Hill & Smith Regulatory News (HILS)

9 March 2011

Hill & Smith Holdings PLC

 ("Hill & Smith" or "the Group")

US$45M ACQUISITION OF THE PATERSON GROUP, INC.

Strategic investment to create a global leader in pipe supports with an established presence in the highly regulated nuclear power market

The Board of Hill & Smith announces that the Group has agreed to acquire, on a debt free cash free basis, The Paterson Group, Inc. and its related companies (together, "TPG") for US$45m in cash, to be financed from the Group's existing bank facilities. 

Established in 1908, TPG is a family owned, leading manufacturer and distributor of pipe supports and hangers to the power generation, commercial and industrial markets in North America. The business operates from three fabrication units located on the east coast of America, one in Canada and four sales and distribution depots across America. Through its Bergen-Power pipe supports operation, TPG is one of only three full line pipe supports suppliers with certification for the US nuclear market and has supplied to almost half of all US nuclear power plants built to date. Its long established presence in this growing market, through its ASME ("American Society of Mechanical Engineers") nuclear certification, will allow the Group to tender for significant forthcoming nuclear projects in other markets such as China and India.

The combination of TPG's business based in North America together with Hill & Smith's existing engineered pipe supports businesses in the UK, Thailand, China and India will create a global leading supplier. The acquisition also represents a significant increase in Hill & Smith's presence in the US, where applications for the combined group's pipe support business include the nuclear, gas and coal powered electricity generation industries, as well as water and waste treatment plants, oil refineries, pharmaceuticals and chemical plants. In addition, the Board expects the combined business to secure material cost synergies over time through the outsourcing of some of TPG's commercial pipe supports production and through enhanced purchasing arrangements. 

Using the last financial statements of each of the acquired businesses*, TPG had combined revenue of US$59.6 million, EBITDA of US$8.5 million and EBIT of US$8.2 million. Combined gross assets on the same basis were US$27.6 million. Whilst TPG is not expected to generate a similar level of profits in the current year, given current market conditions, the Board is confident in the prospects for the business thereafter. The acquisition is expected to be earnings enhancing in the current financial year.

Mr David Lynch, the current President, and a substantial shareholder in TPG, will remain with the business along with other senior executive personnel.

Completion is scheduled to take place on Wednesday 16 March 2011. Customary representations and warranties have been received from the vendors and the Group is retaining US$5.0 million through an escrow account for a maximum period of four years against any potential warranty claims under the sale and purchase agreement.

Derek Muir, Chief Executive of Hill & Smith, said:

"By acquiring TPG, we are taking a significant strategic step forward in creating one of the world's leading pipe supports businesses. As well as making us a significant player in the North American market, TPG gives us an established presence in the highly regulated nuclear power industry both in the US and globally. We estimate that there are 189 nuclear plants, either under construction or planned worldwide, and this is therefore an opportunity for the Group to grow in a highly attractive market.

This acquisition is firmly in line with our strategy of focusing on our existing strengths to grow in one of our core markets, whilst further increasing the international footprint and profile of the Group."

Contact details

Derek Muir, Group Chief Executive Tel: +44 (0)121 704 7430

Hill & Smith Holdings PLC

Chris Treneman Tel: +44 (0)207 597 4198

Investec

John Olsen/Barnaby Fry/Vicky Watkins Tel: +44 (0)203 128 8100

MHP Communications

Notes

* The last financial statements for TPG and its related companies comprise the audited accounts for the year ending 31 July 2010 for The Paterson Group, Inc., the audited accounts for the year ended 31 December 2009 for PHS Industries Inc. and the unaudited accounts for the year ended 31 October 2009 for Process Pipe Support Systems, Inc.

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