Melrose airs Nortek exit in £6bn asset sale
Turnaround thought to be complete – and sale could be just one of several disposals in coming year
GKN owner Melrose is preparing to cash in on its turnaround of the US air conditioning manufacturer Nortek as part of a string of sales expected to raise up to £6bn.
Melrose bosses are exploring a sale of Nortek just two years after they snapped up the business for £2.2bn.
Chris Miller, the executive chairman, signalled that the turnaround is complete. “We’ve owned Nortek for two years and you have to ask, have we got to the end of the improvement programme?” he told The Sunday Telegraph.
No decision has been taken, but Mr Miller said it could form part of a series of disposals in the coming months.
Melrose bought GKN in the spring for £8.1bn after a bitter takeover battle and has already kicked off a quick sale of the historic engineer’s powder metallurgy business, with a £1.8bn starting price.
Earlier this year Melrose pulled an $800m (£613m) sale of Ergotron, a manufacturer of ergonomic office equipment that it took on as part of the Nortek deal, when the division’s chief executive fell ill.
Mr Miller said: “People should not assume that it’s only powder metallurgy being sold next year. I’m not saying we will sell Nortek next year but it wouldn’t be a surprise if it was on the block and that is going to be a sizeable thing.”
He added that Ergotron – the sale of which was put on ice while a replacement for Pete Segar, the chief executive, was identified – could go back on the market next year. Mr Miller added: “You could be looking at £4bn, £5bn, £6bn of assets disposed of next year.”
Melrose operates on a “buy, improve, sell” strategy, targeting underperforming industrial companies, turning them around through a combination of investment and margins improvement. It then sells them on within three to five years at a profit.
The executive chairman cited investment to improve companies in its portfolio for the development by Nortek of a less energy-intensive cooling system for data centres. US research claims these computer centres could use 20pc of all electricity globally by 2025, and Nortek’s “Statepoint” liquid cooling system is being used by Facebook, generating intense interest.
Melrose has previously guided to a sale of Nortek from 2020 onwards. However, accelerating the timetable would be “typical” of the company’s management, according to one analyst.
“There’s so much interest in the US heating, ventilation and air conditioning market at the moment in the US that selling Nortek for £3bn would be no surprise,” the analyst said. “They’ve separated out Ergotron so a deal next year looks likely.”
Since floating on Aim in 2003, Melrose’s methods have generated £4.8bn of shareholder value, with its acquisitions averaging a return of 2.7 times when they are sold. Proceeds from sales go to paying down debt used to finance Melrose’s buying sprees and make cash payouts to investors. Melrose says its total shareholder return since floating is more than 3,000pc, far outperforming the FTSE 350’s return of 231pc.
Its first targets, Mckechnie and Dynacast, were bought for £429m in 2005, and sold for a combined £805m between 2007 and 2011, with a further £100m of profit generated under Melrose’s ownership.
The second deal came in 2008 when FKI was acquired for almost £1bn. About half the businesses it contained were sold for between 2.5 and three times the outlay. One unit, the generator maker Brush, remains within Melrose as it has had trouble finding a buyer due to the fall in the oil price market.