Turnarounds

U.K.’s Melrose Makes Housing Bet on Nortek

The $2.8 billion deal for the U.S. home ventilation equipment maker comes as the housing market shows signs of buoyancy.
Matthew HellerJuly 6, 2016

Melrose Industries, a U.K. industrial turnaround specialist, is making a bet on the U.S. housing market, agreeing to acquire cooling and heating systems manufacturer Nortek for $2.8 billion.

Melrose’s offer values Providence, R.I.-based Nortek at $86 a share, representing a premium of 38% to Nortek’s closing price on Tuesday. The enterprise value of $2.81 billion includes Nortek’s equity value and part of its debt.

Nortek supplies U.S. homebuilders with ventilation units, heaters, cooker hoods and a range of home security products. The deal gives Melrose access to a market that has shown recent signs of buoyancy even though U.S. construction spending recorded its biggest decline in more than five years in April.

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“Nortek is a high quality manufacturing business with over 90% of its turnover in North America and product penetration into 80% of U.S. households,” Melrose CEO Simon Peckham said Wednesday in a news release. “It serves attractive end markets at good points in their cycle, with strong brands and market positions.”

Nortek shares rose 38.5% to $86.58 on Wednesday while Melrose’s stock jumped more than 30% as investors welcomed the deal. According to Reuters, European companies may be looking to make acquisitions in the U.S. in the wake of the U.K.’s vote to leave the European Union.

“The more uncertainty and weakness there is in Europe, the more attractive the U.S. is going to look,” said Jeffrey Nassof, director at M&A consulting firm Freeman Consulting Services. “Brexit is one more reason that the U.S. looks relatively good to European firms.”

Melrose has been in the market for new businesses since selling Elster Group, a German supplier of gas-heating systems and meters, to Honeywell International last year for 3.3 billion pounds ($4.3 billion). That deal left it with only one business, electricity generating equipment maker Brush.

According to Melrose, key U.S. economic indicators are pointing to “continued momentum in construction.”

“An upwardly revised jump [in construction spending] in March and fairly strong data on industrial production and housing … have bolstered views the U.S. economy is regaining speed,” Reuters noted.