Diploma Share Price Rallied 13.3% on £236M Peerless Acquisition

Diploma PLC's (LON: DPLM) share price rallied 13.3% after the company announced the proposed acquisition of Peerless Aerospace Fastener LLC (Peerless). The company shared news of its pending acquisition of Peerless, a preeminent distributor specialising in aerospace fasteners for the US and European markets, for approximately £236 million ($300 million). 

Diploma PLC, a leading distributor with global reach in value-added distribution, is poised to complete the acquisition in the forthcoming weeks, pending the usual regulatory approvals.

Peerless stands out as one of the premier independent distributors in the aerospace fastener sector. It is renowned for its exceptional quality, comprehensive product range, swift market delivery, and superior value-add customer service. These strengths have fueled a consistent organic growth rate of around 9%, alongside impressive operating margins of about 30%.

The acquisition strategically augments Diploma’s strong position in the aerospace fastener industry, enhancing capabilities from aircraft cabin components to airframe fastening solutions. 

It promises to accelerate organic growth by broadening Diploma's footprint in the US market with an enriched product offering and deepening market penetration in key European territories.

The acquisition price of approximately £236 million represents a valuation multiple of around 7x FY24 EBIT, with an expected first-year return on average tangible common equity (ROATCE) of 15%, significantly surpassing the Group's cost of capital. 

The move is projected to immediately contribute to Diploma's growth, improve operating margins, and deliver an 8% earnings per share (EPS) increase in the first year of ownership.

The aerospace fastener market, valued at around $7 billion, is notably fragmented and presents specialised, critical components essential to aircraft manufacturing. With an estimated 1 million fasteners needed per aircraft, accounting for up to 5% of the total build value, and a current backlog exceeding 10 years for commercial aircraft production, the sector shows robust long-term growth potential.

Diploma’s Clarendon business, already a performer in this domain with double-digit growth, finds a strong complement in Peerless, enhancing the overall product suite and market reach. Over the past five years, Diploma has invested approximately £1 billion in acquiring 37 businesses, yielding an average ROATCE of 16% and growing while maintaining fiscal discipline.

The acquisition will be funded with an initial payment of about £228 million in cash, with a subsequent performance-based payment to management. Diploma’s balance sheet is projected to remain robust post-acquisition, with leverage around 1.3x. 

Diploma share price. 

The Diploma share price surged 13.33% to trade at 3868.0p from Tuesday’s closing price of 3413.0p.