pounds 1.9bn Premier buy to propel Farnell into Footsie

TOM STEVENSON

City Editor

Farnell Electronics will sweep into the Footsie index this spring after an ambitious US acquisition, one of the least well-known companies to have joined the ranks of Britain's largest companies. The deal, the price of which raised eyebrows in the City and knocked almost 10 per cent from the shares, will triple the size of the Wetherby-based electrical component distributor, giving it a market value of almost pounds 3bn.

The purchase of Premier Industrial Corporation, also a component distributor, was first negotiated by Railtrack boss Bob Horton, a non-executive director of Farnell since last year and a long-time friend of Mort Mandel, the 74-year old chairman and chief executive of family-controlled Premier.

After the deal, the renamed group will change its name to Premier Farnell.

The deal is the latest and largest move by Howard Poulson, chairman for the past three years, who described the Premier acquisition as "a once- in-a-lifetime opportunity". Mr Poulson, who inherited a group that had grown profits without pause for almost 30 years, has dramatically accelerated the company's growth and news of the acquisition was accompanied by the promise of 21 per cent growth in profits for the current financial year, which ends on Sunday.

Farnell will pay pounds 1.85bn for Premier, part-funded by a nine-for-19 rights issue at 540p a share, raising pounds 349m, and the issue of 69.4 million ordinary shares and 27.9 million convertible preference shares. Farnell's pounds 70m cash pile will be wiped out and replaced by net debts of pounds 450m.

Analysts thought the price paid, representing 26 times Premier's after- tax earnings in the year to last May, was high, although they agreed with the commercial logic of a merger that will create large economies of scale. Unlike many of Farnell's recent purchases, Premier is not an underperforming business and increasing its return on sales to Farnell's impressive levels will not be easy.

Other worries included a possible overhang of stock from the Mandel family stake, 25 per cent of the fully-diluted capital of the enlarged group. Various agreements are in place to create an orderly withdrawal if the Mandels decide to cash in their holding, but analysts agreed that the deal may stall Farnell's remarkable share price rise over the past five years. The shares shed 62p to close at 617p.

Farnell and Premier sell components through catalogues and generate strong cash flows and margins by charging a premium price in exchange for a high- quality, fast service.

There is little overlap in terms of products and suppliers and much of the benefit of the deal will come from pushing each other's products to existing customer bases.

Like Farnell, Premier enjoys an unusually high margin for a distribution business, about 20 per cent in its biggest operation, Newark Electronics.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: HR Benefits Manager

£40000 - £50000 per annum + pro rata: SThree: SThree Group have been well esta...

Recruitment Genius: Office Manager / Financial Services

£30000 - £37000 per annum: Recruitment Genius: Established in 1999, a highly r...

Jemma Gent: Year End Accountant

£250-£300 Day Rate: Jemma Gent: Are you a qualified accountant with strong exp...

Jemma Gent: Management Accountant

£230 - £260 Day Rate: Jemma Gent: Do you want to stamp your footprint in histo...

Day In a Page

HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

Scientists hail daily pill that protects against HIV infection

Breakthrough in battle against global scourge – but will the NHS pay for it?
How we must adjust our lifestyles to nature: Welcome to the 'Anthropocene', the human epoch

Time to play God

Welcome to the 'Anthropocene', the human epoch where we may need to redefine nature itself
MacGyver returns, but with a difference: Handyman hero of classic 1980s TV series to be recast as a woman

MacGyver returns, but with a difference

Handyman hero of classic 1980s TV series to be recast as a woman
Tunnel renaissance: Why cities are hiding roads down in the ground

Tunnel renaissance

Why cities are hiding roads underground
'Backstreet Boys - Show 'Em What You're Made Of': An affectionate look at five middle-aged men

Boys to men

The Backstreet Boys might be middle-aged, married and have dodgy knees, but a heartfelt documentary reveals they’re not going gently into pop’s good night
Crufts 2015: Should foreign dogs be allowed to compete?

Crufts 2015

Should foreign dogs be allowed to compete?
10 best projectors

How to make your home cinema more cinematic: 10 best projectors

Want to recreate the big-screen experience in your sitting room? IndyBest sizes up gadgets to form your film-watching
Manchester City 1 Barcelona 2 player ratings: Luis Suarez? Lionel Messi? Joe Hart? Who was the star man?

Manchester City vs Barcelona player ratings

Luis Suarez? Lionel Messi? Joe Hart? Who was the star man at the Etihad?
Arsenal vs Monaco: Monaco - the making of Gunners' manager Arsene Wenger

Monaco: the making of Wenger

Jack Pitt-Brooke speaks to former players and learns the Frenchman’s man-management has always been one of his best skills
Cricket World Cup 2015: Chris Gayle - the West Indies' enigma lives up to his reputation

Chris Gayle: The West Indies' enigma

Some said the game's eternal rebel was washed up. As ever, he proved he writes the scripts by producing a blistering World Cup innings
In Ukraine a dark world of hybrid warfare and murky loyalties prevails

In Ukraine a dark world of hybrid warfare

This war in the shadows has been going on since the fall of Mr Yanukovych
'Birdman' and 'Bullets Over Broadway': Homage or plagiarism?

Homage or plagiarism?

'Birdman' shares much DNA with Woody Allen's 'Bullets Over Broadway'
Broadchurch ends as damp squib not even David Tennant can revive

A damp squib not even David Tennant can revive

Broadchurch, Series 2 finale, review
A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower: inside the mansion of Germany's 'Bishop of Bling'

Inside the mansion of Germany's 'Bishop of Bling'

A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower