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

The Sunday Telegraph - Money & Business - - Business - By Alan Tovey

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.

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