Victoria expands into artificial grass

International flooring designer and manufacturer Victoria PLC has announced the acquisition of two Netherlands-based designers and producers of artificial grass for €11m, in a move that the firm says will be immediately earnings accretive.

Avalon BV and GrassInc. BV were purchased for €11.2m in cash, with the offering increasing by €5.1m if targets are hit in the coming years. This will be funded from cash and the Group's banking facilities.

Avalon & GrassInc

Established in 2010 and 2011 respectively, the new businesses primarily supply artificial grass for domestic and landscaping purposes across Europe. For the year ended 31 December, they generated total revenues of €20.4m and EBIT of €4.2m:

Victoria said:

"This is a very high growth - and high margin - segment of the flooring market. Total European demand for artificial grass was approximately 50 million square metres in 2015, with the market for domestic grass forecast to grow 15% year on year through to 2019 and landscaping forecast demand to grow 11% year on year through to 2019."

The move values the businesses at 3x and 4.85x EBIT, depending on contingent consideration.

Strategic rationale

The Company says the acquisitions are part of its strategy of growing by buying earnings-enhancing firms and using available synergies to drive further increases in profits. 

"The Board believes that the Acquisitions present an excellent strategic fit with Victoria's existing business and will have strong long-term growth prospects as part of the Group."

There is an opportunity for a number of synergies across the Group that are expected to create value for shareholders, including a very strong distribution network, retention of the existing management teams for four years, and minimal integration costs. 

There is also growing demand for artificial grass in the UK, and the move will give Victoria a solid platform to increase its presence in mainland Europe.

Chairman of Victoria Plc Geoff Wilding said the move represented the first of several acquisitions that the firm would be making in Europe, elevating its status as a flooring supplier to a "growing customer base" on the continent:

"There is already significant demand from our existing UK customers for artificial grass, which is currently being met by our competitors and we are therefore confident there are material revenue synergies for Avalon and Grass Inc. from our UK operations."

He said he looked forward to the "earnings-enhancing revenues this acquisition will bring":

"Philippe Hamers, Victoria's incoming CEO, has enormous experience of taking European-manufactured flooring product into the UK and we look forward to the earnings-enhancing revenues this acquisition will bring while we continue to actively search for valuable acquisitions of this kind across Europe."

Shares in Victoria Plc opened flat on Monday, but are up 30% in the past month.