Supplier update
Reece Group's $1.9bn US purchase
Reece will operate MORSCO separately to its Australian and New Zealand businesses
Reece will operate MORSCO separately to its Australian and New Zealand businesses
 
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Gainsborough brand to be owned Allegion and CSR's products benefit from residential projects
HNN Sources
The US housing sector has been targeted for growth by Reece; Gainsborough Hardware and API Locksmiths sold off to Allegion; CSR believes there is a shift toward residential knock down and builds; Ardex takes a majority stake in DTA; Boral sells off "non-core" business; Portwest completes Huski workwear acquisition; Genuine tradies star on Bostik campaign; and Sika and Saint Gobain come to an agreement.
Reece expands into US, after 10 year study

ASX-listed plumbing products company, Reece Group has maintained a cautionary approach as it acquires Texas-based distributor Morsco for AUD1.9 billion including debt.

Morsco generates annual sales of USD1.72 billion and is being sold by its private equity owner Advent International. It operates 172 branches along 16 states in southern United States, between the east and west coasts. The deal will double the size of the normally conservative Melbourne-based company.

This acquisition will give Reece access to what it has identified as the fast growing Sun Belt region which includes Florida, Louisiana, South Carolina and Texas. Reece chief executive Peter Wilson said in a statement:
It's a market that's forecast to grow at twice the rate of the Australian market and it is currently about eight times the size.

Reece said the deal will be funded through a combination of cash and debt, adding that it will also raise AUD560 million through a stock offering. The billionaire Wilson family, which owns a majority stake in Reece and is backing the deal, will subscribe to AUD300 million worth of shares in the offering. A bulk of the funding, however, will come from an underwritten USD1.14 billion secured credit facility.

Reece said it will operate Morsco separately from its Australian and New Zealand businesses and there would be no attempt to try and rebadge the Morsco stores. It will also retain the US management led by CEO Chip Hornsby who has been at the helm since 2011.

It will also deploy several of its own team members to the US to help with collaboration and sharing of industry knowledge and expertise.
Overseas markets

As Australia's biggest plumbing and bathroom products company, Reece had run out of local acquisition opportunities where it already has a large portion of the bathroom and plumbing supplies market.

Mr Wilson said the company has been carefully studying the US market for 10 years. It had been talking with Morsco and Advent for two years. Serious due diligence had begun in January this year. He told Fairfax Media:
We've certainly done our homework...We're really comfortable we've got a handle on it.

Mr Wilson said Reece had gained extra confidence about the US through its relationships in Australia with ASX-listed Reliance Worldwide, which has a big presence in the US plumbing market with its Sharkbite push-to-connect fittings.

He said the acquisition of Morsco is a "transformational opportunity" that will drive returns for the next generation of shareholders.
It has a strong platform across the sunbelt states. It's in the growth states.

:Guidance

Reece also gave guidance for the fiscal year ending June 2018. It expects an after-tax profit of AUD223-AUD230 million, 5% higher than last year. It forecast sales of AUD2.65 billion-AUD2.70 billion.

It said the results are driven by new branch openings, leveraging of its supply chain, investment in improving and delivering great customer service and an enhanced online offering for both trade and retail customers.

Reece, which has a sharemarket value of AUD5.4 billion, runs 600 plumbing and bathroom products showrooms across Australia and New Zealand. It has annual revenues of AUD2.4 billion.

Related:
Reece fortunes connected to housing - HNN
Allegion to acquire Gainsborough, API Locksmiths

Global security products company, Allegion has agreed to acquire GWA Group's door and access systems business through one of its subsidiaries. It includes Australian brands Gainsborough Hardware and API Locksmiths. The transaction is expected to close in the third quarter of 2018. GWA managing director, Tim Salt, said:
The door and access systems business is strong, and we believe Allegion can maximize its potential. Allegion's global scale, innovative technologies and supply chain capabilities will enable both Gainsborough and API to further enhance their offerings to customers.

The GWA door and access systems business generated sales of approximately AUD95 million for calendar year 2017. The business will operate in Allegion's Asia-Pacific region. Allegion president, chairman and CEO, David D. Petratis, said:
This strategic acquisition bolsters Allegion's presence in Australia and significantly increases our scale in the Asia-Pacific region ... We're enhancing our residential presence with market-leading positions and longstanding customer relationships, all while accelerating our development of electronic security solutions. This is consistent with Allegion's growth strategy in the region - and highly complementary to our core business.

