Victoria PLC, the Kidderminster-headquartered international designers and manufacturers of flooring, is to acquire the profitable and growing rugs division of Balta Group, the Belgium-based flooring company, along with its profitable UK polypropylene carpet and non-woven carpet businesses.
Victoria has secured further equity investment with KED Victoria Investments LLC, an affiliate of Koch Equity Development LLC, to support further growth in due course. Koch Equity Development is part of Koch Industries, one of the largest privately held businesses in America,
Victoria will pay around €138 million (c. £117m), depending on the working capital movements and cash generation of the Divisions up to completion. In addition, the Divisions have approximately €57 million (c. £48m
Established in 1964 in Belgium, Balta Group has several operating businesses across different sectors of the commercial and residential flooring industry. The acquisition relates specifically to the operating businesses that, says Victoria, will provide the maximum synergistic opportunities with Victoria’s existing operations, at an attractive valuation.
The full integration of the Divisions with Victoria’s existing manufacturing and distribution operations are expected to drive very material cost synergies, estimated by the Board to be more than €15 million over the next 2-3 years, which will create significant value for shareholders.
Balta announced that they decided to sell the Divisions to Victoria to refocus their activities on their commercial flooring business.
Balta’s rugs division, which had revenues of €182.9 million ( £155.0 million) in 2020, manufactures and distributes mechanically woven rugs, which are sold in more than 100 countries across the world. It is the No.1 producer in Europe and No.2 globally behind an Egypt-based rugs manufacturer.
Rugs are a growing flooring category – particularly in the US, where the division has a strong market presence and generates more than 35% of its revenues.
Victoria has identified material value-creating commercial synergies with its existing business. Very often, the first thing consumers do after installing a hard floor (such as ceramic tiles or LVT sold by Victoria’s US-subsidiary, Cali) is buy a rug to put on top of it. Consequently, Victoria’s management plan for Cali’s online business to offer its own exclusively designed rug collection to drive complementary sales – particularly outdoor rugs, which are a high-growth consumer trend. Balta Rugs also has significant opportunity to expand its commercial activities with home-focused ecommerce retailers in the US and Europe.
The rugs division has manufacturing facilities in Belgium (186,000 sqm) and Turkey (86,000 sqm), along with distribution warehouses in Belgium and the United States (60,000 sqm).
As normal with businesses acquired by Victoria, the rugs division will continue to operate with a significant degree of autonomy. The rugs division has high-quality management, led by Marc Dessein (who joined the business in 1992 and was appointed managing director in 2006), and are well known to Victoria’s senior team.
Victoria has been manufacturing carpet in the UK for more than 125 years and holds a Royal Warrant from HM The Queen, having supplied the royal household for many years. It has high-quality and well-invested manufacturing facilities in Wales and Yorkshire, operated by an experienced and committed management team, led by Jan Debrouwere. The acquisition of Balta’s UK residential carpet division, which had revenues of €103.3 million ( £87.5 million) in 2020, will capitalise on these and other strengths to create further value for Victoria’s shareholders:
Several members of Victoria’s senior management know the division exceptionally well, having successfully managed it previously. Their knowledge and experience will be invaluable as the division is swiftly integrated into the Group.
Post-completion, Victoria’s Board expects to have a c.16 per cent market share of the UK broadloom carpet market and a little under 5% of the UK flooring market as a whole.
Consumer demand for carpet remains strong in the UK, where it is the dominant category of flooring with a largely unchanged market share of c.58%3 for the last 15 years. Over the last 12 months, the demand for flooring has primarily come from existing home owners redecorating.
The non-woven carpets business, which had 2020 revenues of €17.3 million ( £14.7 million), manufactures technical products for a wide variety of applications, including automotive, insulation, and carpet backing. It will continue to be managed by its managing director, Franky Viaene, and will be integrated in one of the existing Divisions.
Philippe Hamers, Group Chief Executive, Victoria PLC, said: “This selective acquisition of two highly complementary businesses will be significantly value creating for Victoria’s shareholders. The rugs division has been hugely successful over many years and there are very material operating synergies between the carpet division and Victoria’s existing business. These are both businesses that Victoria already knows extremely well.”
Cyrille Ragoucy, Chief Executive Officer, Balta Group NV, added: “I am pleased that we have reached this mutually beneficial agreement with Victoria plc. Our Rugs, Residential PP and Non-Woven businesses have found a new owner with a great operational fit. This transaction allows us to focus on our Commercial businesses in Europe and the United States and on our European Residential PA business by investing in sustainability and growth.”
Geoff Wilding, Executive Chairman, Victoria PLC, said: “Victoria has spent time building a high-quality operational management team with depth and commitment. They have been successful at increasing the operating margin of the Group’s UK carpet division from 5% to 18% through steady productivity gains and improved customer service. Consequently, Victoria’s management team are now laser-focussed on execution of our detailed plans for each of the recently announced acquisitions, and I am certain they will achieve similar gains as the businesses are integrated.”