Plumbing the US Market

Reliance Worldwide Corporation is to buy US-based Holdrite, a supplier of engineered product solutions designed to improve installation efficiency for building contractors, for US$92.5 million, a deal firmly in line with Reliance’s stated strategy of acquiring companies that offer installation benefits for contractors and new distribution channels.

 

Importantly, the Holdrite business is complementary to Reliance’s portfolio and aids entry into new construction markets. Holdrite is primarily exposed to new construction with 75% of sales stemming from the end market. Reliance will look to leverage Holdrite’s existing channel relationships to accelerate sales of EvoPEX and 2XL products to new construction markets. In addition, while Holdrite currently generates a small portion of sales through The Home Depot and Lowe’s, there is scope for Reliance to expand Holdrite’s presence with both retailers.

 

Management expects Holdrite to drive mid-to-high single-digit EPS accretion in the first full year of ownership. We have raised our EPS forecasts by an average of 5% over the FY17 to FY19 period.

 

The US$92.5 million consideration, and the pro-forma operating earnings for the year to June 2017 "in excess" of US$10 million, imply an enterprise value to operating earnings transaction multiple of less than 9.25. We believe this multiple is more than justified, given Holdrite’s strong sales growth – an organic compound annual growth rate over 2013-16 of "greater" than 20% – and the scope for broadening Reliance’s sales channels.

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