REG - Severfield PLC - Acquisition

SeverfieldAnnouncement

15/03/2023 07:00

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RNS Number : 9791S  Severfield PLC  15 March 2023

15 March 2023

Severfield plc

('Severfield' or the 'Group')

 

€24m acquisition of Voortman Steel Construction Holding B.V., an innovative,
market-leading European steel fabrication company, to accelerate Severfield's
European growth strategy

 

Severfield plc, the market-leading structural steel group, is pleased to
announce that it has entered into an agreement to acquire 100% of the share
capital of Voortman Steel Construction Holding B.V. ('VSCH'), an innovative
European steel construction group, for a net consideration of €24m payable
in cash on completion (the 'Acquisition').

 

Highlights

§ The acquisition of VSCH, a profitable, cash generative business
headquartered in Rijssen, the Netherlands, will provide Severfield with a
manufacturing base in Europe to complement its existing European business.

§ The Acquisition will provide Severfield with:

§ greater access to a growing European market and will open up attractive
opportunities including access to the high growth electricity distribution
sector and capabilities in design and build (turnkey) solutions for simpler
structures. Combining the businesses will enhance Severfield's position as one
of Europe's most diverse structural steel services groups.

§ growth opportunities through access to new European clients, particularly
in the industrial, commercial and residential sectors, and a platform to offer
a wider range of services to its existing clients.

§ For the twelve months to 31 December 2021, VSCH recorded unaudited
consolidated revenues of €73.5m and a normalised (note 2) EBITDA of €4.5m.
The business has achieved a normalised (note 2) EBITDA of between €4.5m and
€5.5m over the past four years.

§ The Acquisition consideration will be funded by a combination of a new
amortising term loan (c.€21m) and cash reserves (c.€3m).

§ The Acquisition is anticipated to be earnings enhancing in the year-ending
31 March 2024.

 

Strategic rationale for the Acquisition

The Board of Severfield believes that VSCH is an attractive acquisition
opportunity. It is profitable, cash generative and provides a manufacturing
base in Europe, allowing Severfield to benefit from VSCH's strong reputation
in the Netherlands and its growing pipeline of opportunities. The Board
believes that the Acquisition will enhance the Group's reputation and presence
in the European market, building on its existing European business, and will
help accelerate Severfield's European growth strategy.

 

The Acquisition provides Severfield with immediate access to new and
attractive market sectors, providing the Group with further market and
geographical diversification outside its core UK operations. VSCH is highly
regarded by its clients and the Acquisition presents Severfield with a number
of opportunities for further profitable growth, including access to a wider
European client base and a platform to offer a wider range of services to its
existing clients.

 

VSCH is renowned in the Netherlands for its in-house knowledge, innovation and
expertise. The business is well invested with modern and highly efficient
production facilities, generating output of c.15,000 tonnes per annum, and is
co-located with Voortman Steel Machinery Holding B.V. ('VSMH'), a manufacturer
of steel fabrication machinery. The Acquisition will allow for areas of future
collaboration with VSMH including the development of 'robot' production
technology, proprietary fabrication software and bespoke equipment. The
Acquisition will also enable Severfield to leverage VSCH's local knowledge to
assist with the growth of its existing European business.

 

Entrance into new geographies and markets

VSCH primarily operates in the Dutch market with an addressable value of
c.€1.3 billion per annum, which is expected to grow. It mainly serves the
industrial, commercial and residential subsectors. The underlying market
growth is being driven by private sector investment in new assets and
significant government backed investment. VSCH has a well established, leading
position in the Dutch market commanding a c.5 per cent market share with no
single competitor having more than a c.10 per cent market share. VSCH has the
capacity and resources to compete for larger, more complex, higher value
projects, and its scale and market position presents opportunities for further
growth in the Netherlands and into neighbouring EU countries.

