Shares in Melrose (MRO) surge 31% to 539p as a £1.7 billion takeover offer for Nasdaq-listed Nortek (NTK:NDQ) whets investor appetites for a successful buy-improve-sell project at the the industrial turnaround specialist.
Management, led by executive chairman Christopher Miller, outlined eight reasons they bought the business.
They include Nortek's:
- industry-leading air quality, ventilation and air conditioning product manufacturing capabilities;
- position as third-largest supplier of residential security hardware in the US;
- opportunities for increased investment;
- solid end markets, including in the residential repair and remodelling sector;
- diverse revenue streams across commercial and residential customers;
- successful restructuring efforts which are now more or less complete; and
- further opportunities to improve supply chain and IT systems.
Finally, Melrose's management argues Nortek's capital spending is constrained by a high debt load and that an equity-funded deal to buy the business will reduce its debt load as well as interest costs.
Led by Christopher Miller since 2003, Melrose's strategy is to 'buy good manufacturing businesses with strong fundamentals and whose performance can be improved.
Melrose's deal to buy Nortek is the first since it sold metering and energy management outfit Elster to Honeywell (HON:NYSE) for $3.3 billion (£2.6 billion) in 2015 and returned cash to shareholders.
That deal delivered a 33% internal rate of return and Melrose more than doubled its investment over the space of three years, the company says.
One pound invested in Melrose at inception in 2005 on its first deal, and reinvested in subsequent cash calls, would have a netted cash return of £9.00 with more than £1.00 still invested in Melrose.
