Melrose founders’ Rosebank strikes £1.4bn deal
Rosebank Industries, the investment vehicle led by Melrose founder Simon Peckham, has struck a £1.4bn deal for a North American electrical components business.
The acquisition of Electrical Components International (ECI), the company’s first, will be financed through debt facilities and a £1.14bn capital raise at an issue price of £3 per share.
Peckham, a veteran City dealmaker, set up Rosebank last year alongside six former Melrose executives with the aim of continuing the “buy, improve, sell” approach used at their previous company.
He steered the FTSE 100 firm through a series of deals, including a controversial takeover of GKN Aerospace in 2018.
ECI will be acquired at an enterprise value of less than $1.9bn on a debt and cash free basis, at nine times full-year adjusted earnings, Rosebank said on Thursday.
Rosebank is looking to double shareholders’ investment over the next three to five years. It is also targeting 5 percentage points of operating margin improvement through via restructuring and cost saving.
“We are grateful for the strong support from shareholders,” chief executive Simon Peckham said.
Rosebank ‘fine-tuning’ the engine
“Rosebank was launched by former Melrose directors with the aim of replicating previous success in finding businesses that were battered, bruised or had simply lost their way, and sprucing them up before flipping at a premium,” Russ Mould, investment director at AJ Bell, said.
“Shares in the cash shell rocketed on the stock market debut last summer as investors speculated about what Rosebank might achieve. Reality now hits hard that it will need to raise a significant amount of money to make acquisitions, and then it could take years to do each one up.”
“Rosebank is certainly not buying electrical components business ECI on the cheap. It is paying nine times adjusted earnings which is fine for a company that is running smoothly, but twice as much as you might find with acquisitions of a broken business.
He added: “Rosebank hopes to improve ECI’s margins, improve working capital and reduce leverage so servicing debt doesn’t consume so much of its cash flow. This sounds like fine-tuning the engine rather than chucking in a new one.”