Agreement to acquire 100% of Stonebridge Homes
Outstanding 50% stake to be acquired from JV partner in a three tranche structure over five years
Henry Boot (or the “group”) announces that it is to take full ownership of premium regional housebuilder Stonebridge Homes Group Ltd (“Stonebridge”) having exchanged contracts to acquire the 50% share it does not own from its JV partner (the “Transaction”). The Transaction allows Henry Boot to ultimately own 100% of a high growth business.
The Transaction is structured to complete in three tranches over the next five years with the total purchase price linked to the performance of Stonebridge over this period and is in line with the group’s strategy to focus on high quality land, prime property development and premium homes.
Tim Roberts, Chief Executive Officer, Henry Boot, commented: “This transaction represents an important strategic milestone for Henry Boot, allowing us to acquire full ownership of a high growth builder of premium residential homes that we already know well through our existing 50% share in the business. The acquisition of Stonebridge also further cements our position in the U.K. house-building sector, a market which currently benefits from a number of supportive structural and political tailwinds, while at the same time simplifies Henry Boot’s structure. The consideration is performance linked, and the phased structure is designed to generate strong returns whilst maintaining gearing within our optimum range of 10-20%. All of this gives us confidence that this transaction will help drive enhanced shareholder value over the medium term and will be a significant part of our plans for growth.”
Strategic rationale for the acquisition
Stonebridge is a high growth U.K. multi regional housebuilder which is currently focussed on delivering premium homes in Yorkshire and the North-East. The business has grown significantly since it was founded in 2010, increasing output by an average 25% p.a. over the past ten years. In addition, in the five years ending 31 December 2023, both revenue and operating profit more than doubled, reaching £94.4m and £5.9m, respectively. In 2023 Stonebridge completed 251 homes and has a medium term target of delivering up to 600 new homes annually.
This Transaction aligns with Henry Boot’s strategy of focusing on high quality land, prime property development and premium homes. The board believes the Transaction is in the best interests of Henry Boot shareholders as a whole and expects the Transaction to create significant shareholder value for the following reasons:
Opportunity to increase exposure in the U.K. residential market, which benefits from strong structural trends:
· The U.K. residential market is driven by positive long term trends, such as population growth and the Government’s new target to build 1.5m new homes over the next five years, with improvements to the planning system being implemented to help achieve that goal.
· According to Nationwide, house prices were up 1.9% across England in Q3 2024 compared with the same period last year. In particular, Northern England, where Stonebridge is focussed, continues to outperform Southern England with prices up 3.1% year-on-year.
· Current sentiment in the housing market is beginning to improve with monthly mortgage approvals in October running at their highest level for more than two years.
· In the medium term, Savills is forecasting average house prices to increase by 23% over the next five years with Northern regions and the Midlands expected to continue to outperform the South.
Compelling opportunity to increase ownership of what is now a high growth business:
· The group set out a medium-term strategy in 2021 to grow capital employed to £500m, with Stonebridge having already been identified as an area of substantial expansion to help achieve this target.
· Stonebridge has shown significant growth since it was established and particularly in the last five years during which time both its gross assets and operating profit have grown by around 400% and 113%, respectively.
· In 2022 Stonebridge expanded its operations into a second region, with the aspiration of growing into a third region, the North Midlands, over the next 12 months, where sites are already in the process of being secured.
· In line with its medium term target of selling 600 homes annually, the business expects to deliver 275 homes this year representing a 10% increase from the prior year despite challenging market conditions, with a total current orderbook of £20m.
Accretive financial returns, with full benefit of operational gearing as the business grows:
· The Transaction is expected to be accretive to group ROCE and will enhance earnings over the medium term.
· Henry Boot’s balance sheet provides a strong platform to fund and accelerate Stonebridge’s growth and improve returns.
· Phased payments will benefit the group’s net debt and in turn enhance returns, with the group’s medium term gearing target remaining within the stated optimal range of 10-20%.
· Performance linked consideration spread over multiple periods to help returns, support growth and manage cash flow, as well as group borrowings.
· There will also be cost synergies achieved by being a wholly owned subsidiary.
Transaction structure
The Transaction will be undertaken in three tranches over the next five years, with anticipated fixed payments totalling £30m and additional payments linked to Stonebridge’s performance as follows:
· The first tranche is expected to be completed in January 2025, and will see the group acquiring 12.5% of Stonebridge for a fixed price of £10m, resulting in a majority shareholding of 62.5% of Stonebridge;
· A second tranche to acquire a further 12.5% is expected to complete in January 2026, with consideration payable in FY26 and FY27; and
· A third and final tranche to acquire the remaining 25% is expected to complete in January 2030, with consideration payable in FY30 and FY31.
The purchase price is linked to a multiple of 1.6x tangible gross asset value (“TGAV”) of Stonebridge at the time each tranche is completed. More details on the Transaction structure and consideration is set out in Appendix 3 to this announcement.
Related Party Transaction
Stonebridge Projects Ltd (SP) is the JV partner selling its entire 50% shareholding in Stonebridge. SP is a related party of Henry Boot pursuant to UKLR 8.1.11R(2)(b)(i) by virtue of being controlled by Mr Darren Stubbs, a director of Stonebridge, which is a subsidiary undertaking of Henry Boot.
The board of Henry Boot, which has been so advised by Peel Hunt, acting in its capacity as Sponsor, considers that the terms of the Transaction are fair and reasonable as far as Henry Boot shareholders are concerned. In giving its advice, Peel Hunt has taken account of the Board’s commercial assessment of the Transaction. The Transaction also constitutes a significant transaction under UKLR 7.3.1R.
Further information relating to the Transaction is set out in the Appendices to this announcement.
Certain information contained in this announcement would have constituted inside information (as defined by Article 7 of Regulation (EU) No 596/2014), as it forms part of domestic law by virtue of the European Union (Withdrawal) Act 2018) (“MAR”) prior to its release as part of this announcement and is disclosed in accordance with the Company’s obligations under Article 17 of those Regulations.
Enquiries:
Henry Boot PLC
Tim Roberts, Chief Executive Officer
Darren Littlewood, Chief Financial Officer
Daniel Boot, Senior Corporate Communications Manager
07825 088807
Tel: 0114 255 5444
www.henryboot.co.uk
Peel Hunt LLP
Joint Corporate Broker and Sponsor
Ed Allsopp/Pete Mackie
Tel: 0207 418 8900
Deutsche Numis
Joint Corporate Broker
Ben Stoop/Thomas Philpott
Tel: 0207 260 1000
FTI Consulting
Financial PR
Giles Barrie/Richard Sunderland
07894 797067 / 07798 926814
Tel: 020 3727 1000
henryboot@fticonsulting.com