The transaction is valued at AUD107million. Allegion plans to fund the acquisition through existing cash on hand and borrowings under its revolving credit facility. Excluding merger and acquisitions costs, Allegion expects the transaction to be slightly accretive to adjusted EPS for 2018.
Knock down home builds help drive CSR profit

CSR managing director Rob Sindel said an acceleration in commercial construction of hotels and aged care homes and people wanting to shift into a detached house from an apartment will drive demand in the next 12 months.

Mr Sindel also said there was a renewed upturn recently for detached houses, particularly on the eastern seaboard.

As a supplier of Gyprock plasterboard, PGH bricks, Hebel precast concrete blocks and panels, and Bradford insulation and storage battery products to the building market, Mr Sindel believes the company is in a solid position to make the most of this opportunity.
Residential

Mr Sindel said housing markets had benefited from large migrant intakes over the past few years, which had fuelled strong population growth, and while many families had started off living in apartments, they were increasingly looking to upgrade to a detached house. He told Fairfax Media:
A lot of people start off in an apartment. They want to live in a house in the suburbs.

The demand for a detached house has been reinforced constantly by the long line-ups of people prepared to camp out to secure a block of land when they were released to the market by developers, according to the company.

Mr Sindel said CSR had also noticed a marginal slowing in the renovations market, with more people instead opting to demolish an existing property and then build a new home on the same block of land.
They want a new house, but they like the street.

He believes heavy stamp duty costs were a big deterrent to moving. Once council approvals had been granted, it usually took far less time for a new build, rather than a more complex renovation. A new house might take six months, compared with a complex renovation that may run for 12 to 18 months.

The desire for a speeded up process was also playing out in rising demand for Hebel aerated concrete blocks as a building material. Mr Sindel said the use of Hebel was growing strongly off a low base, with builders becoming more enthusiastic about it. CSR is investing $75 million to expand capacity at a Hebel plant at Somersby on the NSW central coast.
A lot of it is being driven by the builders. It's faster and it's easier to construct.

While many experts are predicting a softening of property prices, Mr Sindel said first home buyers would welcome it even though existing home owners liked the wealth effect from ever-rising prices.

The only building products unit that turned in a softer annual performance was Monier roofing tiles, which experienced lower demand in Queensland.
Commercial

CSR generates about 12% of its revenues from high-rise apartment construction and while that market has softened substantially, commercial construction was gaining momentum.

CSR had benefited from the construction of the new Optus sports stadium in Perth and from Commonwealth Games construction on the Gold Coast. But there were also improving activity levels in construction of hotels, hospitals and aged care homes.

Energy costs are slowing down further growth on the company, jumping 12% over the past year and costing an extra $9 million.

Former managing director of Bunnings, John Gillam, has also just become the chairman of CSR, taking over from Jeremy Sutcliffe.
DTA majority owned by Ardex

The Ardex Group announced it has attained a strategic stake in DTA, a quality tools, trims and machinery supplier for the wall and floor market in Australia, New Zealand and USA. DTA was established in Australia in 1976, and considered a market leader in the industry.

Dedicated to delivering innovative, dependable products, DTA focuses on servicing the professional contractor. It will continue to operate independently from the Ardex companies in the US, Australia and New Zealand. Phillip Cozens, owner of DTA, said:
DTA is proud to be welcomed into the fold of the Ardex Group. We anticipate building on opportunities for DTA in markets around the world.

There are no planned changes to personnel in either company.

For nearly 70 years, Ardex has been a significant supplier of specialist building materials and remains an independent, family-owned business with over 2,700 employees in 50 countries. Mark Eslamlooy, CEO, Ardex Group said:
This joint venture is an exciting addition to the Ardex strategy of system solutions. The burgeoning synergies we develop with DTA will present additional value to our customers.
Boral offloads US business, NSW property

Boral is selling its US concrete and quarrying business for USD127 million (AUD169 million) to Brannan Sand and Gravel Company as it narrows its focus on building products in North America.

The company said the Colorado-based business had performed well, but it was non-core to Boral's operations. Boral's CEO and managing director Mike Kane said in a statement:
Boral's strategy in the USA is focused on growing our building products and fly ash businesses. As we continue to strengthen our core business and deliver synergies from the Headwaters acquisition, the time is right for Boral to realise value by divesting the construction materials business in Colorado.

Boral acquired American building materials supplier Headwaters in late 2016 for USD3.5 billion (AUD4.6 billion).

Boral expects to make a pre-tax profit on the sale of USD45 million (AUD60 million), which will be included in its financial results for the current financial year. It said the proceeds will be used to reduce debt. Boral has owned its US construction materials and quarrying operations since 2004.

