LONDON, UK: Diploma PLC, the value-add distribution group, has announced the purchase of Distribuidora Internacional Carmen SAU (“DICSA”), a leading supplier of fluid power solutions to the European aftermarket, for an initial payment of around £170m (€200m).
· A quality business: DICSA offers high value to customers with quality product, wide range, technical service, and fast delivery. This customer offer has led to a consistent record of double-digit organic growth at attractive margins.
· A good strategic fit: the purchase complements our existing positions in the US and UK, enhancing our aftermarket fluid power capability and reaching key strategic markets in Continental Europe. DICSA is based in Spain with good exposure across Europe, especially France and Germany. With low market shares in these large economies, the differentiated offer can continue to drive strong growth.
· A favourable valuation: the initial payment of £170m represents a multiple of 9x 2023 EBITDA. The purchase will increase earnings and exceed cost of capital from day one, and the business will add to the Group’s organic growth and margins. There are also significant revenue and cost synergies with our existing fluid power businesses in the UK and US, boosting the journey to 20% returns over the next three to five years.
Quality fluid power aftermarket business in Continental Europe
The purchase of DICSA follows Diploma’s established track record of creating future organic growth through purchases at excellent returns and meets the key characteristics we look for:
· Fluid power product capability: DICSA is a value-add supplier of a diverse range of hydraulic hoses, fittings and components, a product set that we are familiar with, and similar to that offered by our UK Aftermarket Seals business, R&G.
· Attractive aftermarket business: this is a model we like which, together with a highly diversified customer base, has supported DICSA’s resilience.
· Quality value-add business: like our other fluid power businesses, DICSA’s market-leading reputation and value-add is based on breadth and availability of product; technical capability; and fast delivery. This is reflected in strong operating margins of over 20%.
· Impressive organic growth record, exciting potential: the business has delivered long-term organic revenue CAGR of 11% and has significant room for continued growth in fragmented markets.
· Access to white space in Europe: DICSA is present in key European markets including Spain, France and Germany. The business has significant potential for further development in all European markets.
· Excellent management team: a highly experienced management team, led by Daniel Carmen, have successfully grown the business for over 30 years. We are pleased that Daniel and his team will stay with the business under Diploma’s ownership, based at DICSA’s existing headquarters in Zaragoza.
Strong financial rationale
For the 12-month period ended 31 December 2022, DICSA generated revenue of €87.7m and adjusted EBIT of €20.2m. Gross assets at the end of the period were €78.9m.
The purchase will add to Diploma’s organic growth and margins. DICSA has achieved long term organic revenue CAGR of 11% with EBIT margins of more than 20%. It will be immediately EPS accretive, adding ca.5% to EPS growth during the first full year of ownership, and will cover its cost of capital from the outset. We are also excited to improve performance and returns with revenue and procurement synergies between DICSA and our existing businesses:
· sell existing product from our UK Aftermarket business, R&G, through DICSA’s platform into Europe;
· speed up DICSA’s growth in the US, using our Seals North American Aftermarket platform; and
· reduce costs by leveraging our combined purchasing power.
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