THE building materials group Kingspan will increase its turnover by more than 50 per cent with the acquisition of Ward Building Materials in Britain for £25.9 million sterling. The acquisition - which has been well-flagged for the past week - will be mainly funded through a rights issue which will raise £20.4 million.
Ward - which was bought out of administration by Rugby Group in 1992 - is a similar business to Kingspan, manufacturing cladding and insulation products. Ward also has a contracting business which manufactures steel frames for commercial and industrial buildings, but this business is likely to be sold off at some stage by Kingspan.
In the year to December, 1995, Ward had pre-tax profits of £4.6 million sterling on sales and turnover of £75.2 million These figures compare with pre-tax profits of £3.8 million and sales of £64.5 million the previous year. Net assets being acquired total £12.8 million.
The £25.9 million price tag represents less than six times 1995 profits and is seen as a good price for Kingspan. Chief executive Mr Gene Murtagh said that the acquisition would have a neutral impact on earnings in 1997 but would contribute earnings after that
Mr Murtagh said that when the Ward contracting business was eventually sold off, Kingspan would have bought a £50 million turnover business. He was optimistic about the combination of the Kingspan and Ward businesses. "There is great synergy and a complementary range of products," he said.
He added that Kingspan would also aim to improve efficiency at Ward. "We would hope to take a couple of percentage points of the business to bring it into line with our existing business." He said that the broadened product range would give the enlarged Kingspan the critical mass to increase its sales into Europe.
Kingspan's decision to raise money from its shareholders comes as no surprise as the company already has an estimated end-1996 debt of £18.6 million with a debt/equity level of more than 100 per cent. Kingspan shareholders are being offered one new share for every six held at 440p each - a 15 per cent discount on the previous market price of 520p.
Two Kingspan directors, chief executive Mr Gene Murtagh and finance director Mr Brendan Murtagh are, however, not taking up their rights. As a result, Mr Gene Murtagh's stake in Kingspan will fall from 32.1 to 27.6 per cent while Mr Brendan Murtagh's stake will fall from 15.3 per cent to 13.1 per cent. The rights issue has been fully underwritten by lBI and ABM-Amro Rothschild.
The chief executive said the board felt it was desirable for Kingspan to have a broader shareholder base and as a result both he and his brother had decided to give up their rights. Apart from anything, exercising his rights would have cost Mr Murtagh almost £6.5 million and - Mr Brendan Murtagh almost £3 million.
Commenting on Kingspan's level of debt - gearing will rise to more than 130 per cent when the borrowing element of the Ward acquisition cost is included - Mr Murtagh said: "We have very strong cash-flow and our interest will still be covered over 11 times post-acquisition." He added that Kingspan would aim to have gearing down towards 50 per cent bye the end of 1998.
Kingspan is expected to report profits of around £11.3 million ford the year to the end of December, with earnings per share of around 32p. The Ward acquisition and rights issue announcement came too late to have an effect on the market, but the acquisition is likely to be welcomed.
