Bathroom products manufacturer Qualceram is to pay close on €68 million (£54 million) for the British group Shires, in a deal that will increase Qualceram's turnover by a factor of six to almost £90 million. The deal is all-cash but Qualceram is funding part of the consideration through a £13 million share issue which has been underwritten by institutional investors.
The Shires acquisition will transform Qualceram and make it a significant player in both the Irish and British markets for bathroom products. But the acquisition will also come with a significant impact on the enlarged group's balance sheet with the enlarged group having debt of around £60 million and a debt/equity ratio of 68 per cent.
But Qualceram chief executive Mr John O'Loughlin said that the group is comfortable with this level of gearing. "Shires is profitable and we will be generating a lot of cash and will be able to run-down the debt in a relatively short period of time. Our interest cover is comfortable and we are happy with the financial arrangements."
Qualceram is paying £44 million for Shires and will also be assuming more than £10 million in debt which it intends to discharge when the takeover is completed. About a quarter of the funding will come from the open offer to shareholders at €2.40 a share, a 20 cent premium on Qualceram's price when the share were suspended in early June when the Shires deal was first revealed.
Mr O'Loughlin said that Shires had combined sales between its British and Irish operations of £58 million sterling (£75 million). The main operations in the UK had pre-tax profits of £2.8 million sterling in the year to April compared to just £339,000 sterling the previous year, while the Shires Ireland operation had pretax profits of £230,000 sterling compared with £845,000 the previous year.
Shires operates on substantially lower margins than Qualceram itself, which generated pre-tax profits last year of €3.2 million on sales of just €15.5 million. Market sources believe that one of Qualceram's main priorities will be to improve the Shires margins by increasing sales and reducing costs.
Shires operates five separate divisions - Longton Ceramics, Hanley Ceramics, Shaws of Darwen, Select Shower Enclosures and Bradford Acrylics. Mr O'Loughlin said that there is little overlap between Shires and Qualceram, with both group operating in distinct sectors of the market.
"There is little crossover of customer base, and consequently, the acquisitions provide an excellent opportunity for synergies across products, sales, customers and markets," he said. He added that while Qualceram's aim is to grow the combined business, there are savings to be generated at Shires and there may be some reduction in Shires' combined workforce of 950 staff. The underwritten open offer as is probably unique to the extent that Qualceram is offering new shares at €2.40 each to shareholders, a 20 cent premium to the previous market price. A total of 6.98 million new shares are being offered to shareholders on a one-for-two basis, with the share issue underwritten by English Trust which in turn will place shares not taken up by shareholders with institutional shareholders who include ICC Venture Capital.
Two executives - Shires managing director Mr Ronald Lasseter and Shires Ireland managing director Mr Brendan Whooley - are to join the Qualceram board and the enlarged company is to be renamed Qualceram Shires.
