Victoria PLC (AIM:VCP) said it is adding rugs to its flooring business by buying Europe’s top rug producer in a deal with the Belgian company Balta Group NV worth €138mln (£117mln).
The supplier of carpets to the Queen said in a statement that the acquisition comprises Balta’s profitable rugs division and UK polypropylene carpet and non-woven carpet businesses as well as the Balta brand.
The rugs division is the number one producer in Europe and second-biggest globally behind an Egypt-based rugs manufacturer, Victoria said.
The acquired businesses generated revenues of €307mln and normalised EBITDA of €35.5mln in the 12 months ended March 2021. Victoria is also taking on the acquired operations’ debt of €57mln.
The deal, which is expected to complete in April 2022, will be immediately earnings accretive and is forecast to generate cost synergies of over €15mln in the next two to three years.
Victoria said it will fund the acquisition from its cash balances along with additional preferred equity to be provided by its major shareholder KED, which is an affiliate of Koch Equity Development LLC and a subsidiary of Koch Industries, Inc.
KED is investing an additional £150mln in Victoria, bringing its total preferred equity investment to £225mln.
The acquisition is “an excellent strategic fit with Victoria's existing business and will be additive to the overall strong organic growth prospects of the group”, the company said.
Rugs are a growing flooring category, particularly in the US, where the acquired business has a strong market presence and generates more than 35% of its revenues.
Victoria said there are strong synergies with its hard floor business, as frequently, the first thing consumers do after installing a hard floor is to buy a rug to put on top of it.
The company said carpet demand remains strong in the UK and this is set to continue following record levels of housing transactions this year.
Following completion of the acquisition, Victoria expects to have around a 16% share of the UK broadloom carpet market and a little under 5% of the UK flooring market as a whole.
Commenting on the acquisition, Victoria chief executive Philippe Hamers said: "This selective acquisition of two highly complementary businesses will be significantly value creating for Victoria's shareholders. The rugs division has been hugely successful over many years and there are very material operating synergies between the carpet division and Victoria's existing business. These are both businesses that Victoria already knows extremely well."
Executive chairman Geoff Wilding added: "Victoria has spent time building a high-quality operational management team with depth and commitment. They have been successful at increasing the operating margin of the group's UK carpet division from 5% to 18% through steady productivity gains and improved customer service.
“Victoria is a highly disciplined buyer and, upon completion of this acquisition will, this financial year, have invested approximately £370mln to add c. £65mln of EBITDA to the group."
Shares opened 0.46% higher at 1,090.00p.