REG - RS Group PLC - Acquisition

RSAnnouncement

27/04/2023 07:00

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RNS Number : 6703X  RS Group PLC  27 April 2023

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION

27 April 2023

RS GROUP PLC ANNOUNCES ACQUISITION OF DISTRELEC FOR €365 MILLION

ACCELERATING EUROPEAN GROWTH AND VALUE CREATION

·      Acquisition of complementary high-service, digital-led industrial
and maintenance, repair and operations (MRO) product distributor

·      Significantly expands our continental European presence
especially in Germany, Switzerland and Sweden

·      Material cost synergies including procurement, logistic and
warehousing with additional revenue synergies

·      Accretive to adjusted(1) earnings per share in first full year
and comfortably exceeds Group cost of capital within three years

·      Significant potential revenue growth and value creation
opportunities for our stakeholders

We are pleased to announce that we have reached agreement to acquire Distrelec
B.V. (Distrelec), a high-service, digital-led distributor of industrial and
MRO products for a consideration of €365 million (c. £323 million) on a
cash-free and debt-free basis. The consideration represents an acquisition
multiple of under 11x adjusted EBIT on a 12-month basis to 31 December 2022.

Compelling strategic rationale

Distrelec is a complementary business to RS; a high-service distributor of
industrial and MRO products with a comparable product mix and customer-centric
focus. There is a cultural and strategic fit between the two businesses. Like
RS, Distrelec promotes a high-performance culture with good levels of employee
engagement and satisfaction. Distrelec serves c. 180,000 customers across 19
countries and has very low customer concentration. Around two thirds of
Distrelec's revenue is from digital channels, the average order value is
comparable to RS and product availability is industry leading.

The acquisition of Distrelec significantly expands our presence in continental
Europe. Distrelec has a strong competitive position in attractive European
markets, increasing our revenue by c. 40% in DACH (Germany, Austria and
Switzerland), c. 80% in Scandinavia and adding scale in Italy, Benelux and
Eastern Europe. The combination of Distrelec and RS in these key markets will
leverage our existing operations to drive value-accretive growth.

There is a high degree of overlap in the largely European supplier base and
the combined distribution network will improve the operational efficiency and
customer experience of both RS and Distrelec. Therefore, we expect to extract
significant cost synergies in procurement, logistics and warehousing, and
marketing and administration, in addition to revenue synergies from
cross-selling opportunities of our own brand and solutions offer. We have a
high level of confidence in realising these synergies given our complementary
operating models and cost management capabilities, with the most significant
items being within our direct control.

Strong financial returns

The acquisition of Distrelec by RS will significantly expand our presence in
key European markets and at an attractive rate of financial return. The
acquisition is expected to be accretive to adjusted(1) earnings per share in
the first full year of ownership and comfortably exceeds Group cost of capital
within three years net of integration costs. In addition, we expect the
combination to greatly enhance our growth prospects and generate value for all
stakeholders.

For the year ended 31 December 2022, Distrelec generated revenue of €270
million and EBIT of €34 million. The acquisition will be financed from our
existing resources and the addition of a new three-year acquisition term loan
facility of €150 million. Completion is expected within two to three months,
subject to customary closing conditions including German, Austrian and Italian
regulatory clearance. Following the acquisition, our balance sheet will remain
strong, with a pro forma net debt to adjusted EBITDA, based on consensus
estimates to 31 March 2023, of around 1x, well within the Group's banking
covenants leaving plenty of financing capacity to continue driving our organic
and inorganic growth ambitions.

SIMON PRYCE, CHIEF EXECUTIVE OFFICER, COMMENTED: "Strategic acquisitions that
are value creative is part of our strategy, and I'm pleased with what I've
seen of our disciplined identification, assessment, valuation and integration
processes. These have helped to drive good progress at Risoul since we
acquired it in January 2023. Distrelec is a complementary business to RS with
excellent value creation potential under our ownership. It materially
strengthens our presence in key European markets, there is a strong cultural
and operational fit and there are significant potential soft and hard
synergies from the combination. We look forward to welcoming Distrelec to RS
and to realising the significant potential growth and value creation
opportunities it creates for all our stakeholders."

