IMI PLC (LSE:IMI) crowned a strong third quarter by increasing earnings guidance and unveiling the £118mln acquisition of Heatmiser to strengthen its offering in the ‘smart buildings’ market.
The FTSE 250-listed engineer will pay £110mln up front, with £8mln based on the future financial performance of Heatmiser, which is said to be a UK leader in the provision of connected residential thermostatic control.
IMI sees “significant opportunities” to leverage its own Hydronic's strong brand and market presence to scale Heatmiser's offering across Europe, as well as leverage Heatmiser's proven connected technology capabilities across existing and new IMI products, with over 200mln buildings in Europe expected to need renovation of their heating and cooling systems over the next 30 years to comply with energy efficiency and environmental legislation.
The deal is expected to close before the end of the calendar year, in which Heatmiser is forecast to generate £22.5mln of revenue.
As for the past quarter, IMI said organic revenue growth accelerated to 4% compared to 3% at the half-year stage, while on an adjusted basis it was 10% higher than a year ago, while the integration of recent acquisitions was “progressing well”.
The restructuring programmes is “on track” to deliver £10mln of benefits this year and £20m next year and in future years.
Full-year earnings guidance was lifted to 103p-106p from the previous “exceeding 100p”.
Chief executive Roy Twite said the company was “creating value by increasing customer intimacy, driving market-led innovation and reducing complexity”, which “have allowed us to generate strong growth in the order book and revenues as well as improved margins year to date”.
The shares rose 1.5% to 1,340p in early trading on Tuesday.
Broker Peel Hunt said the acquisition of Heatmiser is "a classic IMI infill for Hydronics - it is a 40% margin business, but with limited distribution, which we see as is a huge opportunity, as it fits into IMI's network".
With the £110mln headline price at 12 times expected 2022 EBITDA , it is expected to take year-end leverage to 1.8x with net debt of circa £550mln.
"In our view this is very simply a ringing endorsement of IMI's strategy and its proven delivery - the company is expecting to grow organic revenue at a 5% CAGR with a 20% operating margin through the cycle."