Reece Taps Into US Housing In $1.9b Deal

By Glenn Dyer | More Articles by Glenn Dyer

One of Australia’s richest and most private families has shown the benefits of controlling a big stake in a listed company in yesterday’s $A1.9 million acquisition in the US by Melbourne based plumbing supplies group, Reece Group.

Reece is 76% controlled by the three Wilson brothers of Melbourne and families and is Australia’s leading plumbing supply company.

It is raising $560 million towards the $1.9 billion of Morsco, a similar sized company based in the Southwestern states of the US (the so-called sunbelt).

Boral, another Australian building products groups, operates in some of the same states, especially Texas.

Reece went into a trading halt on the ASX on Monday morning ahead of the deal and the fund raising which will see $139 million raised from the market and the remainder from a $421 million entitlement issue, some $300 million of which will come from the Wilson family via a complicated sub-underwriting of the first $300 million of the issue.

The one for eleven $560 million raising, at $9.30 a share, will be fully underwritten by JP Morgan. The issue price is a 13.4% discount to the closing price on Friday for Reece shares of $10.75.

$300 million of the $560 million raising is being effectively underwritten by the Wilson family. That has come about because of what the company says is “The current structure of the Wilson Family’s registered shareholdings” That makes makes it impractical for them to participate in the Entitlement Offer by taking up their entitlements directly. “

"As a result, the Wilson Family’s participation in the Entitlement Offer will come by way of a A$300m sub‐underwriting commitment as "sub‐underwriters of last relief", so that the first A$300m of the shortfall under the retail component of the Entitlement Offer will be taken up by the Wilson Family sub-underwriters,” Reece explained.

That will see their stake fall marginally to 73.6%.

Most of the funding for the purchase will come via an underwritten $1.14 billion secured credit facility. The underwriter is US bank, JP Morgan.

Morsco, which operates 171 commercial and residential plumbing showrooms across 16 US states. That will add to the 600 plumbing and bathroom products showrooms Reece has across Australia and New Zealand.

Reece has annual revenues of $2.4 billion in 2016-17 – it says 2017-18 could rise to as high as $A2.7 billion. Morsco turnsover $US1.74 billion (or nearly $A2.3 billion) from being the leading distributor of plumbing and waterworks products in the US.

Morscoe is being sold by its private equity owner Advent International. The purchase price includes an unknown amount of debt in Morsco which will be be Reece’s first US acquisition and its biggest so far.

“It’s a market that’s forecast to grow at twice the rate of the Australian market and it is currently about eight times the size,” Reece Chief Executive Peter Wilson said in a statement.

Reece said it will operate Morsco separately from its Australian and New Zealand businesses, and retain the US management.

That will be clever given the poor record many Australian companies have had investing offshore, especially in the US and UK.

Reece also gave guidance for the year ending June 2018. It now expects an after-tax profit of $A223-$A230 million, 5% up on last financial year. It forecast sales of $A2.65 billion-$A2.70 billion.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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