Franchise Brands plc (AIM: FRAN), a multi-brand franchisor, is pleased to announce that it has acquired a leading water pump supply, installation and servicing business to complement and expand Metro Rod’s drainage and plumbing businesses. The Company also provides an update on Group trading for the third quarter of the year.
Franchise Brands has acquired the entire issued share capital of WPL Group Holdings Limited and its subsidiaries, Willow Pumps Limited and Willow Drainage Limited (together, “Willow Pumps”) for an initial consideration of £5.0 million (net of non-trading cash of £700,000 in WPL Group Holdings Limited) (“Initial Consideration”) and a performance-based deferred consideration of up to £7.5 million (“Deferred Consideration”) payable over the next five years (the “Acquisition”).
The Initial Consideration has been paid as to £4.0 million in cash and £1.0 million through the issue of 1,212,121 new ordinary shares of 0.5p each in the Company (“Ordinary Shares”) at 82.5 pence per share (the “Consideration Shares”). The cash element of the Initial Consideration has been satisfied from the Group’s available cash resources and existing debt facilities. The Deferred Consideration will be payable in cash, subject to the Company having the right to settle 20 per cent. of the amount due in new Ordinary Shares at the then prevailing share price.
· Willow Pumps, founded in 1992, is a leading water pump supply, installation and servicing business, with a below-ground (foul water) and above-ground (fresh water) capability.
· Willow Pumps achieved revenue of £12.4 million, EBITDA of £1.6m and a profit before tax of £1.1 million in the year ended 31 December 2018 and has grown strongly in the first half to 30 June 2019, having achieved revenue of £8.4 million, EBITDA of £1.0 million and a profit before tax of £0.8 million.
· The Board believes the Acquisition will be significantly earnings enhancing for the Group.
· The Acquisition has a strong strategic rationale:
· It is consistent with Metro Rod’s Vision 2023 strategy of expanding its range of services to the commercial market.
· The longer-term aim of the Group is to provide a “water in, waste out” range of drainage, pumps and plumbing-related services to commercial customers nationally.
· Pumps are an engineered solution and the acquisition of this high quality, well-established business represents the optimum way to enter this specialist market.
· Willow Pumps will benefit from a significantly expanded delivery capability through Metro Rod’s national network of over 400 engineers working out of 43 depots across the UK.
· Metro Rod will benefit from potential demand from its national account customers who are progressively tendering for combined drainage and pump services and from the opportunity to supply its wide range of drainage services to Willow Pumps’ customers.
· The above-ground pump capability of Willow Pumps also provides a new strategic opportunity to develop the Group’s Metro Plumb and Kemac businesses.
· The deal structure provides both a significant incentive for Willow Pumps to help upskill the Metro Rod franchise community and then subcontract pump work to them, and for Willow Pumps’ management to continue to grow the existing business.
· The principal vendor, Willow Pumps’ founder and Managing Director Ian Lawrence, will continue to manage the business and becomes part of Franchise Brands’ senior management team.
· Willow Pumps will continue to operate as a direct labour organisation (“DLO”) within Franchise Brands, working closely with Metro Rod and its franchisees and benefiting from the Group’s management, resources, and commercial customer relationships.
Commenting on the Acquisition, Stephen Hemsley, Executive Chairman of Franchise Brands, said: “I am delighted to announce the acquisition of Willow Pumps, which represents an important step in expanding Metro Rod’s scope of services to the commercial market, consistent with our Vision 2023 strategy. The longer-term aim of the Group is to be able to serve our valued commercial customers with a “water in, waste out” range of drainage, pumps and plumbing-related services on a national basis. The acquisition of Willow Pumps, a highly respected business and one of the leaders in the market, which Metro Rod has already worked alongside, provides the optimum way for Metro Rod to enter the specialist pump sector and develop this expertise across our franchise community.
“The deal structure also provides a significant incentive for Willow Pump’s management team to continue to grow its existing business by developing the many national accounts where Metro Rod only provides drainage services at present. As such, the Board of Franchise Brands believes the Acquisition will be significantly earnings enhancing for the Group.
“I am really looking forward to working with Ian Lawrence and his high quality management team to create a national leader for drainage, pumps and plumbing services.”
Ian Lawrence, the founder and Managing Director of Willow Pumps, commented: “I am very excited about building on our success to date as part of a larger, publicly quoted group with significant ambitions in the drainage, pumps and plumbing markets. The Group’s management and wider resources will be of particular value as we continue to grow Willow Pumps under Franchise Brands’ ownership.
“My team and I welcome the opportunity to work with Metro Rod franchisees all across the country and we look forward to working with Metro Rod to deliver first-class pump services and support to their national accounts.”