TIDMDPLM
RNS Number : 8553F
Diploma PLC
13 July 2023
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION
13 July 2023
Diploma PLC
Strategic acquisition of European Fluid Power platform
Diploma PLC, the value-add distribution group, is pleased to
announce the acquisition of Distribuidora Internacional Carmen SAU
("DICSA"), a market-leading distributor of fluid power solutions
into the European aftermarket for an initial consideration of ca.
GBP170m (EUR200m).
-- A high quality business : DICSA has significant customer
value-add based on quality product, breadth of range, technical
service, and speed to market. This customer proposition has driven
a long track record of double-digit organic growth at attractive
margins.
-- Strong strategic fit : the acquisition adds to our
established positions in the US and UK, expanding our aftermarket
fluid power capability and accessing key strategic markets in
Continental Europe. DICSA is based in Spain with good exposure
across Europe, particularly France and Germany. With small market
shares in these significant economies, the differentiated
proposition can continue to drive strong growth.
-- Attractive valuation : the initial consideration of GBP170m
represents a multiple of 9x 2023 EBITDA. The acquisition will be
earnings enhancing and exceed cost of capital from day one, and the
business will be accretive to the Group's organic growth and
margins. There are also material revenue and cost synergies with
our existing fluid power businesses in the UK and US, accelerating
the journey to 20% returns over the next three to five years.
High quality fluid power aftermarket business in Continental
Europe
The acquisition of DICSA builds on Diploma's established track
record of driving future organic growth through acquisitions at
excellent returns and fulfils the key characteristics we seek:
-- Fluid power product capability: DICSA is a value-add
distributor of a diverse range of hydraulic hoses, fittings and
components, a product set with which we are familiar, and similar
to that offered by our UK Aftermarket Seals business, R&G.
-- Attractive aftermarket business: this is a model we like
which, together with a highly diversified customer base, has
underpinned DICSA's resilience.
-- Quality value-add business: similar to our other fluid power
businesses, DICSA's market-leading reputation and value-add is
based on breadth and availability of product; technical capability;
and speed to market. This is reflected in strong operating margins
of over 20%.
-- Impressive organic growth track record, exciting potential:
the business has delivered long-term organic revenue CAGR of 11%
and has significant headroom for continued growth in fragmented
markets.
-- Access to white space in Europe: DICSA is present in key
European markets including Spain, France and Germany. The business
has significant potential for further development in all European
markets.
-- Excellent management team: a highly experienced management
team, led by Daniel Carmen, have successfully grown the business
for over 30 years. We are delighted that Daniel and his team will
remain with the business under Diploma's ownership, based at
DICSA's existing headquarters in Zaragoza.
Compelling financial rationale
For the 12-month period ended 31 December 2022, DICSA generated
revenue of EUR87.7m and adjusted EBIT of EUR20.2m. Gross assets at
the end of the period were EUR78.9m.
The acquisition will be accretive to Diploma's organic growth
and margins. DICSA has achieved long term organic revenue CAGR of
11% with EBIT margins of more than 20%. It will be immediately EPS
accretive, adding ca.5% to EPS growth during the first full year of
ownership, and will cover its cost of capital from the outset. We
are also excited to accelerate performance and returns with revenue
and procurement synergies between DICSA and our existing
businesses:
-- cross-sell existing product from our UK Aftermarket business,
R&G, through DICSA's platform into Europe;
-- accelerate DICSA's growth in the US, leveraging our Seals
North American Aftermarket platform; and
-- deliver consolidated procurement synergies.
The initial consideration of ca.GBP170m has been paid in cash,
funded from the Group's recent equity raise and existing debt
facilities. In addition, up to ca.GBP19m is payable based on DICSA
achieving stretch profit targets in 2024 and 2025. We remain
disciplined and our balance sheet is strong, with flexibility for
continued investment; year-end leverage is expected to be ca.1.0x,
assuming no further acquisitions. We expect Group ROATCE to remain
strong, at around 18%.
The Group has also separately issued its Q3 trading update today
for the nine months ended 30 June 2023.
Johnny Thomson, Diploma's Chief Executive said:
"I am delighted to welcome Daniel and our new DICSA colleagues
to the Group. They have created an exceptional value-add business
with a very strong market reputation. We know and like the fluid
power aftermarket model and DICSA satisfies a key strategic
priority: accessing large European markets. The business is already
generating strong performance and there are significant
opportunities to enhance returns by working together across Europe,
the UK and the US. This deal continues our strong track record of
acquisitions that drive organic growth at great returns."
For further information please contact:
Diploma PLC +44 (0)20 7549 5700
Johnny Thomson, Chief Executive
Officer
Chris Davies, Chief Financial
Officer
Kellie McAvoy, Head of Investor
Relations
Teneo +44 (0)20 7353 4200
Martin Robinson
Olivia Peters
NOTE TO EDITORS:
Diploma PLC is a decentralised, value-add distribution Group.
Our businesses deliver practical and innovative solutions that keep
key industries moving - from energy and infrastructure to
healthcare.
We are a distribution group with a difference. Our businesses
have the technical expertise, specialist knowledge, and long-term
relationships required to deliver value-add products and services
that make our customers' lives easier. These value-add solutions
drive customer loyalty, market share growth and strong margins.
Our decentralised model means our specialist businesses are
agile and empowered to deliver the right solutions for their
customers, in their own way. As part of Diploma, our businesses can
also leverage the additional resources, opportunities and expertise
of a large, international and diversified Group to benefit their
customers, colleagues, suppliers and communities.
We employ ca.3,000 colleagues across our three Sectors of
Controls, Seals and Life Sciences. Our principal operating
businesses are located in the UK, Northern Europe, North America
and Australia.
Over the last fifteen years, the Group has grown adjusted
earnings per share (EPS) at an average of c.15% p.a. through a
combination of organic growth and acquisitions. Diploma is a member
of the FTSE 250 with a market capitalisation of c.GBP4.1bn.
Further information on Diploma PLC can be found at
www.diplomaplc.com
This Announcement contains inside information for the purposes
of the Market Abuse Regulation (Regulation (EU) No 596/2014), as it
forms part of retained EU law in the United Kingdom by virtue of
the European Union (Withdrawal) Act 2018 ("UK MAR").
The person responsible for releasing this Announcement is John
Morrison, Company Secretary.
LEI: 2138008OGI7VYG8FGR19
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