 

Notes:

1.         Adjusted excludes amortisation of intangible assets arising
on acquisition of businesses, acquisition-related items, substantial
reorganisation costs, substantial asset write-downs, one-off pension credits
or costs, significant tax rate changes and associated income tax.

 

Enquiries:

 David Egan, Chief Financial Officer  RS Group plc  020 7239 8400
 Lucy Sharma, VP Investor Relations   RS Group plc  020 7239 8427
 Martin Robinson / Olivia Peters      Teneo         020 7353 4200

 

Conference call details

There will be a presentation for analysts and investors today at 8.00am UK
time via an audio conference call. A copy of the presentation will be
available on the investor relations page of the RS Group website shortly
before the call (www.rsgroup.com/investors (http://www.rsgroup.com/investors)
). A replay of the conference call will be provided after the call.

Please find the registration link below to join digitally. It is advisable to
pre-register early to avoid any delays in joining the conference call. To ask
a question, participants will need to be connected by phone.

Pre-registration link: https://webcast.openbriefing.com/rsgroup-apr2023/
(https://webcast.openbriefing.com/rsgroup-apr2023/)

Participant dial in number

United Kingdom:                  020 3936 2999

All other locations:              +44 20 3936 2999

Access code:                        042577

Conference call timing

Date: Thursday 27 April 2023

Time: 8.00am UK time

Additional information on Distrelec

Distrelec has c. 400 employees and is headquartered in Manchester, UK, with 12
sales offices across Europe. It operates two distribution centres in
Switzerland and the Netherlands and a shared service centre in Latvia,
enabling Distrelec to offer 146,000 stocked and a further 104,000 non-stocked
products. Distrelec will be integrated into the Group's EMEA region, overseen
by Peter Malpas (President EMEA, RS) with key members of Distrelec's
management team including Raj Patel (Chief Operating Officer and Managing
Director) and Ben Scholey (Chief Information Officer).

Acquisition details and financing

RS has entered into an agreement to acquire Distrelec for a total enterprise
value of €365 million (c. £323 million) from Distrelec Group Holding B.V.,
an AURELIUS Group company, who hold the entire shareholding of Distrelec. This
is subject to customary closing conditions, including German, Austrian and
Italian regulatory clearances, and is expected to be completed within two to
three months. The acquisition will be financed from our existing resources in
addition to a new three-year acquisition term loan facility of €150 million
on broadly similar terms to our sustainability linked loan albeit excluding
sustainability targets.

The acquisition constitutes a class 2 transaction for the purposes of the UK
Financial Authority's Listing Rules. Total gross assets as of 31 December 2022
were c. €160 million.

Notes to editors:

RS Group plc is a leading global omni-channel industrial product and service
solutions provider to customers who are involved in designing, building and
maintaining industrial equipment and operations, safely and sustainably. As
per the 2022 Annual Report and Accounts, we stock more than 700,000 industrial
and electronic products, sourced from over 2,500 leading suppliers, and
provide a wide range of product and service solutions to over 1.2 million
customers. With operations in 32 countries, we trade through multiple channels
and ship over 60,000 parcels a day.

We support customers across the product lifecycle, whether via innovation and
technical support at the design phase, improving time to market and
productivity at the build phase, or reducing purchasing costs and optimising
inventory in the maintenance phase. We offer our customers tailored product
and service propositions that are essential for the successful operation of
their businesses and help them save time and money.

RS Group plc is listed on the London Stock Exchange with stock ticker RS1 and
in the year ended 31 March 2022 reported revenue of £2,554 million.

 

This announcement contains inside information for the purposes of article 7 of
EU regulation 596/2014 (which forms part of domestic UK law pursuant to the
European Union (withdrawal) act 2018 ("EUWA")) ("UK MAR").

 

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