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Grafton linked with acquisitions

Builders’ merchants group Grafton is being linked with more acquisition movement as consolidation in the international merchanting sector heats up.

Last week, the Dublin-headquartered group — which also has a significant DIY business through its ownership of popular chains such as Woodies and Atlantic Homecare — bought a single-branch merchanting business in Staffordshire, Britain, called Silverstone Builders Merchants for an undisclosed fee.

It is understood that business — referred to by a Grafton spokesperson as representing a "regional fill-in" — will be amalgamated into Grafton’s British subsidiary, Buildbase.

Management at Silverstone — which has been trading since the early 1970s — said their business would definitely benefit "from being part of a large, progressive organisation".

In a research note on Grafton, Goodbody Stockbrokers’ analyst Robert Eason suggested on Friday that while the Silverstone acquisition may be relatively small in the context of Grafton’s British-based merchanting operations, which have combined annual sales of more than £1.2bn (€1.37bn), the move shows that the group is willing to continue with its bolt-on strategy.

"We believe there will not be a shortage of such opportunities in the coming 12-18 months, given that smaller players are likely to remain under pressure in a market where volumes will struggle to grow.

From a financial perspective, Grafton has the firepower to do deals, with cash balances of over €200m at the end of last year," Mr Eason added.

Grafton was making no comment on acquisition strategy; the company is currently in a closed period ahead of issuing first-half financial results at the end of this month. However, continued bolt-on acquisitions are expected to be made by the company.

In its latest trading update, published in July, the company said that first-half turnover should be slightly up on the €979m generated in the first six months of 2010, to around €997m; as trading in the early part of 2011 benefited from more favourable weather conditions from the same period of last year.

However, turnover in the Irish operations was down by around 6% and management warned that recovery in the group’s key markets is slower than hoped, due mainly to low levels of consumer confidence and weak mortgage lending levels.

Source : Geoff Percival - Irish Examiner

22 August 2011
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