The company also expects the sale of its Prospect Masonry property at Greystanes in NSW to contribute AUD56 million to earnings for the 2018 financial year. It said the sale of the progressed earlier than expected and will provide a more detailed update at the company's investor day.
Portwest finalises purchase of Huski

Irish speciality clothing company Portwest has completed the acquisition of a second Australian brand as it expands its presence in the local market. It has acquired Huski for EUR10 million.

Although Huski was acquired in October 2017, Portwest could not state the name of the Melbourne-based company due to a non-disclosure agreement.

This acquisition is expected to more than double the Irish company's turnover in Australia and New Zealand to EUR25 million by 2019, which will represent about 10% of its business. Huski's turnover in 2017 was close to AUD10 million.

Last year Portwest acquired Australian workwear business, Prime Mover Workwear, for EUR7.5 million.

Financial director, Owen Hughes, said the company is looking to expand further in the Australia and New Zealand markets. He told The Irish Times:
This [acquisition] marks an exciting new phase of development for Portwest and we look forward to expanding our reach in this area.

Founded in 1904 by Charles Hughes as a small shop, Portwest's products are sold in more than 100 countries and it employs over 2,000 people globally.

Portwest is run by three Hughes brothers and they have grown revenues at the firm from about EUR200,000 in 1979 to EUR126.9 million for the 12 months ending February 2017.

Related:
Irish workwear firm expands in Australia - HI News, page 22
Workwear category dominated by UK player - HNN
Bostik's tradie campaign

Adhesives company, Bostik has hired two genuine Australian tradies as brand ambassadors. Mark Menagatti (aka Spaghetti) and Adrian Franchina have been given the moniker, "Bostik Boys" to represent the brand.

According to Bostik, Menagatti and Franchina's relationship with the brand will span the next few years. The pair was introduced in a teaser video on Bostik's Facebook and YouTube pages recently.

The campaign has launched with a television commercial, "Tradie Life'", featuring the Bostik Boys discussing what it's really like to be a tradie. "Due to TV shows, a tradie's life looks easy, but actually isn't as easy as what you think," said Mr Menagatti. The end of the commercial delivers the tagline, "Real Tradies. Not Real Actors". Anthony Voyage, marketing manager at Bostik, said:
We wanted authentic tradies who are on the tools 24/7. Tradies who wake up before light and come home after dark. We have Bostik products in thousands of tool boxes around the country at any one time and we want our consumers to be proud of our connection.
We hope the Australian public find this approach refreshing, informative and engaging.

Bostik plans to build on the Bostik Boys miniseries by exploring the life of a tradie further, giving trade tips and DIY how-to guides featuring the Bostik product line.
Saint-Gobain, Sika reach deal after takeover battle

French building materials company, Saint-Gobain has given up its fight for control of Swiss rival Sika in return for a pay-off. This ends one of Europe's most contentious takeover battles.

The fight for Sika had seen Saint-Gobain tied up in Swiss courts for years as Sika's shareholders and its board fought back against the takeover attempt, which was launched in 2014.

The complex deal, first reported by the Financial Times, will see Saint-Gobain take a 10% share of Sika. The Swiss chemicals maker can secure its immediate independence while allowing the Burkard family, the heirs of Sika's founder, to exit the company.

Under the terms, the heirs behind Sika sold their entire 17% stake for 3.22 billion francs (USD3.21 billion) - and 52% of its voting rights - to Saint Gobain, which will give up the special voting rights that were at the heart of the conflict with other Sika shareholders and management. Sika in turn bought an almost 7% holding from Saint Gobain.

The settlement could herald fresh consolidation in the sector, with the deal freeing Sika to make acquisitions. Chief executive Paul Schuler told the Financial Times:
With the new structure we can really explore possibilities for Sika.

The agreement will allow Saint-Gobain to make a profit while retaining its 10% share of Sika. The companies agreed to a two-year lock-up and a six-year period during which Saint-Gobain cannot increase its ownership beyond 12.9%. Sika will also have the right of first refusal if Saint-Gobain wants to sell. Guillaume Texier, Saint-Gobain's chief financial officer, said:
This deal...creates value for Saint-Gobain. Second, it puts an end to all of this uncertainty. That's what this does as all litigation is finished. And last, it's strategically important as we have 10% of a great company.

Having failed to take over a market leader in adhesives and sealants, Mr Texier said no decision has been made on how long the French company will hold its stake in Sika beyond the lock-up period.

He also indicated Saint-Gobain is ready to move on. Construction chemicals remains a strategic area of growth, and small- to medium-sized targets in markets like the US are a focus area, he told Bloomberg.

Related:
Saint-Gobain bids for control of Sika - HNN
HNN Sources


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