Components distributor RS Group (RS1) is to buy competitor Distrelec from private equity firm Aurelius Group for €365mn (£325mn).
Distrelec is a similar business to RS, stocking electrical components used by industry for maintenance, repair and operations. It was carved out from Swiss group Dätwyler three years ago and serves 180,000 customers from two main hubs in Switzerland and the Netherlands, although its headquarters is in Manchester. It employs 400 people and last year made an operating profit of €34mn on revenue of €270mn.
RS Group is funding the deal through a new €150mn, three-year loan. It said the acquisition would boost its sales in Germany, Austria and Switzerland by around 40 per cent and its Scandinavian sales by 80 per cent. It also expects to “extract significant cost synergies” not only in procurement where there is a big overlap in the two firms’ supplier base, but also from selling its own-brand range to Distrelec customers and through combining operations.
Liberum analysts lifted their earnings per share forecasts for RS Group by 3-4 per cent for the current financial year, while UBS analysts said they expected EPS accretion of 2-3 per cent this year to grow to 5-6 per cent next year as synergies feed through. RS Group shares were up 3 per cent by mid-morning and trade at a ratio of 15-times earnings, below their five-year average, but with many of the end markets it serves remaining weak and a new CEO just bedding in, we think this fairly reflects the additional risks it faces. Hold.
