Track Record

Total Melrose

Track record (Oct 2003 – Aug 2017)

  • £13 million market cap to £4.5 billion in 14 years
  • £5.2 billion of shareholder value created
  • Average annual return on investment 26%*
  • £3.6 billion of shareholder investment increased to £8.8 billion

* Since the first deal in 2005

The management team has had a successful track record in creating substantial value for shareholders, as shown below. This has been delivered over a number of deals since 2003.

 

Significant rewards for shareholders

Total Shareholder Gain (1) Total Shareholder Return

* Since the first deal in 2005

Melrose deal by deal

Value

Acquisition Equity IncreaseHeadline Operating Margin

Elster - Completed

Table

In August 2012 Melrose completed the £1.8 billion acquisition of Elster, a world leading engineering company, established over 100 years ago, designing and making meters and gas utilisation products mainly for the energy market. The deal was funded by a fully underwritten Rights Issue, which raised £1.2 billion.

A business with strong fundamentals, Elster fitted the Melrose acquisition criteria. Elster was a high quality business with strong end markets which had the potential for significant development and improvement under Melrose management.

Elster served markets with attractive long term demand drivers such as growing global energy demand, energy efficiency and conservation and global gasification, and was the global market leader in gas metering.

Melrose saw opportunities to improve Elster’s performance through expanding margins and improving the quality of the business through investment and development.

In October 2014 Elster Gas acquired Eclipse, Inc. (‘Eclipse’), a manufacturer of gas combustion components and systems for industrial heating and drying applications headquartered in Rockford, Illinois (USA) for a consideration of US $158 million.

In December 2015 Melrose sold Elster to Honeywell Inc. for £3.3 billion and returned approximately £2.4 billion to shareholders in 2016.

Elster 4_289

Elster 2012 / 2015

Shareholder value increased by £1.5bn in three years

FKI - Still own Brush

On 1 July 2008 Melrose completed the acquisition of FKI plc for a total consideration, including debt, of just under £1 billion. FKI was a major international diversified engineering group, including some businesses with very good market positions.

However, FKI had a weak balance sheet and borrowings due to be refinanced in the near term. The financing terms of Melrose’s acquisition enabled the balance sheet issues to be resolved and a more appropriate group borrowing structure with lower overall debt leverage.

In addition to addressing the financial constraints facing FKI, Melrose identified a number of opportunities to improve the performance of FKI’s businesses, principally through an increased focus on cash generation, profitability and investing in existing facilities and new capacity in order to grow the company.

Since the acquisition of FKI, steps taken by Melrose have resulted in an increase in operating margin from 10% to 15%, which will result in substantial shareholder value being created.

In 2013 Melrose sold five FKI companies; Marelli, Truth, Harris, Crosby and Acco, which made up approximately half of the FKI group. On average these produced a return on the original shareholder value of over three times.

In 2014 Melrose completed the disposal of Bridon for £365 million, representing a return on original equity of approximately 2.5x and returned £200 million to shareholders in 2015.

FKI 2_289

FKI 2008 / Present

on track to more than triple the shareholder value

Dynacast - Completed

Mcchart

Dynacast was acquired in May 2005 alongside McKechnie. During the six years of ownership, as a result of the improvement in its performance Melrose quadrupled the shareholders’ investment in Dynacast, selling the business for an enterprise value of £377 million in July 2011. Consistent with Melrose’s strategy, following the disposal approximately £373 million was returned to shareholders.

The sale of Dynacast means that nearly £1 billion in cash was generated from the original £429 million McKechnie and Dynacast acquisition. Melrose successfully steered Dynacast through the global slowdown, and the cost savings made during the downturn were retained as sales recovered. Melrose invested fully in Dynacast to expand capacity, particularly in the Far East, and to improve efficiency.

Dynacast also successfully completed some bolt on acquisitions. Under Melrose ownership, sales in all three of Dynacast’s main geographic regions grew.

Dynacast_289

Dynacast 2005 / 2011

Shareholder value quadrupled in six years

McKechnie - Completed

Melrose acquired McKechnie, along with the Dynacast businesses, in May 2005 for an enterprise value of £429 million, half of which was the cost for McKechnie. At acquisition it could see the benefit of the strong upturn in the aerospace cycle. Moreover, Melrose saw significant scope to invest in the business and improve the operational and financial performance of the business by adopting a vigorous hands on approach.

In the two years of ownership revenues grew by 35%, profit grew by approximately 75% with margins increasing by 6 percentage points. On 14 May 2007 McKechnie’s aerospace and aftermarket businesses were sold for £428 million in cash, generating an IRR of 65% and a profit (including cash generation during ownership) of approximately £250 million. In total it is estimated that the disposal crystallised a value increase of nearly 2.5 times in 18 months.

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McKechnie 2005 / 2007

Shareholder value doubled in 18 months