Nortek Being Acquired by Investment Firm Melrose Industries, to be Packaged for Resale
UK-based Melrose Industries, Plc, likes to “buy, improve, sell” manufacturing companies within two to three years. Nortek makes residential products including ventilation, security, home automation, audio/video under brands such as Broan, Nutone, Core Brands and 2Gig.
Nortek (Nasdaq: NTK), owner of leading security, home automation, audio/video and ventilation brands, is being acquired by turnaround specialists Melrose Industries, Plc (AIM: MRO), a UK-based “investment vehicle” with a history of buying industrial-products manufacturers, slashing overhead and re-selling the businesses within two to three years.
Nortek shareholders will receive $86 per share in cash – a 38% increase above Tuesday’s closing price -- in this reverse-merger. The transaction is valued at $1.4 billion, with an overall enterprise value of $2.8 billion including the assumption of debt. MRO shares jumped 25% on the news.
With annual revenues of about $2.5 billion, Nortek owns leading ventilation brands incuding Broan and Nutone, as well as the mass-market security and home automation company 2Gig. In addition, Nortek owns a slate of audio, video and control companies under the Core Brands umbrella. Those brands, sold through home-technology specialists, include Elan Home Systems, Gefen, SpeakerCraft, Niles, Panamax and Xantech.
Melrose was founded in 2003 with a £13 million listing on AIM, the London Stock Exchange’s international market for smaller companies. The company has bought and sold several companies since then under its “buy, improve, sell” model, touting an average return to investors of 22% per deal.
Currently, Melrose owns just one company, Brush Turbogenerators, reportedly the world's largest independent manufacturer of electricity-generating equipment for the power generation, industrial, oil & gas and offshore sectors. Brush generates about $350 million in revenues.
Changes Ahead for Nortek
Melrose says its “focus is to acquire high quality industrial manufacturing businesses with strong fundamentals whose performance can benefit from a change in circumstances.”
The company prides itself on reducing overhead to repackage its properties for sale, suggesting significant “efficiencies” ahead for Nortek.
According to Melrose, its strategy involves “incentivizing management teams” to improve profits “through a combination of overhead reduction and gross margin expansion.”
At the same time, Melrose typically infuses about one-third of the original purchase price into its acquired businesses through “targeted investments.”
The company claims it improves operating margins by five to nine percentage points on average before selling portfolio companies.
The acquisition by Melrose follows the non-acquisition of Nortek by competitor United Technologies Corp. Rumored merger talks between the two companies ended late last year.
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Julie Jacobson, recipient of the 2014 CEA TechHome Leadership Award, is co-founder of EH Publishing, producer of CE Pro, Electronic House, Commercial Integrator, Security Sales and other leading technology publications. She currently spends most of her time writing for CE Pro in the areas of home automation, security, networked A/V and the business of home systems integration. Julie majored in Economics at the University of Michigan, spent a year abroad at Cambridge University, earned an MBA from the University of Texas at Austin, and has never taken a journalism class in her life. She's a washed-up Ultimate Frisbee player currently residing in Carlsbad, Calif. Email Julie at email@example.com
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