Bodycote plc (LON:BOY), the world’s leading provider of heat treatment and specialist thermal processing services, has announced a number of strategic steps to enhance and drive further growth in its Specialist Technologies business, through the expansion of the Group’s Hot Isostatic Pressing (HIP) footprint and scale in the US.
Acquisition of Lake City HT and Stack Metallurgical Group
On 6 October 2023, Bodycote agreed to acquire two specialist technology focussed businesses:
– Lake City HT based in Warsaw, Indiana, a leading Medical market HIP and vacuum heat treatment business primarily supplying the orthopaedic implant market as well as Civil Aerospace customers.
– Stack Metallurgical Group based in the Pacific Northwest of the US, a key provider of HIP, heat treatment and metal finishing services primarily for the Civil Aerospace, Defence and Energy markets.
The businesses are highly complementary to Bodycote’s existing operations and will both expand our geographic footprint in North America and provide additional customer reach. The businesses comprise two HIP and three heat treatment sites, which will be integrated into Bodycote’s existing Specialist Technologies business and Aerospace, Defence and Energy classical heat treatment business respectively.
The combined gross consideration for the acquisitions is $145m (£119m) on a cash and debt free basis and will be subject to customary closing adjustments. After expected tax benefits worth at least $15m, the net economic consideration is approximately $130m (£106m). The combined acquisition multiple is less than 9x expected 2024 EBITDA, taking into account tax benefits and synergies.
The businesses delivered strong growth in H1 2023, with revenues rising by 29%. A broadly similar rate of growth is expected for H2 2023, with FY 2023 forecast revenues expected to be around $45m (£36m). This growth reflects the ongoing recovery in the Civil Aerospace market, strong growth in the Medical market and new customer wins, which provide a solid foundation for the future.
Completion of the acquisitions is subject to regulatory clearance and will be funded out of existing Group credit facilities. They will be accretive to Group margins and earnings per share from the first year post completion and are expected to exceed Bodycote’s cost of capital in 2025. Post acquisition, the Group’s leverage will be comfortably within our target range, providing continued balance sheet strength to support the execution of the Group’s strategy.
Plans to open a new HIP facility in greater Los Angeles
In addition, Bodycote today announces plans to open a new HIP plant utilising one of the Group’s existing sites in greater Los Angeles. This capacity will become operational during 2024 and will support the rapid growth in Space and Civil Aviation markets in the Los Angeles area.
Stephen Harris, Group Chief Executive of Bodycote plc, commented:
“These investments are an important and exciting enabler of our strategy to further enhance and grow our Specialist Technologies businesses. In addition, they will also expand our footprint in Aerospace and Medical heat treatment on the West Coast and in Indiana in the US. The acquisitions will enhance group margins, are accretive to earnings per share and allow us to further capitalise on the structural growth opportunities in the Space, Civil Aerospace and Medical markets.
The proposed new HIP plant in greater Los Angeles will allow Bodycote to take advantage of the burgeoning HIP market in Space and Civil Aerospace in the region. It will require only modest investment as it utilises an existing Bodycote site and existing HIP vessels that are immediately available for installation.
Optimal allocation of capital to drive shareholder value remains a top priority for the Group and these investments reflect this.”
Lazard acted as exclusive financial advisor to Bodycote on the acquisition of Lake City HT and Stack Metallurgical Group.
