RHI Magnesita N.V.
("RHI Magnesita" or
"the Group")
Acquisition of Resco
Group
RHI Magnesita announces its intention to
acquire Resco Group, a US based producer of alumina monolithics and
wide range of basic and non-basic refractories, for an enterprise
value of up to $430 million.
About
Resco
Resco is a producer of shaped and unshaped
refractories, including products for use in the petrochemical,
cement, aluminium, and steel making industries. Resco operates
seven plants and two raw material sites in the US and two plants in
the UK and Canada. Resco's Rescobond and Rescocast brands are
widely used in refining and petrochemical applications by global
customers.
Resco is currently owned by Balmoral Funds, a
$1.5 billion assets under management California-based private
equity RIA focusing on investments in industrials, business
services, aerospace and logistics businesses with complex
operations and/or ownership dynamics, such as corporate
divestitures.
Resco recorded unaudited revenues of $252
million in the year to 31 December 2023, with Profit before Tax of
$20 million and had Gross Assets of $191 million at 31 December
2023.
Logic of the
Acquisition
Currently approximately 50% of RHI Magnesita's
US sales are not produced in the country. The Acquisition will
increase RHI Magnesita's local production in the US and Canada by
transferring significant volumes of production from non-US plants
to the Resco production facilities in the US. Based on customer
feedback, we are taking steps to improve supply chain security,
reduce production lead times and stabilise working capital. This
acquisition continues the Group's strategic growth trajectory in
alumina-based refractories by providing US customers with an
improved product offering.
Synergies will be created in the mid-term
following the restructuring of the combined supply chain, which is
expected to last approximately two years and will create one time
costs of €60 million, including restructuring efforts in
non-US plants. Synergies are expected to be
generated through supply chain
improvements, production network
optimisation, working capital reduction, logistics efficiencies, supply integration, technology transfer, increased recycling opportunities and procurement
savings.
Timing and
financial impact
The acquisition is subject to
customary closing conditions including merger control authority
approval and is expected to be completed in H2 2024. In connection
with the Acquisition, RHI Magnesita has agreed to pay a deposit of
$18 million, offsetable against the consideration payable, which
shall be non-refundable in the event the deal does not
complete. In addition, the Group has agreed to make certain
ticker payments, related to the achievement of certain triggering
events or completion conditions. The first of these is a
monthly payment of $2 million, running to a maximum of 18 months
from signing, which will, to the extent payable, increase the
consideration for the Acquisition on a dollar-for-dollar basis.
There is another payment of $12 million which is payable upon
signing, but offsetable against the consideration payable at
completion and fully refundable in the event the deal does not
complete, unless certain conditions are met.
Following completion, Group gearing measured as
a ratio of Net Debt to EBITDA is expected to increase by
approximately 0.3x to 2.6x on a pro forma 2024 EBITDA basis (2023:
2.3x). This is consistent with previous guidance on leverage for
M&A. The cash consideration for the Acquisition is expected to
be approximately $324 million (with an upper cap of approximately
$342 million if completion extends 18 months beyond signing) and
will be funded by RHI Magnesita's existing liquidity, together with
a new committed facility of €200 million. The Group had available
liquidity of €1.3 billion at the 2023 year end and will continue to
maintain a significant liquidity reserve going forwards.
Commenting on the Acquisition, Stefan Borgas,
Chief Executive Officer of RHI Magnesita, said:
"I am pleased to report that the acquisition
of Resco represents a step-change for our US business and
our North American production footprint. The acquisition advances
our 'local for local' production strategy and will shorten supply
chains, improve our speed of reaction and increase the security of
supply of refractories for our customers. We are listening to our
customers and responding to their desires. Resco's main
strengths are in the petrochemical, cement and aluminium
industries, where RHI Magnesita has had very little business thus
far, and its activities in steel making are complementary to those
of RHI Magnesita. Resco operates seven refractory plants and two
raw material sites, with two plants also located in the UK and
Canada.
Resco has an excellent reputation with its customers
and is a profitable and cash flow generative business which will
make an important financial contribution to our Group. We have been
nothing but impressed with the professional people that we have met
throughout the entire Resco and Balmoral organisations, especially
in operations and we are keen to welcome Resco into the RHI
Magnesita Group and provide global career opportunities. I am
confident that the combined team will set new industry
standards."
A&O served as RHI Magnesita's legal advisor.
Conference
call
A conference call for analysts will be held on
Tuesday 2 April 2024 at 09:00 UK time (10:00 CET). The call
can be accessed using the following link:
https://www.netroadshow.com/events/login?show=63d2e2a7&confId=62970
A replay will be available on the same link
shortly after event.
For further enquiries, please
contact:
Chris Bucknall, Head of Investor
Relations
Tel +43 699 1870 6490
E‐mail: chris.bucknall@rhimagnesita.com
Media:
Hudson Sandler
Mark Garraway, Emily Dillon, Nick
Moore
Tel +44 020 7796 4133
E-mail: rhimagnesita@hudsonsandler.com
About RHI
Magnesita
RHI Magnesita is a leading global supplier of
high-grade refractory products, systems and solutions which are
critical for high-temperature processes exceeding 1,200°C in a wide
range of industries, including steel, cement, non-ferrous metals
and glass. With a vertically integrated value chain, from raw
materials to refractory products and full performance-based
solutions, RHI Magnesita serves customers around the world, with
around 16,000 employees in 47 production sites, 8 recycling
facilities and more than 70 sales offices. RHI Magnesita intends to
build on its leadership in revenue, scale, product portfolio and
diversified geographic presence to expand further in high growth
markets.
The Group maintains a premium listing on the
Official list of the London Stock Exchange (symbol: RHIM) and is a
constituent of the FTSE 250 index, with a secondary listing on the
Vienna Stock Exchange (Wiener Börse). For more information please
visit: www.rhimagnesita.com
Definitions
"the Acquisition"
|
The Acquisition of Resco Group by RHI Magnesita
for an enterprise value of up to $430 million.
|
"M&A"
|
Mergers and acquisitions.
|
"Resco Group" or "Resco"
|
A group of companies carrying out the
manufacturing and sale of refractory products in the US, UK and
Canada. The holding company of Resco Group is Balmoral Refractories
Holdings, Inc.
|
"RHI Magnesita" or "the Group"
|
RHI Magnesita N.V., including its subsidiary
companies, as appropriate.
|
"UK"
|
United Kingdom of Great Britain and Northern
Ireland.
|
"US"
|
United States of America.
|