Industrial thread manufacturer Coats Group (LON: COA) has acquired Texon International Group for an enterprise value of $237m. This will increase the group’s presence in the Athleisure footwear sector.
Hong Kong-based Texon has facilities in Asia and Europe and previously had a private equity owner. It supplies insoles, heel counters, uppers and linings for footwear – 90% of revenues – and also supplies materials for handbags and accessories.
The main customers include adidas, Nike, Puma, Converse and Timberland and existing Coats clients could become its customers. Texon has a one-fifth market shares of the footwear structural components market.
In 2022, Texon is expected to generate revenues of $145m and operating profit of £18.5m. Underlying growth is expected to be around 10% a year and could be even better. There is enough capacity to generate revenues of $200m. Last year, Coats had revenues of $184m from the footwear and accessories sector.
Forecasts
Peel Hunt has upgraded its forecast for Coats for 2022 with revenues increasing from $1.57bn to $1.62bn and pre-tax profit edged up from $195m to $198m. A full contribution from Texon in 2023 has led to a pre-tax profit upgrade from $228m to $243m. There should be $5m of overhead cost benefits by 2024.
Net debt is expected to be $407m at the end of 2022, but cash generation should enable this to fall to $343m at the end of 2023.
The Coats share price rose 3.6% to 62.45p, which means that it is trading on around ten times prospective 2022 earnings, falling to eight next year.