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Reece shares fall on acquisition news

The Reece Ltd (ASX: REH) share price is edging lower this afternoon after the company announced to the ASX that it has made an acquisition. REH shares opened at $10.03 this morning and dipped down towards the $9.80 mark before slightly recovering to the current level.

What has Reece acquired?

Reece has announced that it has acquired Todd Pipe & Supply, LLC – a plumbing supply wholesaler based in Southern California, United States (US).

Todd Pipe & Supply has six branches in ‘attractive growth areas’ which will join the US-based Reece subsidiary MORSCO, which Reece acquired in May 2018. The addition of Todd Pipe & Supply will take MORSCO’s Southern California locations to 23 and total US locations to 181.

This was a privately negotiated deal and will cost Reece/MORSCO US$122 million, with “a further US $38 million deferred until December 2021 and subject to achieving certain milestones.” This will be funded from cash and debt and is expected to be completed by 1 October 2019. Todd Pipe delivered adjusted earnings of US$16.4 million in the twelve months to March 2019.

Here’s some of what Reece CEO Peter Wilson had to say:

Todd Pipe is an example of us acting on opportunities to consolidate the fragmented plumbing market in the US Sun-Belt region. We acquired MORSCO last year to create a growth platform for the Group, and we will do this through organic, and considered in-organic opportunities as they arise.

Reece shares have had a relatively steady 2019 so far, starting the year at $9.45 which is 5% below the current price (at the time of writing). This is still a ways off the 52-week (and all-time) high of $12.95 that Reece shares hit in August last year.

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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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