unaudited financial information

 2  (#_ftnref2) Cash conversion defined as cash generated from operations /
adjusted EBITDA

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