 

The Acquisition also provides Severfield with access to the fast growing Dutch
electricity distribution market. This market has high barriers to entry and
the current low carbon energy transition trend is driving demand for upgrading
and expanding the electricity network in the Netherlands (and in other EU
countries) over the next ten years. VSCH has strong relationships with key
contractors for these projects which, together with the projected market
growth, presents opportunities to increase revenue over the coming years.

 

VSCH is one of the few providers of design and build (turnkey) solutions for
simpler structures in the Netherlands. There is an opportunity to
significantly grow this business in Europe, which is currently in its infancy,
serving SMEs and smaller projects. This proposition adds new capabilities to
the Severfield offering and opens up an attractive new market, providing
opportunities for growth in the UK as well.

 

Acquisition consideration and financials

VSCH is being acquired for a net cash consideration of €24m, on a cash free,
debt free basis assuming a normalised level of working capital on completion.
The total cash consideration will be €29.5m including cash and cash
equivalents of €5.5m, which is being funded by a combination of Group cash
reserves (c.€8.5m) and a new term loan (c.€21m), repayable over a five
year period.

 

For the twelve months to 31 December 2021, VSCH recorded unaudited
consolidated revenues of €73.5m, EBITDA of €3.1m and a statutory profit
before tax of €1.0m. The value of the gross assets as at 31 December 2021
was €24.1m.

 

The Acquisition is expected to complete on the earliest of either 3 April 2023
or satisfactory completion of the works council consultation process, as
required under Dutch Law.

 

Alan Dunsmore, Chief Executive Officer commented:

'Severfield has been growing and developing its European presence over recent
years and the acquisition of VSCH will help the Group continue to deliver on
its growth strategy. VSCH is highly regarded in the Netherlands delivering a
quality service to its large European customer base and has been growing its
capabilities in the high growth electricity distribution sector and through
new design and build (turnkey) solutions.

 

We believe that the combination of Severfield and VSCH will result in a
broadening of our service offering and an ability to grow in different sectors
and geographies. Not only is the acquisition of VSCH anticipated to be
earnings enhancing in its first full year of ownership, the transaction will
further cement our position in a growing European market and provide
opportunities for further profitable growth.

 

We look forward to working with the VSCH management on building new business
opportunities together and driving future growth from within the combined
Group.'

For further information, please contact:

 

 Severfield               Alan Dunsmore             01845 577 896

                          Chief Executive Officer
                          Adam Semple               01845 577 896

                          Chief Financial Officer
 Jefferies International  Simon Hardy               020 7029 8000
                          Will Soutar               020 7029 8000
 Liberum Capital          Nicholas How              020 3100 2000
                          Ben Cryer                 020 3100 2000
 Camarco                  Ginny Pulbrook            020 3757 4992
                          Tom Huddart               020 3757 4980

 

This announcement contains inside information for the purposes of Article 7 of
EU Regulation 596/2014, which forms part of United Kingdom domestic law by
virtue of the European (Withdrawal) Act 2018. Upon the publication of this
announcement, this inside information is now considered to be in the public
domain.

 

Notes to editors - Severfield:

Note 1 - Severfield is the UK's market leader in the design, fabrication and
construction of structural steel, with a total capacity of c.130,000 tonnes of
steel per annum. The Group has six sites, c.1,700 employees and expertise in
large, complex projects across a broad range of sectors. The Group also has an
established presence in the expanding Indian market through its joint venture
partnership with JSW Steel (India's largest steel producer).

 

Note 2 - EBITDA in 2021 has been normalised for the impact of sharply rising
steel prices, mainly as a result of the conflict in Ukraine, which VSCH were
unable to pass onto existing customers for a limited period of time.

 

Notes to editors - VSCH:

Note 3 - VSCH, headquartered in Rijssen, the Netherlands, is a leading
high-end steel construction company, with business activities in the
Netherlands. VSCH specialises in steel construction, industrial construction,
design and build solutions, and energy construction. Over recent years, VSCH
has transformed itself from a bulk steel constructor to a provider of high-end
tailor-made steel solutions with an impeccable track record. VSCH currently
has c.140 employees.

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