SYDNEY (Reuters) - Australian plumbing products supplier Reece Ltd (REH.AX) said on Monday it would buy privately held Texas-based peer Morsco Inc for $1.44 billion including debt, in a push to gain access to the fast-growing markets of the southern United States.
The deal is a rare example of an Australian company buying a large U.S. counterpart, representing one of only ten such transactions in almost a decade, according to Thomson Reuters data.
The tightly-held company, where only one quarter of shares are freely floated, is following a similar path to Sydney-headquartered building materials supplier Boral, which has bet big on the U.S. housing market through a $1.8 billion cash deal to buy Headwaters Inc brokered in 2016.
The Fort Worth-based Morsco will give Reece market exposure to the Sun Belt region, which includes southern states such as Florida, Louisiana, South Carolina and Texas.
“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 Chief Executive Peter Wilson said in a statement.
Recent U.S. property data has been strong, with sales in some parts of the country surging to the highest level in more than a decade, driven by a robust labor market.
“(The deal is) also taking a view on housing construction market in the United States which does appear to be heading in a positive direction,” said James McGlew, executive director for corporate stockbroking at Perth-based Argonaut.
Reece said the deal will be funded through a combination of cash and debt, adding that it will also raise A$560 million ($421.6 million) through a stock offering.
The Australian billionaire Wilson Family, which owns a majority stake in Reece and is backing the deal, will subscribe to A$300 million worth of shares in the offering.
A bulk of the funding, however, will come from an underwritten $1.14 billion secured credit facility.
Reece said it will operate Morsco separately from its Australian and New Zealand businesses, and retain the U.S. management.
Morsco said in a statement the deal was binding.
Reece also gave guidance for the fiscal year ending June 2018. It expects an after-tax profit of A$223-A$230 million, 5 percent higher than last year. It forecast sales of A$2.65 billion-A$2.70 billion.
Trading of Reece shares on the Australian Securities Exchange was halted and will be lifted on Wednesday after an announcement related to the share issue.
The deal represents the biggest U.S. investment by an Australian firm since fund manager Queensland Investment Corp said last year it would pay $1.55 billion to buy 10 regional U.S. malls.
Investment between the close allies tends to flow the other direction. The U.S. is Australia’s largest investor, representing 27 per cent of Australia’s total foreign investment stock at the end of 2016, according to government data.
Reporting by Jonathan Barrett in SYDNEY; Additional reporting by Rushil Dutta, Elaine Tan and Chris Thomas; Editing by Sayantani Ghosh, Sam Holmes & Shri Navaratnam