Engineering group Hill & Smith (LON:HILS) is paying US$45 million (£27.8 million) for US-based pipe support and hanger manufacturer, The Paterson Group Inc. The move will create a major international player in the market for pipe supports with an established presence in North America and the highly regulated nuclear power market. Hill & Smith said it estimated that there were 189 nuclear plants, either under construction or planned worldwide, and the deal was therefore an opportunity for it to grow in a highly attractive market. The Hill & Smith share price rose by 4.2% to 290p.
Established in 1908, TPG is a family owned manufacturer and distributor of pipe supports and hangers to the power generation, commercial and industrial markets in North America. The business operates from three fabrication units located on the east coast of America, one in Canada and four sales and distribution depots across America. Through its Bergen-Power pipe supports operation, TPG is one of only three full line pipe supports suppliers with certification for the US nuclear market and has supplied to almost half of all US nuclear power plants built to date. Its long established presence in this growing market, through its ASME (American Society of Mechanical Engineers) nuclear certification, will mean that the group can tender for significant forthcoming nuclear projects in other markets such as China and India.
Hill & Smith said the combination of TPG’s business based in North America together with its own engineered pipe supports businesses in the UK, Thailand, China and India would create a global leading supplier. The acquisition also represents a significant increase in Hill & Smith’s presence in the US, where applications for the combined group’s pipe support business include the nuclear, gas and coal powered electricity generation industries, as well as water and waste treatment plants, oil refineries, pharmaceuticals and chemical plants. In addition, the company said it expected the combined business to secure material cost synergies over time through the outsourcing of some of TPG’s commercial pipe supports production and through enhanced purchasing arrangements.
Derek Muir, the chief executive of Hill & Smith, said: “By acquiring TPG, we are taking a significant strategic step forward in creating one of the world’s leading pipe supports businesses. As well as making us a significant player in the North American market, TPG gives us an established presence in the highly regulated nuclear power industry both in the US and globally. This acquisition is firmly in line with our strategy of focusing on our existing strengths to grow in one of our core markets, whilst further increasing the international footprint and profile of the group.quot;
Hill & Smith is acquiring TPG in cash financed from its existing bank facilities. Last year TPG had combined revenue of US$59.6 million, EBITDA of US$8.5 million and EBIT of US$8.2 million. Combined gross assets on the same basis were US$27.6 million. TPG is not expected to generate a similar level of profits in the current year, given current market conditions, however Hill & Smith said it was confident in the prospects for the business thereafter.
Separately, Hill & Smith reported a 4% decline in full year revenues to £374.2 million with underlying operating profit down 2.3% to £45.9 million and underlying pre-tax profits flat at £42.2 million. The group said the figures reflected the benefits of a broader geographical footprint with 55% of underlying operating profit now generated from non-UK operations. A weaker performance in the group’s utilities business was off-set by a strong performance in Galvanizing Services, particularly in the final quarter. Elsewhere, the rationalisation of operating plants in the UK flooring business, UK galvanizing and utilities fabrication in the US, contributed to lower operating costs.
Mr Muir said: “These resilient results, in the face of challenging trading conditions, demonstrate the benefits of our ongoing strategy to reshape and grow the group internationally and at the same time strengthen its financial position. The group’s geographical footprint has been progressively broadened with operations in the UK, France, USA, Thailand and China, and a developing position in India. In particular the benefits of investment in our US Galvanizing Services businesses are showing through with strong trading in this market. As expected, trading in the first two months of the year has continued to be challenging. However, we have recently seen a strong order intake in our utilities businesses and, therefore, our views of the overall results for the full year remain unchanged.”
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