Melrose targets big acquisition as it relaunches Nortek sale process

Melrose, the industrial buyout specialist, is shaping up to make a large acquisition within a year as it relaunches the sale process for its $3.5bn US air conditioning business after a pandemic-induced delay.

Simon Peckham, chief executive of the FTSE 100 group, said on Thursday it was hoping to make its move as early as the end of 2021, despite warning against a recovery in its civil aviation business this year.

“We are an acquisitive vehicle. The time is not quite ready,” he said. “We are looking at another major acquisition in nine, 12 months.”

Melrose, which bought GKN for £8bn in 2018 in an acrimonious takeover, had considered selling Nortek Air Management at the beginning of 2020, but those plans got pushed back due to the coronavirus crisis.

On Thursday it confirmed the relaunch of the sale process, which Bloomberg first reported.

Nortek makes air conditioners and products to improve air quality. Its sales rose 5 per cent last year, helped by growing zeal for cleaner air during the pandemic, and accounted for 14 per cent of Melrose’s 2020 revenues.

Peckham highlighted a £2m investment into its product that reduces water and power use at data centres and its 50 per cent share in the US market for bathroom fans as its respective “sexy business” and “hidden gem”.

The FT previously reported that US industrial conglomerate United Technologies and Ireland-based Johnson Controls were interested in buying the business.

All we can do is deal with the reality we inherit

Melrose came under fire in January after plans showed GKN would close its automotive parts site in Erdington, a suburb of Birmingham, affecting 519 jobs.

Jack Dromey, the MP for that region, said the move went against promises made by the company during the GKN takeover bid to make it a “British manufacturing powerhouse”.

Peckham defended the decision, saying that the previous management had decided to focus the EV operations outside Britain and 40 per cent of automotive manufacturing would disappear “naturally” from Erdington as consumers and carmakers go electric.

“All we can do is deal with the reality we inherit,” he said, adding that the shift to electric was positive for GKN but “it’s not a good thing for everywhere”.

Melrose’s vow to make a big acquisition came as it, along with sector rival Meggitt, a components supplier, revealed the devastating impact coronavirus has exerted on its aerospace business.

The group said there had been no recovery in demand for its parts used in civil aerospace manufacturing, with those sales falling more than a quarter last year compared with 2019.

That led it to post a £535m statutory pre-tax loss in the year ending December, reversed from a £106m pre-tax profit a year earlier, on revenues that slipped from almost £11bn to £8.8bn over the year.

Peckham said fly-by-the-hour revenues would return quickly when air travel resumes, but new aircraft orders would take longer to pick up and environmental concerns would put further pressure on a rebound.

Meggitt reported on Thursday a pre-tax loss of £334m, compared with pre-tax profit of £287m the year before.

Tony Wood, chief executive of the Coventry-based group, said despite the expected recovery in air traffic being delayed by the rise in virus mutations, it was now underpinned by evidence of the global vaccine rollout.