Melrose to sell air conditioning unit to Madison for $3.6bn

Industrial buyout specialist Melrose Industries has agreed to sell its US air conditioning business to Madison Industries for about $3.6bn in an all-cash deal.

The price paid by the Chicago-based private industrial group for Nortek Air Management exceeds the value expected by analysts and the $2.8bn paid by the FTSE 100 group in 2016 when it bought the business. Melrose received about $1bn of cash inflow during ownership.

The London-based group intends to use the proceeds to reduce net debt, contribute £100m to GKN UK’s pension scheme and provide a payout to shareholders, the company said on Monday.

Simon Peckham, Melrose chief executive, told the Financial Times last month that it was hoping to use the proceeds from the sale to make a large acquisition as early as the end of this year.

Melrose stripped out central management functions and invested in new products at Nortek to help improve its profitability. It had considered selling the business at the start of 2020 but the sale was delayed due to the coronavirus pandemic.

“The disposal demonstrates the strength of the Melrose strategy. We bought Nortek, an underperforming group, which we felt had outstanding potential in 2016,” said Justin Dowley, chair of Melrose. “The businesses being sold today for $3.625bn represent 73 per cent, by revenue, of the Nortek group and the returns are excellent.”

Melrose retains ownership of Ergotron, a designer of ergonomic products, and Nortek Control, an automation and home security company, both acquired as part of the Nortek group.