TRAVIS Perkins expanded its network of builder's merchants by a quarter yesterday with the acquisition for pounds 42m of the 46-branch AAH building material distribution chain.
The shares, which have more than doubled in the past 12 months, closed 3p higher at 367p, reflecting the market's approval of both the deal and more than doubled profits in the year to December.
Tony Travis, chairman, said the acquisition meant the enlarged business would overtake recently floated Graham as the UK's fourth largest builder's merchant.
With 214 branches following the merger, giving it a 6 per cent market share, Travis is now on a par with Jewson, owned by Meyer International, and Harcros, the Harrisons & Crosfield merchant. All three trail the market leader, Wolseley.
He added that the AAH branches, which are concentrated in the North of the country, would complement Travis's existing chain, in the Midlands and the South. Only about five branches would be closed as a result of the takeover.
Mr Travis said that while the consideration represented 24 times expected profits to March 1994, it was only half the business's annual sales of about pounds 80m. Travis Perkins' market capitalisation is roughly equal to its turnover.
The difference in value is mirrored by the 3.1 per cent operating margins achieved by AAH compared with Travis's 5.7 per cent return on sales. Mr Travis said that the margin could be improved by changing AAH's sales mix and increasing sales per employee.
AAH's product range is focused on low-margin structural materials such as cement, bricks, drainage and roofing products, while 30 per cent of Travis's turnover is of higher-margin forest products. It is intended that these products will be pushed through the AAH chain.
In the year to March 1993 the AAH business made operating profits of pounds 2.1m and is expected to make about pounds 2.4m in the year to March 1994. It had net assets of pounds 19m.
A 25 per cent increase in productivity at Travis Perkins over the past three years contributed to a doubling of pre-tax profits in the year to December. On sales 15 per cent higher at pounds 347.7m, profits rose from pounds 10m to pounds 20.5m.
There was an pounds 11.5m cash inflow during the year to leave year-end net cash at pounds 11.7m. Following the cash acquisition, Travis will have borrowings of pounds 25m supported by shareholders' funds of about pounds 140m.
Despite a 94 per cent increase in earnings per share to 13p (6.7p), the dividend was left unchanged at 8p.
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