Grafton Group, the builders' merchants and Woodies DIY company, which has built up a 7.99 per cent holding in its main rival, Heiton Holdings, has acquired Niall Bailey (Building Supplies) Ltd, a Birmingham builders' merchants, for £13.5 million sterling (€20.1 million).
It will be funded from its existing resources. Niall Bailey trades from six branches, located to the east and south of Birmingham. Grafton's executive chairman, Mr Michael Chadwick, said it was a "good strategic fit" with its own Birmingham branches, acquired in 1998, and now trading as Buildbase and Plumbase. The extra branches, he added, would give it increased market penetration in the Midlands area. The acquisition brings the number of branches in the region to 29.
Niall Bailey's sales in the year ended January 31st, 1999, amounted to £13.6 million (€20.3 million). It generated a pre-tax profit of £380,000 (€567,000) and an adjusted operating profit of £1.3 million (€1.9 million). The £1 million (€1.49 million) difference between the profit figures represents once-off payments, including pension contributions, to the Niall Bailey directors. Mr Chadwick expressed confidence that profitability could be improved further as part of the enlarged Grafton and said it should be earnings-enhancing this year.
There is, however, a large premium on the assets being acquired. Net assets amount to £8.3 million (€12.4 million), including cash of £2 million (€2.99 million). Goodwill will amount to £5.2 million (€7.76 million). The goodwill is justified, said Mr Chadwick, because Niall Bailey manages to generate an operating margin of 10 per cent, better than other similar companies.
Niall Bailey's managing director, Mr John Bailey, who is to remain with the group, sees good potential for the company's business.
Grafton has been growing strongly in the UK, where it now trades from 85 locations, mainly in the south-east and midlands. This market, with sales of £132 million (€197 million), now accounts for half of Grafton's sales.
Grafton last month acquired a 4.9 per cent stake in its smaller rival, Heiton, the builders' merchant with the Atlantic Homecare DIY chain. This was topped up to 7.99 per cent this month. The stake was made for investment purposes, according to Grafton.
