Melrose Industries Plc, a U.K.-based investment vehicle, is ready for its next acquisition after improving profitability at gas, water and electricity metering company Elster Group SE, Chairman Christopher Miller said.
Elster’s businesses now make up two-thirds of group revenue after Melrose sold five of its FKI companies last year for about 950 million pounds ($1.58 billion), including U.S. lifting-gear equipment makers Crosby and Acco to Kohlberg Kravis Roberts & Co. in November, the culmination of a five-year investment.
“We are ready and keen to buy again but we remain patient for the right opportunity,” Miller said in a statement today.
Melrose will be looking for its next purchase at an international manufacturing engineering business, most probably based in the U.S. or in Europe, for a range of 1 billion pounds to 3 billion pounds, Geoff Martin, Melrose’s chief financial officer, said in a telephone interview.
“We know what we’re looking for and we have an eye on a number of opportunities,” Martin said. “When we spot the right opportunity we’ll move ahead.”
Operating income increased 20 percent last year to 274.9 million pounds before some costs on a proforma basis, as profits at Elster rose by more than a third in the first full year of ownership, the London-based company said today. Melrose remains confident over the medium-term and anticipates further margin improvements despite increasing currency headwinds into 2014, it said.
The operating margin at Mainz-Kastel, Germany-based Elster rose 3.3 percentage points to 17.4 percent, driven mostly by the water business. The process of turning around Bridon and Brush, the remaining two energy businesses in FKI, will be more “difficult” as a result of weaker demand for mining ropes and new generators, at least in the short term, the company said.
Melrose returned part of net proceeds from the FKI disposals to shareholders last month, equivalent to about 600 million pounds in cash or 47 pence per ordinary share.
“Results are good and a touch better than forecasts, despite currency headwinds and some weaker trading at Bridon,” David Larkam, an analyst at Numis Securities Ltd., said in an e-mail. “Key will be the next purchase which does not appear to be on the cards just yet.” Numis cut its rating to sell from hold “purely short-term on valuation grounds,” he said.
Melrose has returned 30 percent to its shareholders over the last year including reinvested dividends, compared with a 12 percent gain for the FTSE All-Share Index. The stock fell 6.7 percent to 305.4 pence at 11:12 a.m. in London.