Diploma PLC (LSE:DPLM) this morning confirmed the completion of the £240mln fundraising announced last night alongside a £76mln US bolt-on acquisition of Tennessee Industrial Electronics (TIE).
TIE is a value-add distributor of aftermarket products and services in the US automation market, specialising in robotics and computer numerical control (CNC) machinery.
The multiple paid was 9.8 times TIE's underlying earnings.
The proceeds of the proposed fundraising, where £235mln has so far been raised in a placing priced at 2,525p, will be used to refinance the consideration paid for TIE and provide Diploma "greater flexibility to execute on its strong M&A pipeline to accelerate future organic growth".
It said it is "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 circa £800mln".
Shares in Diploma rose 5% to 2,774p on Friday morning.
Broker Peel Hunt said it was a "reasonable" multiple as the TIW deal is "a nice bolt-on," adding a new adjacent market vertical in the US and bringing circa £31mln of revenue at around a 24% operating margin.
The analysts expect it to enhance September 2023 EBITA circa 2% and by 3.5% for the year after, with the EPS enhancement "likely to be marginal at this stage", because of the company 7.5% equity placing, raising up to £236m, with a subscription and retail offer to potentially add another £4mln.
"This is a sizeable addition to the firepower available to management and, as the balance sheet was by no means stretched, is a clear statement of intent.
"We think this is a sensible move, heading off any potential debate around balance sheet in the next few quarters while these deals are executed. With a short trading update also confirming underlying revenue growth in 1Q +10% (in line with expectations), Diploma is proving how effective compounding can be, and we see this model continuing to deliver."
Analysts at Jefferies said their initial calculations suggest the standalone transaction will cover the weighted average cost of capital in around the third full year of ownership and will be "low-single-digits EPS-accretive".
"We believe EPS accretion could rise to c10% as further bolt-on acquisitions are made."