Nick Scali (ASX:NCK) share price jumps 12% on $103m Plush acquisition

Nick Scali’s shares have started the week strongly…

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In morning trade on Monday, the Nick Scali Limited (ASX: NCK) share price is charging higher.

At the time of writing, the furniture retailer’s shares are up 12% to $12.28.

Why is the Nick Scali share price rising?

Investors have been bidding the Nick Scali share price higher today after it announced a major acquisition.

According to the release, the company has entered into a binding agreement to acquire Plush Think-Sofas for a total cash consideration of $103 million. Though, this consideration remains subject to certain purchase price adjustments at completion.

The release explains that the acquisition will be funded through a combination of cash on hand and new debt facilities. It remains subject to closing conditions but is expected to complete in the fourth quarter of 2021.

What is Plush?

The company advises that Plush is a specialist Australian sofa retailer, operating a network of 46 showrooms across six Australian states and territories.

It was founded in 1999 and is a mid-market, made to order sofa retailer with a focus on the aspirational customer demographic. Over its 20-year history Plush has sold sofas, modular lounges, recliners, occasional chairs, ottomans, and sofa beds to over 250,000 customers.

Management notes that the acquisition will increase Nick Scali’s current footprint to a total combined 108 stores in Australia and New Zealand. In addition, it will enhance the company’s growth platform through the opportunity to open new Plush stores in currently underrepresented catchment areas and with greater floorplan flexibility.

The company believes there is potential for Plush to achieve a long-term store network target of 90-100 stores. This is in addition to Nick Scali’s previously communicated long term network target of at least 85 stores.

Nick Scali’s CEO, Anthony Scali, commented: “Plush is a high-quality Australian sofa retailer with a strong track record of profitability and performance over a long period of time. The acquisition is a strategic opportunity for Nick Scali and will allow us to leverage the increased scale of the combined group whilst providing a platform to significantly grow the store network.”

Material synergies are expected from the combined business after a two-year integration period, excluding one-off implementation costs. These synergies are expected to be generated from a combination of buying synergies, logistics and supply chain efficiencies, procurement synergies and support function efficiencies.

The acquisition is expected to be earnings per share accretive in the first full year of ownership, excluding the realisation of estimated synergies which will flow post integration.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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