- Proposed acquisition of Pirtek for £200 million
- Discounted equity raise of £90 million
- Deal expected to be earnings accretive in first year
Shares in Franchise Brands (FRAN:AIM) dropped 23% to 185p on Tuesday after the multi-brand franchisor announced a £90 million heavily discounted equity raise to part fund the purchase of Hydraulic Authority, owner of Pirtek, a European provider of on-site hydraulic hose replacement and services.
The £200 million acquisition is conditional upon shareholder approval and successfully raising new equity which is pitched at a 27% discount to the closing price on 3 April and open to new and existing institutional shareholders.
The acquisition and working capital adjustment of £12.2 million is being financed by new bank debt facilities of £110 million and a minimum £110 million of new share capital.
In addition to the institutional book build, the equity raise is comprised of consideration shares of up to £18.85 million and a subscription with Pirtek management and employees of approximately £4.8 million.
WHAT IS THE DEAL’S RATIONALE?
Pirtek Europe is an established provider of mission critical emergency response services offering one-hour arrival times every day of the year. It has 213 service centres and 838 mobile vans.
It operates in eight countries including the UK and has the right to operate in a further eight European countries offering the scope for expansion.
Management sees ‘multiple’ growth opportunities including growing system sales, expanding the range of services, and leveraging technology to increase efficiencies.
Pirtek’s footprint will provide a low-cost platform for the group to launch its current brands into new markets. The board believes the increased scale and diversification of the enlarged group will create greater resilience in the services provided.
All members of Pirtek’s senior management are expected to remain with CEO Alex McNutt joining the board.
WHAT ARE THE FINANCIAL EFFECTS?
Management said the deal is expected to be immediately earnings enhancing, generating single digit accretion in the first year.
The company provides pro-forma (assumes a full year contribution) forecast revenue of the enlarged group for the year ended 31 December 2023 of £168 million rising to £182 million the following year with an adjusted EBITDA (earnings before interest, tax, depreciation, and amortisation) of £33.5 million and £36.9 million respectively.
In 2022, Franchise Brands generated sales of £99.2 million and adjusted EBITDA of £15.3 million.
The board anticipates net debt to EBITDA will end the year at 2.3 times falling to 1.6 times in December 2024.
