- Distributor acquires TIE from private equity
- Raises £236 million for further acquisitions
- Confident of another year of strong growth
Shares in specialist distributor Diploma (DPLM) rose 4% to £27.42 as investors got their first chance to react to news, announced after yesterday’s market close, of the acquisition of Tennessee Industrial Electronics (TIE) from private equity as well as a positive trading statement from the FTSE 250 business.
In an update today, deal-hungry Diploma also confirmed it has raised £236 million, through a placing with institutions and a small retail offer via the PrimaryBid platform, to fund further acquisitions.
NEWS FROM NASHVILLE EXCITES
Diploma, which supplies specialised technical products and services, will deploy part of the fundraising proceeds to refinance the £76 million acquisition of TIE.
This Nashville-based distributor of aftermarket parts and repair services into America’s fast-growing industrial automation market focuses on computer numerical control (CNC) machines and robots.
Structural growth in industrial automation is being driven by semi-skilled labour shortages, rising manufacturing wages, the onshoring of US manufacturing as well as the growing and ageing installed base of CNC machines and robots.
JOHNNY IS SCOUTING FOR DEALS
Diploma has a demonstrable track record of accelerating organic growth through acquisitions and is on the hunt for targets that can help it expand into structurally growing markets and diversify its product range.
Guided by CEO Johnny Thomson, management has identified a whopping 2,000 acquisition opportunities, with 700 of interest today and around 50 currently being progressed.
Given this strong pipeline, and with Diploma loathe to take on too much debt, the company has tapped the market for £236 million to refinance the TIE acquisition and provide it with ‘greater flexibility’ to execute on its acquisitions pipeline.
DIPLOMA IS DELIVERING
During the first quarter of the year to September 2023, Diploma said it delivered strong organic growth of 10% with its ‘revenue diversification strategy driving continued robust volume growth’.
Furthermore, the outlook for FY 2023 is ‘positive’, insisted Diploma, which has ‘confidence in delivering another year of strong growth’.
Thomson commented: ‘Alongside our relentless focus on organic growth, we see significant potential to strengthen the group further with disciplined acquisitions that accelerate future organic growth, while maintaining our strong financial position.’
Sticking with its ‘buy’ rating, Shore Capital stressed that Diploma’s business model is based on ‘offering technical sales advice under exclusive supply agreements with high customer switching costs for essential products driven by opex budgets’.
And given Diploma’s organic and acquisitive expansion, the broker remains confident the group can achieve ‘mid double-digit earnings growth (split evenly between organic and acquisitions) over the next five years.’
