Mears Group PLC (LON:MER) said it would place more than 3mln new shares to raise funds to buy Mitie's (LON:MTO) property management division.
The provider of support services to the housing and care sectors said on Monday it would place 6.78mln new shares at a price of 331.5p to raise £22.5mln to fund the acquisition.
READ: Mears Group sees housing division's revenues stabilise
Mitie Property Management (MPM) is a leading provider of property repairs and maintenance services to the social housing sector, employing over 1,000 people and providing property services to over 30 social housing providers in the UK.
Mears said the £22.5mln acquisition would reinforce its market position, providing synergy benefits and a broader UK national coverage, and supports its growth strategy.
MPM is expected to increase Mears' continuing annual revenue by at least £100mln and its order book by around £200mln and has a bid pipeline of some £800mln with potential cross-selling opportunities into the Mitie Housing customer base, it said.
"Given our strong operational platform and differentiated service delivery, together with our proven ability to turn around underperforming businesses, I am confident that we will deliver significant improvements to Mitie Housing's contracts, customers, tenants and employees,” Mears CEO David Miles said in a statement.
"I am looking forward to working with all of the staff who will transfer over to Mears and building relationships with our new clients," he added.
Mitie said it would receive a further £12.5mln, payable in cash over a period of two years post-completion subject to the achievement of certain performance milestones.
It added that the majority of the proceeds would be used to strengthen its balance sheet and cut the deficit of its defined benefit pension scheme, with the balance being reinvested in core businesses.
MPM's Managing Director, Vicky Fordham-Lewis, will remain as a Managing Director as part of Mears' enlarged operations.
Sensible deal
In a note to clients, analysts at Liberum called the deal “strategically sensible” which led to the strengthening of the balance sheets of both companies.
In a note to clients, analysts at Liberum called the deal “strategically sensible” which led to the strengthening of the balance sheets of both companies.
Shares in Mears were 5.5% down at 347.9p in early trade, while Mitie’s shares were 2% up at 149.9p.
- updates with share price and analyst comment -