Builders merchant Travis Perkins has seen off fierce competition to secure DIY retailer Wickes, in a £950m deal that gives the company access to the fast-growing UK DIY market.
The acquisition is also a welcome retirement present for chief executive Frank McKay, who has been chasing Wickes for some time. Wickes specialises in the heavier end of the DIY market - two-thirds of its customers are tradesmen or serious DIY enthusiasts. This makes it a good fit with Travis Perkins' builders merchant business, as well as enhancing future growth prospects.
David Taylor, analyst at Teather & Greenwood, says: "Ultimately, the UK builders merchant market is finite." Travis Perkins needed to do something to set up growth for the future, and the DIY market provides that. The company will now have a 10 per cent share of the £30bn UK DIY market, second only to B&Q. Furthermore, the acquisition is expected to boost the company's earnings per share and create value from 2005. Travis Perkins expects to extract £17.5m of synergies next year and £35m a year thereafter. Mr Taylor says that these projections "seem eminently plausible".
Shareholders will vote on the deal, which is being funded through a new £1.2bn banking facility and a £75m share placing, at an extraordinary meeting in January. It also needs to be cleared by the Office of Fair Trading, but the company doesn't foresee any problems.
Mr McKay will remain on the Wickes implementation team until May. But ultimately, John Carter, soon-to-be-appointed chief operating officer, will be responsible for the integration. Mr Carter has been involved in several past mergers and the company has a good track record in absorbing bolt-on acquisitions.
