Flowtech Fluidpower swoops to acquire Yorkshire business out of administration

AIM-listed Skelmersdale-based hydraulics business, Flowtech Fluidpower, has announced the £350,000 acquisition of Bradford’s Thomas Wright/Thorite Group, out of administration.

Thorite is a leading UK provider of pneumatics, compressed air, vacuum and fluid-handling products and systems and had traded since 1850. It operates from seven sales and service centres across the UK.

Flowtech Fluidpower said there is a strategic rationale for the acquisition and the potential for significant synergies for the combined businesses, with the benefits including significant operational efficiencies, procurement leverage opportunities and economies of scale, which will lead to material cost-savings and improved margins for the group over the medium term.

It is also expected to offer a  well-developed value proposition, Thorite’s trading locations and only limited product overlap with Flowtech will provide expansion into new and complementary geographies within the UK, together with new products and services.

And it is anticipated that the enlarged business will also benefit from strong cross-selling prospects across the respective  complementary customer bases.

Flowtech said it will acquire all the plant and machinery, vehicles, stocks, and intangible assets of Thorite for a total cash consideration of £350,000 which will be funded from the group’s existing bank facilities.

It has also repaid Thorite’s outstanding debtor finance facility of approximately £1.7m in return for an assignment to the group of a debtor book totalling around £2.6m.

This has also been funded from the group’s bank facilities. A sharing arrangement relating to the excess of debtor book recoveries over and above the c.£1.7m paid has been agreed with the administrator of Thorite.

In the audited accounts for the year ended March 31, 2023, Thorite generated revenue of £21.2m and delivered an operating profit of £79,000.

The gross value of asset classes being acquired at the same date was £8.8m, inclusive of £3.8m in respect of the debtor book at that point in time.

Thorite has since experienced cash flow challenges and incurred operating losses due to a combination of internal issues and market headwinds. Thorite’s operating losses in the year to March 31, 2024, are estimated at £1.2m.

Through a combination of the strategic benefits and synergies already identified, the Flowtech  board expects profitability to be restored in the first full year of ownership with the associated benefits to group earnings.

Flowtech was due to announce its half year results on September 10, but said today that, to enable management to focus on the combined business at this early stage of ownership and subsequently provide shareholders with a greater insight into the acquisition and its strategic benefits, the company is rescheduling the release of its half year results for the six months ended June 30, 2024.

A revised date, together with the timings for the presentation webcast and investor roadshow, will be announced as soon as practicable and will be no later than the September 30, 2024.

Flowtech CEO, Mike England, said: “On behalf of all of us at Flowtech we welcome our new colleagues to the group.

“This is an exciting moment for us all as both businesses have a history of deep expertise and knowledge in power, motion and control.

“For us at Flowtech, adding Thorite’s expertise in pneumatics, automation and compressed air capability is an excellent fit and aligns perfectly with our strategy – a world of motion – which will enhance our scale, margin profile, and help to accelerate market share gains.”

Howard Smith and Rick Harrison, from Interpath Advisory, were appointed joint administrators to Thomas Wright/Thorite Group Limited on August 23, 2024.

Following an exploration of sale, refinance and investment options, it became clear that a solvent solution was not possible, and as such, the directors took steps to seek the appointment of administrators.

Immediately following their appointment, the joint administrators sold the business and its assets to Flowtech Fluidpower. As part of the transaction, all of the company’s 105 employees have transferred to the purchaser.

Howard Smith, managing director at Interpath Advisory, said: “Having traded for over 150 years, Thomas Wright/Thorite Group has forged a long standing reputation for innovation and for the quality of its products. We’re therefore delighted to have secured the future of this historic business, preserving the jobs of its dedicated workforce, with this sale to Flowtech Fluidpower, We wish the company all the very best for the future.”

Sanjay Vidyarthi, research analyst at Panmure Leberum, maintained his target share price and ‘Buy’ call on Flowtech’s stock following today’s announcement.

He said: “While acquisitions were not on the short term agenda, this was too good an opportunity to pass.

“With historic sales of £21m per annum and a complementary product offering, Thorite will add meaningful scale to Flowtech.

“In the medium term, the benefits of cost savings, cross-selling and operational leverage should drive stronger group margins.”

He added: “Management is focused on integrating the business and the interims are to be rescheduled as a result.

“We will review our forecasts at the interims, when management will provide more guidance on the deal. A 10.3x CY25E is cheap. Maintain 150p TP. Buy.”