Strix Group conditional acquisition of Billi for c.£38 million

Strix Group

Strix Group Plc (LON:KETL), the AIM quoted global leader in the design, manufacture and supply of kettle safety controls and other complementary water temperature management components, has announced that it has entered into conditional agreements to acquire the entire issued share capitals of each of (i) Billi Australia Pty Ltd and Billi New Zealand Ltd and (ii) Billi UK Ltd, for an aggregate cash consideration of approximately £38m, payable on completion, on a debt and cash free basis, subject to customary closing adjustments.

The consideration for the Acquisition will be funded through a new term loan and Strix is undertaking an equity placing to maintain an appropriate level of leverage post the Acquisition. The placing is being conducted through an accelerated bookbuilding process which will be launched immediately following release of this announcement.

Highlights

·    c.£38 million acquisition of Billi, a leading Australian brand supplying premium filtered and non-filtered instant boiling, chilled and sparkling water systems

·     Expecting net debt as at 31 December 2022 to be approximately 1.9x Strix’s 2022 pro forma adjusted EBITDA, with strong deleveraging thereafter to c.1.4x by end of 2023

·     In the 12 months ending 31 December 2022, Billi is expected to generate revenue of c.£43.7m and adjusted EBITDA of c.£10.2m

·    Billi has a successful history of growth, with double digit revenue CAGR over the past 5 years and is highly cash generative, delivering cash conversion of c.88%

·    The Acquisition materially accelerates the trajectory of and is accretive to Strix’s medium term targets with these targets now expected to be reached ahead of the initial 2025 timeframe

Strategic rationale

·    Materially changes the earnings profile of the Group, accelerating growth plans for the Water & Appliance categories and supporting the Group’s medium term ambition

·    The Board expects the Acquisition to be mid single digit earnings accretive in the first full year of ownership and c.10% accretive in the second, in advance of any synergies1

·     Billi is benefitting from structural market and ESG tailwinds including increasing focus on water filtration, a reduction in single use plastics and a focus on energy consumption from heating water which is aligned with Strix’s sustainability goals

·    Adds well developed and premium products in the high growth and strategically important hot tap market and increases Strix’s position and portfolio of water dispenser systems

·      The Board expects Strix’s existing technology and expertise can be used to enhance Billi’s NPD roadmap

·      Opportunity for further organic growth driven by increased residential sales, new product development particularly in sparkling, internationalising Billi’s revenue stream through Strix’s global footprint, cross selling Strix products into commercial applications and growing aftermarket sales

·  Identified efficiencies across Billi’s product lifecycle through utilising Strix’s Chinese operation to improve procurement, using Strix filters in Billi products, consolidating the marketing group and rationalising the store estate

Details of the Acquisition and Financial Information on Billi

·    Conditional acquisition of Billi Australia by Strix Australia Pty Ltd and Billi NZ  by Strix (U.K.) Limited on a debt free, cash free basis, subject to customary closing adjustments. Strix Australia and Strix UK are entities ultimately owned by Strix

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·      Conditional acquisition of Billi UK by Strix UK for a fixed cash consideration

·      The aggregate consideration for Billi Austrialia, Billi NZ and Billi UK is approximately £38m (AUD $65m) and is due in full in cash on completion

·    The Acquisition is conditional upon: (a) completion of the Waterlogic / Culligan merger; and (b) approvals of the Australian Competition and Consumer Commission, the UK Competition and Markets Authority and the New Zealand Commerce Commission

·     The agreements entered into in respect of the Acquisition contain certain warranties and indemnities given by each of the parties, which are customary for a transaction of this nature

·     The parties intend to put in place certain transitional services provisions for an agreed period post completion of the Acquisition

·      Key management of Billi will remain in place and participate in the Strix Group Long Term Incentive Plan

·     In the 12 months ended 31 December 2021, on a consolidated basis, Billi Australia and Billi NZ generated adjusted revenue of c.£33.1m and adjusted EBITDA of c.£6.9m. During this period Billi UK was part of Waterlogic Group and did not report its financials separately

·     In the 12 months ending 31 December 2022, Billi, including Billi UK, is expected to generate revenue of c.£43.7m and EBITDA of c.£10.2m

·     Acquiring Billi from Culligan International after the completion of its combination with Waterlogic; the divestment of Billi is a condition to completion of the Waterlogic / Culligan merger announced in December 2021, with timetable dictated by that process

·     Completion of the Acquisition is expected before year end, subject to regulatory approvals

Debt Refinance

In conjunction with the Acquisition, the Group announces a debt refinancing with new facilities consisting of:

·      A refinance of the current £80 million revolving credit facility with a new tenor of 3 years plus two 1 year extension options; and

·      A new £49 million amortising term loan with a tenor of 3 years.

The interest rate on both facilities is calculated as the sum of the margin (made by reference to a sliding scale dependent on net leverage) and SONIA. The margin rates that Strix will be paying will not be materially different to those on its existing revolving credit facility.

Mark Bartlett, Chief Executive of Strix Group plc, said:

“We are delighted to enter this agreement to acquire Billi, a leading multifunctional taps manufacturer and distributor. Billi accelerates our strategy within our Water and Appliances categories which is core to Strix’s five year plan. We look forward to welcoming the Billi team to the Strix Group and working together to grow our combined businesses.”

1Accretion figures are calculated based on market consensus as at 4th October 2022, based on analyst notes released after the publication of the interim results on 21st September 2022

Note: all figures are calculated using an AUD:GBP exchange rate of 0.58

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