The stock market liked the move and shares in the company were marked up 15p to 270p. Racke, based in the north-east of England and in Scotland, was identified as a solid business that would extend Baird's links with M&S.
The purchase of Racke comes a week after Baird raised pounds 16m by selling its Darchem subsidiary to Weir, the Scottish engineering company. Donald Parr, chairman, said negotiations were held on both projects at the same time but were not dependent on one another for success.
Analysts liked evidence that Baird is concentrating on textiles - engineering has always been seen as a distraction. Mr Parr said: 'The acquisition follows the disposal of the major part of Baird's non-textile interests in July and marks an important step in the continuing strategy of concentrating resources on the group's clothing activities.'
Laurance Racke, Racke's chairman and chief executive, is taking most of the purchase price in loan notes. He will have pounds 14.8m in the notes and pounds 1.2m in cash, and is also taking William Baird shares, which were worth another pounds 1.9m at yesterday's closing price.
Mr Racke will join Baird's main board and continue to oversee his business once it is subsumed by the larger group. Sales of about pounds 35m from Racke will boost Baird's total sales to M&S to pounds 120m. M&S will account for about one-third of Baird's clothing output.
Including debt, the purchase price rises to pounds 20m. Racke made pre-tax profits of pounds 3.5m in the 12 months to 31 December. This indicates that the purchase price is a multiple to post- tax earnings of nine times.
Mark Puleikis, textiles analyst with the securities house Smith New Court, said he liked the deal because it would improve earnings per share this year. He revised his pre-tax profit forecast for the year to next December from pounds 27.5m to pounds 29m. He believes Baird will make pounds 37m in 1994, up from pounds 33.5m.
According to Mr Puleikis, earnings are now set for 17.5p this year, putting the shares on a prospective multiple to earnings of 15.7 times.