Rosebank Industries has announced its first acquisition since the vehicle listed in London last year. Rosebank has acquired Electrical Components International (ECI), a leading US electrical distribution systems company, in a deal valued at around $1.9 billion enterprise value.
The acquisition, which marks Rosebank’s first under its “Buy, Improve, Sell” strategy, is being financed through a fully underwritten institutional capital raise of approximately £1.14 billion at £3.00 per share, alongside $900 million in new debt facilities.
“The effective Melrose 2.0 has found its first target for a ‘buy, improve, sell’ strategy,” said Russ Mould, investment director at AJ Bell.
“Rosebank was launched by former Melrose directors with the aim of replicating previous success in finding businesses that were battered, bruised or had simply lost their way, and sprucing them up before flipping at a premium.”
ECI, which generates around $1.3 billion in annual revenues with an adjusted operating margin of approximately 13%, is a leader positions in wire harnesses and controls across industrial, electrification, HVAC and appliance sectors. North America accounts for roughly 80% of the company’s revenues.
Rosebank’s goal is to improve operations, aiming to boost ECI’s operating margin by five percentage points to at least 18%, which would lift adjusted EBITDA margins to at least 20%. The plan is to launch a wave of cost-saving initiatives, restructuring, and working capital optimisation.
The company also intends to continue ECI’s acquisition strategy of purchasing smaller, complementary high-margin businesses.
“This is the first step on the journey and we are very confident that we can help ECI to fully realise its potential for the benefit of its employees, customers and our shareholders,” said Simon Peckham, Rosebank CEO.
The acquisition represents approximately 9x expected 2025 adjusted EBITDA, with Rosebank targeting a doubling of its investment over three to five years.
“Rosebank is certainly not buying electrical components business ECI on the cheap,” Russ Mould said.
“It is paying nine times adjusted earnings which is fine for a company that is running smoothly, but twice as much as you might find with acquisitions of a broken business. Rosebank hopes to improve ECI’s margins, improve working capital and reduce leverage so servicing debt doesn’t consume so much of its cash flow. This sounds like fine-tuning the engine rather than chucking in a new one.”