Travis Perkins has agreed to acquire BSS Group for £557m to become the UK's biggest plumbing and heating distributor.
The company behind the eponymous builders' merchant and the Wickes DIY chain first revealed its interest in BSS at the end of May. It said the acquisition would deliver "materially enhanced" earnings in its first full year after it completes the acquisition in 2011.
The acquisition catapults Travis Perkins above Wolseley into the top spot in the plumbing and heating distribution market, with combined annual revenues of about £4.3bn and 19,000 employees. It will also underpin the merchant's existing distribution businesses, City Plumbing Supplies and Travis Perkins, and its retailing operations at Wickes and Tile Giant.
Robert Walker, the chairman of Travis Perkins, said: "We are confident this transaction can deliver significant value for the shareholders in the enlarged group."
Travis Perkins is paying 435.4p for each BSS share, split between 232.9p in cash and 196.4p in new shares, based on Travis Perkins' closing price yesterday of 753p. It also includes 6.09p to pay the final dividend on BSS's shares. BSS shares closed at 427p.
The takeover price is 34 per cent above the closing price of 325p of BSS's shares on 27 May, the day before Travis Perkins revealed it was in "advanced discussions" about acquiring BSS. Travis Perkins said the enlarged group would have the scale to purchase products more "competitively" and would benefit from global sourcing. Along with other efficiencies, such as combined distribution routes, it expects to make annual pre-tax cost savings of at least £25m in 2013.
James Cooke, an analyst at Panmure Gordon, said: "Assuming it does complete at this price, then we think Travis Perkins has done a very good deal, acquiring a great company, and we stay a buyer [of the shares]."
Travis Perkins is paying a multiple of 10.7 times BSS's adjusted 2010 underlying earnings. The takeover comes after a turbulent two years for Travis Perkins, whose profits and sales were badly buffeted during the downturn in the residential and commercial property market.
On Friday, the company said it would be reinstating its dividend for the first time in 18 months, following a continued "strong rebound" in trading.