(Sharecast News) - Franchise Brands outlined its plans to integrate its direct labour organisations (DLOs) in the UK on Wednesday, following the acquisition of Filta Group in March.
The AIM-traded firm said the acquisition of Filta would allow it to offer a wider range of drainage, pump, plumbing and fats, oils and grease management services to commercial customers.
To maximise the growth opportunity, the board said it was "important" to streamline the way the businesses operate and collaborate.
As such, it said it had identified advantages to harmonising some of Filta UK's DLO business with Willow Pumps, to "unlock" further market opportunities in the business-to-business division.
"There are considerable synergies and opportunities in the range of core services of the two DLO businesses, as well as with the Metro Rod franchise network, in particular pump servicing, drainage and fats oils and grease management," the board explained.
"These services are very complementary in terms of the customer base, with significant opportunities to cross-sell the now extended range of services to all existing and new customers.
"These synergies will provide a number of opportunities to enhance performance and customer service and grow revenue and profits for the enlarged group."
In order to realise the efficiencies as quickly and efficiently as possible, without constraints or impediments, the board said it had determined that the best course of action was to now buy out the earn-out consideration for the acquisition of Willow Pumps that was agreed in October 2019, rather than wait until the earn-out period ends on 31 December 2024.
The directors said that would facilitate an accelerated programme of integration and harmonisation across the business-to-business division of the group.
That would include building on recent initiatives between Willow Pumps and Metro Rod to deliver pump services, and accelerate the expansion of pump expertise and resources in the Metro Rod network.
Franchise Brands acquired Willow Pumps in October 2019 from managing director Ian Lawrence and his wife, for an initial consideration of £5m, and a performance-based potential deferred consideration of up to £7.5m payable over five years.
The deferred consideration was structured to be conditional on the achievement of targets for profits and increases in pump work undertaken by Metro Rod franchisees for each of the five years ending 31 December 2024.
As previously reported, Willow Pumps was impacted by Covid-19 in the past two years, particularly in the housebuilding sector, which resulted in a total of £0.66m in deferred consideration paid to date for the first two years, out of a possible £3m.
Franchise Brands said it had agreed with Ian Lawrence and his wife for a cash payment of £1.34m for the termination of the rest of the earn-out.
That meant that no further consideration payments would be due, and the total payment under the deferred consideration would be £2m out of a possible £7.5m.
The final payment was expected to result in an exceptional profit of £1.6m for Franchise Brands in the year ending 31 December, against the IFRS 13 fair value of the contingent consideration provision in the 2021 accounts of £2.9m.
"Ian Lawrence will now become non-executive chairman of Willow Pumps, and the company has appointed Kevin Perry, previously head of sales and marketing at Willow Pumps, as managing director of Willow Pumps," the board confirmed.
"Kevin Perry will report to Peter Molloy, who was recently appointed managing director of the group's B2B division in the UK."
At 1044 BST, shares in Franchise Brands were down 0.73% at 136p.
Reporting by Josh White at Sharecast.com.
Franchise Brands (FRAN)