Most people sell their souls,
And live with a good conscience on the proceeds
Almost 11 years to the day since Travis Perkins’ then CEO Geoff Cooper surprised the markets with a bid, subsequently successful, for the BSS Group, his successor bar one, Nick Roberts, has overseen the long-touted divestment of the Travis Perkins Plumbing & Heating division. It has been sold, as is the way of most things at the moment, to private equity concern, HIG Capital.
Is this a good move? The market certainly seemed to think so, since TP shares shot up 52p to £16.65 when the markets opened on the Friday morning following the announcement (Thursday evening May 20), before settling down at £16.27p when they closed. It’s certainly good news for shareholders who are going to see some of the £325m that HIG paid, in the form of a 35p special dividend and, possibly, a share buyback.
The sale is the last part of the action plan set out after a comprehensive review of the Travis Perkins plc business in July 2018 and comes a few months after Wickes was demerged and released into the wilds of the London Stock Exchange to sink or swim as an entity in its own right. The plumbing and heating distributor to second-line merchants, Primaflow F&P, was sold to Newbury Investments in January 2020 and Tile Giant followed out of the fold in October last year.
When the business review was announced at Travis Perkins’ capital markets day in December 2018, it said that the focus would be upon “advantaged businesses in attractive markets”. This, it turns out, meant the green & gold, plus specialist businesses like CCF, Keyline, Benchmark, BSS and Toolstation, whose online know-how and digital readiness put it in pole position to profit from the pandemic. It did not include the businesses that made up the Plumbing and Heating division, including PTS and City Plumbing Supplies. These had, on occasion been a bit of a drain on the wider TP business, plumbers merchanting can be a very different world to builders merchanting and decent margins in contract boiler sales are as rare as hens’ teeth. Hence the ‘transformation programme’ announced in August 2017, which worked, though the whole sale business was paused for a while thanks to economic uncertainty, some, but not all of it, Brexit and Covid related.
Is this sale good news for the 4,000 employees of the division? The answer to that may take a bit longer to emerge. As someone who has been through several acquisitions and refinancing, it certainly feels better to be owned by a company that actively wants you to be part of their portfolio. However, investors tend to be motivated more by money than by altruism and rarely go into deals without wanting to see something for their money. HIG are going to want to see some return on that £325m. Whether that is via further growth and investment or by cost-cutting and/or selling it on further down the line remains to be seen.