LONDON, UK: Diploma Plc announced the acquisition of Tennessee Industrial Electronics LLC (TIE), a market leading value-add distributor of aftermarket parts and repair services into the fast-growing US industrial automation end market, for ca. £76 million.
Diploma has a proven track record of accelerating organic growth through acquisitions. In order to fund high quality acquisition opportunities from an active near-term pipeline, while maintaining our disciplined approach to leverage, we are today launching a capital raise of approximately 7.5% of the current issued share capital of the Company.
The net proceeds of the Capital Raise will be used to refinance the acquisition of Tennessee Industrial Electronics as well as provide us with greater flexibility to execute on our M&A pipeline to accelerate future organic growth. Full details on the Capital Raise are set out in a separate announcement issued by the Company today.
In recent years, the Company has accelerated opportunities to unlock value creative M&A whilst maintaining high returns. We have invested £820 million over last four years on 27 acquisitions delivering an average annual growth of 15% since acquisition and FY 2023E average ROATCE2 of 16% and growing.
The largest acquisition in this period was Windy City Wire, acquired in October 2020. In two years under Diploma ownership the business has doubled operating profit, significantly outperforming its acquisition case with returns in-line with the Group ROATCE and set to increase to more than 20% this year. We also drive on average 20%+ year one ROATCE from a now consistent level of small bolt-on acquisitions.
“We are currently progressing a strong near-term active pipeline of approximately 50 opportunities of which 36 are small and mid-sized global opportunities across our three Sectors with a combined enterprise value of ca. £800 million,” Diploma Plc noted in a statement.
Of this near-term pipeline, those opportunities that proceed to a successful transaction will be funded in part through the proceeds of the Capital Raise (after the refinancing of TIE) alongside the Company’s existing debt facilities and cash resources. Our acquisition approach is highly disciplined, and focused on ensuring we bring high-quality, value-add businesses into the Group that meet our strict financial and strategic criteria for investment.
The acquisition of TIE, which completed on 6 March 2023, exemplifies the high-quality acquisition opportunities in our pipeline. Based in Nashville, Tennessee, Tennessee Industrial Electronics is a market leading value-add distributor of aftermarket parts and repair services into the fast-growing US industrial automation end market, with a focus on robotics and computer numerical control (CNC) machines.
TIE differentiates itself through its very strong aftermarket capability; value-add proposition based on deep technical expertise; speed to market and breadth of product offering which result in high levels of repeat business from a large and loyal customer base. TIE’s strong and experienced management team will remain with the business.
The Capital Raise will enable the Group to execute the opportunities that progress through our active acquisition pipeline while retaining the financial discipline that underpins our growth: maintaining a focus on a strong balance sheet with leverage levels below 2x net debt / EBITDA. In prevailing market conditions we take a more prudent approach to leverage and the Group’s net debt / EBITDA at the end of FY22 was 1.4x.
“We are confident that the net proceeds of the Capital Raise can be deployed against strongly value-enhancing opportunities whilst maintaining rigorous discipline to capital allocation. Following the acquisition of TIE, the Capital Raise is expected to be earnings accretive in the first full year; this earnings accretion will be further enhanced as the proceeds are deployed.”
Johnny Thomson, Diploma’s Chief Executive Officer commented: “Diploma Plc has a long track record for delivering strong revenue growth at high margins, driving both compounding double-digit adjusted EPS and attractive returns. Since we refreshed the strategy in 2019 we have made excellent strategic progress, accelerating our organic growth, bringing high quality businesses into the Group, and building scale in our key business lines. Today we are in a very strong position, with a differentiated customer focused business model and significant long-term growth opportunities.
“TIE is an excellent business in an exciting end market and has a track record of delivering strong growth at high margins. We welcome our new colleagues into the Group. Tennessee Industrial Electronics is a good example of the quality of opportunities that we have in our pipeline. Alongside our relentless focus on organic growth, we see significant potential to strengthen the Group further with disciplined acquisitions that accelerate future organic growth, while maintaining our strong financial position.
“We are encouraged by the momentum across the Group, we are excited about our growth potential and we are confident in continuing to deliver on our compounding track record.”