The Reliance Worldwide Corporation Ltd (ASX: RWC) share price has started this morning’s session in the green.
Reliance confirmed in an announcement this morning that it will acquire the business assets of LCL Pty Ltd.
Let’s take a closer look at what was released this morning.
Quick recap on Reliance
Reliance is in the business of manufacturing and selling plumbing products.
Its key markets are North America, Europe and Australasia, where it has a meaningful footprint.
At the time of writing, Reliance has a market capitalisation of $4.1 billion.
The LCL asset acquisition
LCL is a Melbourne based producer that “processes both new and recycled non-ferrous materials to produce a range of brass copper alloys”.
Reliance announced it would acquire LCL’s business assets for $37 million.
The company states “adjusted average earnings before interest, tax, depreciation and amortisation (EBITDA) for LCL over FY 2019 and FY 2021 is $7.1 million”.
According to Reliance, it accounts for more than 90% of LCL’s revenue.
The transaction will close on 31 August and adjustments for working capital may be embedded into the final sale price.
It is expected that most of LCL’s employees will transition over to Reliance’s books after the sale is finalised.
Reliance Worldwide chief executive Heath Sharp stated:
With this acquisition, RWC will secure a favourable long‐term cost position for its brass rod requirements in Australia. The co‐location of our brass forging operations with LCL’s brass production facility at Moorabbin will enable us to optimise materials handling and manufacturing efficiencies. This acquisition will secure control of a critical piece of our manufacturing supply chain.
Reliance stated it will fund the acquisition using existing debt and credit facilities.
Investors seem to welcome the announcement, as Reliance shares are now trading at $5.25, up almost 1% on yesterday’s closing price.
Reliance share price snapshot
The Reliance share price has posted a year to date return of 29%, extending the previous 12 month’s return of 84%.
Both of these returns have outpaced the S&P/ASX 200 Index (ASX: XJO)’s return of ~21% over the previous year.
Reliance shares are trading around 3.8% below their 52-week high of $5.46.
The post The Reliance Worldwide (ASX:RWC) share price up after asset purchase appeared first on The Motley Fool Australia.
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The author Zach Bristow has no positions in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Reliance Worldwide Corporation Limited. The Motley Fool Australia has recommended Reliance Worldwide Corporation Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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