Polypipe Group PLC Acquisition of ADEY (6796O)

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RNS Number : 6796O

Polypipe Group PLC

10 February 2021

THIS ANNOUNCEMENT IS RESTRICTED AND IS NOT FOR RELEASE, PUBLICATION, DISTRIBUTION OR FORWARDING, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN OR INTO THE UNITED STATES, AUSTRALIA, CANADA, SOUTH AFRICA, JAPAN, NEW ZEALAND OR ANY OTHER JURISDICTION IN WHICH SUCH PUBLICATION, RELEASE OR DISTRIBUTION WOULD BE UNLAWFUL.

FURTHER, THIS ANNOUNCEMENT IS FOR INFORMATION PURPOSES ONLY AND IS NOT AN OFFER OF SECURITIES IN ANY JURISDICTION.

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION.

For immediate release .

10 February 2021

Polypipe Group plc

Acquisition of ADEY

Polypipe Group plc ("Polypipe", the "Company" or the "Group"), a leading provider of sustainable water and climate management solutions for the built environment, today announces that it has entered into an agreement to acquire London Topco Limited ("ADEY") from mid-market private equity firm LDC and other existing ADEY shareholders (collectively, the "Sellers") for a cash consideration of GBP210 million on a debt-free and cash-free basis (the "Acquisition"). ADEY is the UK's leading provider of magnetic filters, chemicals and related products, which protect against magnetite and other performance issues in water-based heating systems and improve energy efficiency, operating in predominantly residential end markets.

The consideration will be funded via a combination of the Group's existing debt facilities and the proceeds of an equity placing, representing c.8.2% of Polypipe's issued share capital (the "Placing"). The Placing is being conducted through an underwritten accelerated bookbuilding process which will be launched immediately following release of this Announcement.

Transaction Highlights

-- Acquisition of the UK market leader in solutions used to protect water-based heating systems, with a strong track record of growth, profitability and successful cash flow generation

-- Strong strategic fit, broadening Polypipe's UK residential offering in sustainable water and climate management, with premium, high value-added solutions

-- Broadens and strengthens existing relationships with key end-users (housing developers and plumbing and heating installers) and routes to market (merchants and specialist distributors)

-- Significant growth opportunities across the combined business, driven by environmental and regulatory tailwinds, consistent with Polypipe's strategic focus on segments that provide above-market growth rates

-- Complements Polypipe's focus on opportunities consistent with ESG and sustainability objectives

-- ADEY's existing management team, with whom there is a strong cultural fit, will remain with the business

Financial Highlights

-- Consideration of GBP210 million(1) on a cash-free and debt-free basis, equivalent to 11.8x 2020E EV/EBITDA(2)

   --      Expected to be double-digit EPS accretive in the first full year of ownership 
   --      ROIC expected to be in line with Polypipe's WACC in the second full year of ownership 

Commenting on the Acquisition, Martin Payne, Polypipe Chief Executive Officer, said:

"We are delighted to announce the acquisition of ADEY. Polypipe's strategy is to grow both organically and through carefully selected value-enhancing acquisitions, with a particular focus on sustainability and sectors within climate and water management. ADEY is a pioneer and market leader in the residential heating protection market, one of the fastest growing segments of the UK construction market, underpinned by a shift towards more energy-efficient heating systems and regulatory tailwinds. Like Polypipe, it has a strong track record of innovation and new product development, with the Acquisition strengthening the proposition for our customers and accelerating Polypipe's growth. We welcome ADEY's management and employees and look forward to working with them over the coming years."

Also commenting on the Acquisition, Matthew Webber, ADEY Chief Executive Officer, said:

"We are excited to be joining Polypipe and by the growth opportunities ahead. The companies share a similar culture and philosophy, focused on delivering sustainable water and climate management solutions. The combined business will allow us better to serve our customers, which will continue to be the foundation for our future success."

The ADEY Business

Established in 2003 and based in Gloucester, UK, ADEY is a leading provider of magnetic filters, chemicals and related products, which protect against magnetite and other performance issues in water-based heating systems, improve energy efficiency and extend boiler life, operating in predominantly residential end markets. ADEY also provides advanced water testing services from its UKAS-accredited laboratories.

ADEY has a proven track record of delivering growth ahead of the underlying UK construction market. In the year ended 31 December 2020, ADEY reported (unaudited) revenue of GBP51 million and Underlying EBITDA(3) of GBP18 million. Despite the disruption to operations caused by COVID-19, ADEY delivered c.5% net revenue growth in the year ended 31 December 2020. ADEY has achieved net revenue of 7% CAGR over the past three financial years and an average EBITDA margin of 33% over the same period, which is best in class when compared to ADEY's main competitors. ADEY averaged cash flow conversion(4) of c.80% over the past three financial years.

