Diploma, the specialised technical products and services provider, is to buy a US provider of rubber moulded and machined parts.
Diploma is paying a maximum of £11.8m in cash for J Royal from the current owners, who will stay on to run the business in their current roles. The business will fit into Diploma's North American seals business.
The initial consideration will be £10.4m but a further £1.1m could be paid depending on the performance of the business, while another £0.3m may be paid once the value of the assets of the acquired company has been finally determined. Gross assets at 31 December 2010 were £2.9m.
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J Royal's revenues in the year ended 31 December 2010 were £10.0m and reported profit before tax was £1.5m. Revenues in the year ending 31 December 2011 are expected to be around 10% higher than the year before.
The board expects the acquisition to be immediately earnings enhancing.
The previous owners of J Royal have also agreed to sell a 10% stake in Kunshan J. Royal Precision Products (JRRP), a company located near Shanghai, in China, which manufactures, primarily for J Royal, a range of products and assemblies that are complementary to J Royal's sealing products.
Diploma is paying £0.6m for the stake. As part of the transaction, exclusive distribution agreements were signed between JRPP, J Royal and Diploma's other North American seals businesses. Arrangements are also in place for Diploma to have first dibs on any future disposal of all or part of the remaining equity in JRPP.
"J Royal's strength in the Eastern States is a good fit with our existing businesses in the Mid-West and the West Coast. Our investment in JRPP and the exclusive distribution agreements secure a competitive supply source in China and open up further growth opportunities through our other Industrial OEM [original equipment manufacturers] businesses," said Bruce Thompson, chief executive of Diploma.
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