Join our community of smart investors

Melrose agrees Ergotron sale for $650mn

Disposal to US private equity expected to complete in third quarter
Melrose agrees Ergotron sale for $650mn
  • Ergotron is the last of the Nortek units bought in 2016
  • Company's focus switches solely to turnaround of 2018 acquisition GKN

Melrose Industries (MRO) is selling its Ergotron business to US-based private equity firm The Sterling Group for $650mn (£520mn).

Ergotron is the last piece of the Nortek business that Melrose bought for an enterprise value of $2.8bn in 2016. It sold two other parts of the group, Nortek Air Management and Nortek Control, for $3.63bn and $285mn respectively, last year.

Ergotron makes ergonomically-designed desks and monitor mounts. The sale price equates to around 8 times last year’s cash profit of £62mn, with the deal expected to complete in the third quarter of this year. An announcement on how Melrose will use the proceeds will be made then. 

"We will have more than doubled shareholders' equity investment in Nortek and have transformed the businesses themselves,” chief executive Simon Peckham said. “Our attention now remains firmly on achieving the same result for the current group."

The Birmingham-based company said that shifting the Nortek’s group’s focus away from unprofitable businesses had allowed it to double adjusted operating margins and generate more than $1bn of cash during the six years of its ownership.

Melrose is in the midst of a turnaround of GKN, the engineering group serving the aerospace and automotive markets bought for £8bn in 2018.  Both end markets have struggled since the onset of the pandemic, though, and the company’s shares are trading 26 per cent lower than they were this time last year.

There are signs of a revival in aerospace, though, with like-for-like sales up 6 per cent in the first four months of this year.

Melrose’s current market capitalisation of around £6bn is a discount of about 20 per cent to its book value of £7.5bn at the end of last year. The turnaround of GKN is clearly taking time but the Ergotron sale is a reminder that Melrose’s management have a decent track record in this area. We maintain our buy.

Last IC View: Buy, 136p, 3 Mar 2022