Melrose selling Nortek Air Management for £2.62bn

(Sharecast News) - Melrose Industries has agreed to sell its Nortek Air Management business to Chicago-based Madison Industries, it announced on Monday, for consideration of £2.62bn in cash on completion, subject to adjustments.
The FTSE 100 company said the price would make for an implied sale multiple of 2.3x 2020 revenue, and 12.5x 2020 adjusted EBITDA.

It said it would use part of the net proceeds to reduce debt, and contribute around £100m to the GKN UK defined benefit pension schemes.

That contribution would mean that the funding deficit would have reduced to about £200m from £1bn under Melrose ownership.

A portion of net proceeds would be returned to shareholders, the board said.

"The disposal demonstrates the strength of the Melrose strategy," said chairman Justin Dowley.

"We bought Nortek, an underperforming group, which we felt had outstanding potential in 2016 for £2.2bn.

"We have seen approximately $1bn of cash inflows from the Nortek group during our ownership, effectively giving us an in-price of $1.8bn."

Dowley said the businesses being sold represented 73% of the Nortek group by revenue, making for "excellent" returns.

"Our Ergotron and Nortek Control businesses which also form part of the Nortek group remain under our ownership and will be realised at an appropriate time."

Completion of the disposal was expected in the second or third quarter, and remained conditional on shareholder approval.

Further details on the proposed return of capital would be announced a short time after completion.

"Our strategy of 'buy, improve, sell' remains the same, but circumstances evolve," said chief executive officer Simon Peckham.

"Our businesses are all responding to the demands of climate change, driven by customers and consumers; air management's 'StatePoint' technology is a perfect example of this."

Peckham said that under Melrose, the air management executive team had created a business "from scratch" with "exemplary" environmental credentials.

"We can now hand that technology to a high quality buyer with specialist aspirations and skills.

"We are continuing to show that it is possible to make great returns for shareholders, while looking after pensioners and answering the environmental demands of the modern world."