Davis Service offloads troubled DIY arm in £145m deal

Shares in Davis Service Group soared yesterday after it offloaded its troubled tool hire company to the venture capitalists 3i.

3i is paying up to £145m for HSS, which was founded in 1957 by a London market stall holder. It beat off competition from a number of trade buyers and other private equity groups, after its initial approach last January prompted Davis to seek other offers.

Analysts welcomed confirmation of the deal, which leaves Davis free to focus on its textile maintenance and building systems businesses. Davis shares climbed 4 per cent to 356p.

HSS, which was acquired from the construction group John Mowlem 10 years ago for £52m, has had a difficult year, blighted by its loss-making US arm and a softening DIY market in Britain.

Its operating profit crashed 90 per cent £800,000 in the six months to 30 June and the next six months are expected to be even worse. Although sales edged higher during the third quarter, the past two months have been tougher. The US business is expected to incur losses of some £3m as sales "have continued to disappoint". Full-year profits fell 30 per cent to £19m in 2002.

HSS's management team, led by Lister Fielding, is taking a "significant" stake in the independent business, although 3i declined to disclose further details. 3i is bringing in a fresh duo to head the tool hire company although Mr Fielding, who has reached retirement age, will stay on as deputy chairman.

Alan Peterson, the former chief executive of Meyer International, will chair HSS, while Paul Nolan, who used to run another of 3i's support services businesses, will become chief executive.

3i hinted that some of HSS's 500 plus outlets across the UK and Ireland would be closed once it had completed a review of the estate. Gary Addison, 3i's head of support services, said: "We need to ensure we have got the right shops in the right places. We believe a number of operational improvements can be made to make this a better business."

John Ivey, Davis's chief executive, said he was "pleased that the period of uncertainty over the HSS business is coming to an end". The company will receive £112.5m in cash, with the remainder to be paid with interest over three years. The disposal, which is subject to regulatory clearance, is expected to be completed in January.