Melrose Founders Reach £1.4 Billion Agreement on Rosebank Project
A New Venture in the Electrical Industry
Rosebank Industries, a brainchild of Melrose Industries' former bigwig, Simon Peckham, has secured a whopping £1.4bn deal for a North American electrical components business — Electrical Components International (ECI). This is Rosebank's debut acquisition, and they're banking on it to continue the legendary "buy, improve, sell" strategy they've been known for at Melrose.
To finance this acquisition, Rosebank has tapped into debt facilities and launched a massive £1.14bn capital raise, offering shares at £3 each. With the investors' backing, Rosebank aims to double their investment within the next 3-5 years. They also target a mind-boggling 5 percentage points of operating margin improvement through cost-cutting measures and restructuring.
"We're genuinely grateful for the overwhelming support from our shareholders," beamed Simon Peckham, CEO at Rosebank.
Tuning Up the Engine
Rosebank, born under the guidance of ex-Melrose executives, seeks companies that are struggling or have strayed off-course, then breathes new life into them, selling them later for a hefty profit. After securing a foothold on the stock market last summer, investors eagerly speculated about Rosebank's future conquests. Now, the real challenge begins as the company plans to execute its transformation strategies for ECI.
"Rosebank purchased ECI at an enterprise value of less than $1.9bn, based on a debt and cash-free assessment. That's a relatively high multiple of 9x full-year adjusted earnings," stated Russ Mould, Investment Director at AJ Bell. "However, this is par for the course for a stable company. For a broken business, you'd likely find a lower multiple."
Mould added that Rosebank intends to improve ECI's margins, optimize working capital, and reduce leverage, ensuring a healthier cash flow. Instead of replacing the engine, it seems Rosebank prefers to fine-tune it.
Becoming a Power Player
For Rosebank, the ECI acquisition signifies the beginning of its grand vision. Capitalizing on ECI's hidden potential, Rosebank aims to push its adjusted operating margin to at least 18%, with the adjusted EBITDA margin reaching 20%. They also aspire to drastically optimize working capital and reduce leverage, demonstrating their commitment to disciplined capital management.
- Rosebank Industries, in their quest to become a power player, plans to optimize ECI's margins, optimize working capital, and reduce leverage, all aimed at ensuring a healthier cash flow and demonstrating disciplined capital management.
- In the realm of finance, with the backing of investors, Rosebank aims to double their investment within the next 3-5 years through their transformative buying strategy, which includes investing in companies, improving their performance, and selling them for a profit, a strategy they've been known for from their days at Melrose. This strategy is being financed in part by debt facilities and a massive capital raise, with shares offered at £3 each.