Acquisition Rationale

The Acquisition is in line with Polypipe's strategy of broadening its market reach in climate management and water management. Similar to the recent acquisition of Nu-Heat announced on 2 February 2021, the ADEY business is also consistent with Polypipe's focus on low or zero carbon heating as a growth driver and allows the Group to leverage its existing capabilities to support growth. The ADEY business is a market leading manufacturer of filters, chemicals and related products used to protect water solutions in the UK, with 70% market share of the residential filter market. ADEY is well-positioned to benefit from the future development of heating technologies as the UK government works towards its sustainability agenda to reach net zero carbon footprint by 2050. The residential boiler protection market is one of the fastest growing segments of the UK construction market, driven by a shift towards more energy-efficient boilers. Amendments to Part L of the Building Regulations, which is expected to be implemented by 2022, and the Benchmark Scheme is set to drive greater adoption of filters and chemicals by installers. Approximately 75% of UK heating systems are not adequately protected by a filter. ADEY is complementary to Polypipe's existing market-leading positions and capabilities in the UK, with largely common end-users (housing developers and plumbing and heating installers) and routes to market (merchants and specialist distributors). ADEY is UK-focused, deriving 90% of its revenue from its UK operations, with international growth opportunities into geographies witnessing similar growth drivers to the UK. ADEY will be reported as part of the Residential Systems division and will continue to be led by the existing, highly experienced management team. There are potential opportunities for ADEY's technology to be combined with Polypipe's broader product offering, including with the recently acquired Nu-Heat business.

Terms of Transaction

The total consideration of GBP210 million on a cash-free and debt-free, normalised working capital basis is for the entire share capital of London Topco Limited. The transaction will be funded by a combination of existing debt facilities and the proceeds of an equity placing. The transaction was signed and completed on the same day. It is expected that following the successful completion of the Placing, pro-forma 2021 year end leverage will be below 1.5x.

The Company expects the Acquisition to result in double-digit accretion to earnings per share in the first full year of ownership and achieve returns in line with Polypipe's cost of capital in the second full year of ownership. This statement is not meant or intended to be a profit forecast and should not be interpreted to mean that the earnings per share of Polypipe following completion of the Acquisition will necessarily be above or below the historical published earnings per share.

The Acquisition constitutes a Class 2 transaction pursuant to the UK Listing Rules. For the purposes of the LR 10.4.1 R (Notification of class 2 transactions), the value of the gross assets of ADEY was GBP130.4 million at 31 December 2020.

Notes:

   1.            Based on locked-box accounts at 30 September 2020 
   2.            Based on unaudited management accounts 

3. Underlying EBITDA is operating profit from continuing operations before exceptional items, intangibles, amortisation and depreciation

   4.            Defined as (Underlying EBITDA - capex) / Underlying EBITDA 

Further Information

Polypipe will hold a webcast presentation for investors and analysts at 08.30am (GMT) on Thursday 11 February 2021. Please access the presentation on the below link.

   Webcast URL:       https://www.investis-live.com/polypipe/6021516f9a13881000b925dd/pdre 

We recommend you register by 08.15am (GMT). Details of the conference call dial-in numbers for questions and answers will be given at the end of the webcast presentation.

The presentation is also available on the Reports, results and presentations page on Polypipe's website at http://investors.polypipe.com/ .

Enquiries:

 
 Polypipe 
  Martin Payne, Chief Executive Officer                [phone] 
  Paul James, Chief Financial Officer                   000 
 
   Moelis & Company (Financial Advisor to Polypipe) 
   Mark Aedy 
   Liam Beere 
   Andrew Welby 
 
   Deutsche Bank (Joint Global Coordinator and           [phone] 
   Joint Corporate Broker) 
   Charles Wilkinson 
   Anna Mills 
   Mark Hankinson 
                                                         [phone] 
   Numis Securities (Joint Global Coordinator 
   and Joint Corporate Broker) 
   Heraclis Economides 
   Richard Thomas 
   Ben Stoop 
   Hannah Boros                                          [phone] 
 Brunswick 
  Nina Coad 
  Charles Pretzlik 
  Sophia Lazarus                                       [phone] 
 

This Announcement should be read in its entirety. In particular, you should read and understand the information provided in the "Important Notices" section of this Announcement.

