Bodycote completes acquisition and plans £60m share buyback after cancelling deal

HIP furnace being lowered into place

Bodycote, the Macclesfield-based provider of heat treatment and specialist thermal processing services, has completed the takeover of a North American business, but pulled out of another deal which will provide funds to commence a share buyback programme this spring.

Further to the announcement on October 9, 2023, the acquisition of Lake City HT successfully completed on January 19, 2024.

The consideration paid on closing for Lake City HT was £52m on a cash and debt free basis.

After expected tax benefits worth approximately $7.5m, the net economic price paid was £46m, resulting in an acquisition multiple of less than 7.5x 2024 EBITDA.

Lake City HT, based in Warsaw, Indiana, is a hot isostatic pressing (HIP) and vacuum heat treatment business primarily supplying the orthopaedic implant market as well as civil aerospace. It will significantly increase Bodycote’s customer reach in the medical market.

The business is forecast to have achieved 2023 full year revenues of around £11m, with operating profit expected to be around £5m. The business achieved 30% revenue growth in 2023 and looking ahead is expected to continue to deliver good progress.

The acquisition will be accretive to group profit margins and EPS in 2024 and is expected to exceed Bodycote’s cost of capital by 2025.

However, Bodycote has agreed with Stack Metallurgical Group (SMG) not to complete the acquisition of the business due to a failure to satisfy all closing conditions to the agreement.

Stack Metallurgical Group is based in the Pacific North West of the US, a key provider of HIP, heat treatment and metal finishing services primarily for the civil aerospace, defence and energy markets.

It was announced as part of the double acquisition, along with Lake City HT, on October 9, last year, in a combined deal totalling £119m. After expected tax benefits worth at least $15m, the net economic consideration i]was forecast to be approximately $130m (£106m).

In light of the lower than anticipated acquisition spend, the group’s strong balance sheet and balanced approach to capital allocation, Bodycote intends to launch a share buyback programme of up to £60m.

The share buyback programme is expected to begin on March 18, 2024. Full details of the programme will be provided on March 15, 2024 at the time of the announcement of Bodycote’s full year 2023 results.

Group chief executive, Stephen Harris, said: “Completion of the acquisition of Lake City HT is an exciting further step in our strategy to grow our Specialist Technologies businesses and footprint.

“This acquisition is an excellent fit, enhances our profitability and earnings per share in addition to allowing us to capitalise on the appealing structural growth opportunities in Medical and Aerospace markets.

“The share buyback programme represents an attractive use of our capital. It highlights the strength of the group’s balance sheet, together with our commitment to a balanced and disciplined approach to capital allocation to drive growth and shareholder value.”

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