Bathroom outfitter and tableware manufacturer Villeroy & Boch is undertaking the largest acquisition in its 275-year corporate history. The company, headquartered in Mettlach, Saarland, is acquiring all the operational companies of competitor Ideal Standard Group for €428 million, doubling its revenue in the Bathroom & Wellness division (sinks, toilets, bathroom fixtures and furniture, bathtubs, and shower trays) to €1.4 billion. Including its second division, Dining & Lifestyle (tableware, cutlery, vases, etc.), this means an increase in overall group revenue to over €1.7 billion, according to the company. In the fiscal year 2022, approximately €995 million in revenue was generated. The purchase price, which can still change to a limited extent in both directions, is based on a company valuation of around €600 million.

The sellers of Ideal Standard shares are companies managed by the Anchorage Capital Group and CVC Credit, with Anchorage holding 80% and CVC holding 20%. Villeroy & Boch states that it will finance the transaction from existing liquidity and approximately €250 million in debt. A corresponding bridge financing has been arranged with two banks, said CFO Markus Warncke in a press conference.

"With this merger, we will now become one of the largest players in the European bathroom sector in terms of revenue as well," notes Frank Göring, CEO of Villeroy & Boch, specifically mentioning companies such as Grohe, Hansgrohe, Geberit, and Roca. Both companies complement each other perfectly in terms of regional presence, distribution strategies, and their product and brand portfolios, it is said.

As indicated in a presentation, both Villeroy & Boch and Ideal Standard are strong in Western Continental Europe. Nonetheless, while the Saarland-based company also conducts successful business in Switzerland, Northern Europe, and Poland, Ideal Standard has a presence in the UK, Italy, Saudi Arabia, and Egypt. Furthermore, "Villeroy & Boch remains a three-tier company," emphasizes Göring. The company does not plan to establish direct business with end consumers, the "upscale private customer." In contrast, Ideal Standard is heavily involved in project business (e.g., healthcare, hotels, commercial properties). "Through our complementary strengths, we are significantly improving our competitiveness and our position for additional growth."

The Ideal Standard Group offers, among other things, kitchen and bathroom faucets, which account for €280 million in revenue alone. According to Göring, this high-margin business accounts for just over €50 million at Villeroy & Boch. Therefore, the future product mix will be much more balanced than before, Göring concludes. "I look forward to competing with Grohe and Hansgrohe." There will be no job cuts among the approximately 7,000 employees of Ideal Standard worldwide. As stated in the presentation, the company generated €737 million in revenue in 2022 and achieved an adjusted EBITDA of €74 million.

Moreover, CFO Warncke claims that the company valuation, even at 8.1 times adjusted EBITDA, is already attractive. In recent comparable industry acquisitions, multiples have gone up to 12. Thanks to synergy effects, Villeroy & Boch will reduce the multiple to 5.5. The company also cites cost and growth synergies of over €35 million. After the transaction, the group's pro forma debt will be at 1.8 (net debt to EBITDA). "As long as the leverage ratio is below 3, we are well positioned," the CFO claims.

Villeroy & Boch had come close to acquiring Ideal Standard once before. In early 2020, the company announced that it was considering the acquisition of the manufacturer of bathroom ceramics and fixtures. However, a year later, in March 2021, the acquisition attempt was temporarily abandoned: it was stated that the plan to acquire Ideal Standard had been relinquished due to the COVID-19 pandemic and the ensuing market uncertainty. Göring now explains that Ideal Standard had completed its restructuring and that the current timing for the acquisition was even more favorable. Among other things, the number of Ideal Standard production sites had been reduced from 15 to eight over the past five years.

The transaction is subject to customary regulatory reviews and approvals, as well as the successful redemption of the €325 million bond issued by Ideal Standard, which CFO Warncke is confident will occur without any doubt. Unlike the usual pension and other operational obligations, the bond and various financial obligations are not part of the transaction. The closing is expected in the first quarter of 2024.

In mid-July, Villeroy & Boch lowered its revenue and earnings forecast for 2023 due to declining construction activity in Europe. The latest guidance had anticipated a revenue decline of 3 to 6% (previously "on par with the previous year") compared to 2022, when €994.5 million was generated. Operating profit (EBIT) is now expected to decline by 5 to 10% (previously "on par with the previous year") compared to €96.8 million.

In the first half of the year, revenue reportedly fell by 10.7% to €437.8 million, and the EBIT decreased by 6.3% to €38.7 million. According to Villeroy & Boch, the market environment remains "characterized by extraordinarily high uncertainty," particularly regarding further construction industry developments and the negative effects of rising interest rates on investment willingness. This management assessment remains unchanged.

J.P. Morgan and Freshfields Bruckhaus Deringer were involved in the transaction for Villeroy & Boch as consulting firms.