IMPORTANT NOTICES

This Announcement and the information contained in it is restricted and is not for release, publication, distribution or forwarding, in whole or in part, directly or indirectly, in or into any jurisdiction in which such publication, release or distribution would be unlawful.

This Announcement or any part of it does not constitute or form part of any offer to issue or sell, or the solicitation of an offer to acquire, purchase or subscribe for, any securities in the United States, Canada, Australia, South Africa, Japan, New Zealand or any other jurisdiction in which the same would be unlawful. No public offering of equity securities in connection with the equity fundraising referred to in this Announcement is being, or will be, made in any such jurisdiction.

Certain statements contained in this Announcement constitute "forward-looking statements" with respect to the financial condition, results of operations and businesses and plans of the Group. Words such as "believes", "anticipates", "estimates", "expects", "intends", "plans", "aims", "potential", "will", "would", "could", "considered", "likely", "estimate" and variations of these words and similar future or conditional expressions, are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. These statements and forecasts involve risk and uncertainty because they relate to events and depend upon future circumstances that have not occurred. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements and forecasts. As a result, the Group's actual financial condition, results of operations and business and plans may differ materially from the plans, goals and expectations expressed or implied by these forward-looking statements. No representation or warranty is made as to the achievement or reasonableness of, and no reliance should be placed on, such forward-looking statements. No statement in this Announcement is intended to be, nor may it be construed as, a profit forecast or be relied upon as a guide to future performance. The forward-looking statements contained in this Announcement speak only as of the date of this Announcement. The Company expressly disclaims any obligation or undertaking to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, unless required to do so by applicable law or regulation,

Moelis & Company UK LLP ("Moelis & Company"), which is authorised and regulated by the Financial Conduct Authority (the "FCA") in the United Kingdom, is acting exclusively for Polypipe as exclusive financial adviser and for no one else in connection with the matters described in this Announcement and will not be responsible to anyone other than Polypipe for providing the protections afforded to clients of Moelis & Company nor for providing advice in connection with the matters referred to herein. Neither Moelis & Company nor any of its affiliates owes or accepts any duty, liability or responsibility whatsoever (whether direct or indirect, whether in contract, in tort, under statute or otherwise) to any person who is not a client of Moelis & Company in connection with this Announcement, any statement contained herein or otherwise.

Deutsche Bank AG, London Branch ("Deutsche Bank") is authorised and regulated by the European Central Bank and by BaFin, the German Federal Financial Supervisory Authority, and, with respect to activities undertaken in the United Kingdom, is authorised by the Prudential Regulation Authority ("PRA") with deemed variation of permission, and is subject to regulation in the United Kingdom by the FCA and limited regulation by the PRA. Numis Securities Limited ("Numis") is authorised and regulated in the United Kingdom by the FCA. Each of Deutsche Bank and Numis is acting exclusively for the Company and for no one else in connection with the Placing and the Acquisition and will not regard any other person (whether or not a recipient of this Announcement) as a client in relation to the Placing, the Acquisition or other matters referred to in this Announcement and will not be responsible to anyone other than the Company for providing the protections afforded to its clients or for giving advice in relation to the Placing, the Acquisition or any other matter referred to in this Announcement.

This Announcement has been issued by and is the sole responsibility of the Company. No representation or warranty, express or implied, is or will be made as to, or in relation to, and no responsibility or liability is or will be accepted by Deutsche Bank or Numis or by any of their respective affiliates or any person acting on its or their behalf as to, or in relation to, the accuracy or completeness of this Announcement or any other written or oral information made available to or publicly available to any interested party or its advisers, and any liability therefore is expressly disclaimed.

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This Announcement has been prepared for the purposes of complying with applicable law and regulation in the United Kingdom and the information disclosed may not be the same as that which would have been disclosed if this Announcement had been prepared in accordance with the laws and regulations of any jurisdiction outside the United Kingdom.

Notes to Editors

Polypipe Group plc ("Polypipe", the "Company" or the "Group"), a leading provider of sustainable water and climate management solutions for the built environment, is the largest manufacturer in the UK, and among the ten largest manufacturers in Europe, of plastic piping systems for the residential, commercial, civil and infrastructure sectors by revenue. It is also a leading designer and manufacturer of energy efficient ventilation systems in the UK.

The Group operates from 19 facilities in total and with over 20,000 product lines, manufactures the UK's widest range of plastic piping systems for heating, plumbing, drainage and ventilation. The Group primarily targets the UK and European building and construction markets, has a presence in Italy, the Netherlands and the Middle East and also sells its products to specific niche markets in the rest of the world.

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February 10, 2021 11:50 ET (16:50 GMT)