£10m artificial grass deal sows the seeds of growth for Victoria

Worcestershire carpets and floorcoverings group, Victoria has sown the seeds of growth by investing almost £10m acquiring two companies in Holland that produce artificial grass.

The Kidderminster company is spending €11.2m (£9.7m) acquiring Avalon and GrassInc. There will be a deferred consideration of €5.1m (£4.4m) funded from cash and the group’s existing bank facilities.

Additional cash may be payable depending on the performance of the two companies being met over the next four years.

Victoria said the acquisitions would be immediately earnings-accretive and the company has hinted there could be more European-based acquisitions to come.
 
Established in 2010 (Avalon) and 2011 (GrassInc) the two companies primarily supply artificial grass for domestic and landscaping purposes across Europe.

Victoria said artificial grass was a very high growth – and high margin – segment of the flooring market. Total European demand for artificial grass was approximately 50 million square metres in 2015, with the market for domestic grass forecast to grow 15% year on year through to 2019 and landscaping forecast demand to grow 11% year on year through to 2019.

Geoff Wilding, chairman of Victoria, said: “This represents the first of several acquisitions we will be making in Europe and it elevates our status as being a supplier of innovative flooring products to our growing customer base.
 
“There is already significant demand from our existing UK customers for artificial grass, which is currently being met by our competitors and we are therefore confident there are material revenue synergies for Avalon and Grass Inc. from our UK operations.”

For the year ended December 31, 2016, the acquisitions generated unaudited total revenues of €20.4m (£17.6m) and EBIT of €4.2m (£3.6m). Total net assets acquired on completion were approximately €5.7m (£4.9m).

Victoria said the deals continued its strategy of growing the business with earnings-enhancing acquisitions, and then using available synergies to drive further increases in profits.

It said the two companies were an excellent strategic fit with Victoria’s existing business and would have strong long term growth prospects as part of the group.
 
It added the acquisitions would create value for shareholders as there were significant commercial, operational and financial synergies associated with the two companies.

Namely, the production of artificial grass is almost identical to carpet manufacturing, using the same machinery, the same processes, and similar fibres; and there is significant existing and growing demand in the UK for artificial grass.

Victoria said it has a very strong distribution network – it sells to over 3,000 independent retailers – and it believed there was a real opportunity to grow the revenues of the acquisitions by accessing that distribution network with both branded and white-label artificial grass products.