Melrose sells off its Elster business for £3.3bn
MANUFACTURING turnaround specialist Melrose Industries is selling its Elster Group business to Honeywell International for £3.3bn.
The Alcester-based group bought Elster (which now comprises Elster Gas, Elster Electricity and Elster Water) for £1.8bn in 2012. Its exit sees it generating 2.3 times equity investment and 33% equity IRR (internal rate of return) on the deal.
The acquisition price implies a multiple of 3.1 times 2014 revenue and 14.3 times 2014 headline EBITDA.
In addition to the cash consideration, Honeywell is assuming the Melrose group’s FKI UK defined benefit scheme and McKechnie defined benefit pension plan as well as its Elster related pension obligations, which together comprise the majority of the Melrose group’s pension schemes.
Melrose says it intends to use the proceeds to finance a return of capital of more than £2bn to shareholders in due course and for general corporate purposes, including paying down existing borrowings.
Christopher Miller, chairman of Melrose, said: “The disposal of Elster represents an excellent outcome for Melrose shareholders and another milestone in our track record.
“Through investing heavily and improving operational performance we have created substantial value for shareholders, more than doubling their money in three years.
“I am pleased that we are able to deliver this return to shareholders earlier than we had originally anticipated and have every confidence that Elster will continue its success story under the ownership of Honeywell.
“In the ten years since our first investment we have created well over £2bn of shareholder value. We look forward to beating that performance over the next decade.”
Melrose’s strategy is to buy manufacturing businesses with strong fundamentals whose performance can be improved through a mixture of investment and changed management focus, before selling them and returning the proceeds to shareholders.
Shortly after acquiring Elster in August 2012, Melrose reorganised the group into three separately managed business units: Elster Gas, Elster Electricity and Elster Water, and invested heavily to improve each of them.
