(Reuters) - Australian plumbing products maker Reliance Worldwide Corp Ltd (RWC.AX) is buying U.K.-based John Guest Holdings Ltd for about $923 million, becoming the second Australian firm this month to make an overseas acquisition in the plumbing business.
The purchase of the U.K.-headquartered plastic “push-to-connect” (PTC) fittings maker would help Reliance expand its European footprint, the firm said in a statement on Thursday.
The deal comes a few weeks after plumbing products supplier Reece Ltd (REH.AX) said it was buying privately held Texas-based Morsco Inc for $1.44 billion including debt, in a push to gain access to the fast-growing markets of the southern United States.
Reliance said the deal value represents a price 12.4 times John Guest’s 2017 adjusted core earnings. John Guest, a privately held firm, also has operations in the United States and Asia Pacific.
The Australian company had requested a trading halt of its shares earlier on Thursday. Its shares have gained 16.9 percent this year till Wednesday’s close.
“It will be interesting to see how investors receive it. A lot of Australian companies have had very poor experiences when expanding overseas so this certainly raises the risk profile of Reliance,” said Michael McCarthy, chief market strategist at CMC Markets.
Reliance, which described itself as the world’s leading manufacturer of brass PTC fittings, said the purchase would provide total synergies of more than A$20 million in core earnings per year and that the acquisition would be supported by an equity raising of up to A$1.10 billion.
An entity related to its chairman, Jonathan Munz, would use its full entitlement of A$110 million of the capital raising and the acquisition is expected to close in June, Reliance said.
A successful acquisition would give Reliance “powerful diversification and currency exposures that some investors might prize”, said CMC Markets’ McCarthy.
“Today’s deal certainly raises the potential rewards and the potential risks for Reliance as an investment.”
Reporting by Aaron Saldanha, Additional reporting by Shanima A in Bengaluru; Editing by Richard Pullin and Muralikumar Anantharaman