Proposed Disposal of Nortek Air Management

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF EU REGULATION 596/2014, AS AMENDED (AS IT FORMS PART OF UK DOMESTIC LAW BY VIRTUE OF THE EUROPEAN UNION (WITHDRAWAL) ACT 2018).

FOR IMMEDIATE RELEASE

19 April 2021

MELROSE INDUSTRIES PLC

Proposed Disposal of Nortek Air Management for $3.625 billion

Melrose Industries PLC ("Melrose", the "Company" or the "Group") today announces that it has entered into an agreement to sell its Nortek Air Management business ("Air Management"), comprising the Nortek Global HVAC ("GHVAC") and Air Quality & Home Solutions ("AQH") segments, to Chicago-based Madison Industries for consideration of approximately £2.62 billion ($3.625 billion), payable in cash on completion, subject to certain adjustments (the "Disposal").

Key highlights of the Disposal:

·      Cash consideration of approximately £2.62 billion ($3.625 billion), subject to customary adjustments;

·      Implied sale multiple of 2.3 times 2020 revenue;

·      Implied sale multiple of 12.5 times 2020 Adjusted EBITDA;

·      Melrose intends to use part of the net proceeds to reduce debt and contribute approximately  £100 million to the GKN UK defined benefit pension schemes, which means that the funding deficit will have reduced from approximately £1 billion to approximately £200 million under Melrose ownership; and

·      A portion of the net proceeds will be returned to Shareholders.

Completion of the Disposal is expected to occur in the second or third quarter of 2021 and is conditional upon, amongst other things, shareholder approval. Further details in respect of the proposed return of capital will be announced by the Company within a short period following Completion.

Justin Dowley, Chairman of Melrose, today said:

"The Disposal demonstrates the strength of the Melrose strategy.  We bought Nortek, an underperforming group, which we felt had outstanding potential in 2016 for £2.2 billion ($2.8 billion). We have seen approximately $1 billion of cash inflows from the Nortek group during our ownership, effectively giving us an in-price of $1.8 billion. The businesses being sold today for £2.62 billion ($3.625 billion) represent 73%, by revenue, of the Nortek group and the returns are excellent. Our Ergotron and Nortek Control businesses which also form part of the Nortek group remain under our ownership and will be realised at an appropriate time."

Simon Peckham, Chief Executive of Melrose, today said:

"Our strategy of 'Buy, Improve, Sell' remains the same but circumstances evolve. Our businesses are all responding to the demands of climate change, driven by customers and consumers; Air Management's StatePoint Technology^® is a perfect example of this. On our watch, our Air Management executive team has created a business from scratch with exemplary environmental credentials which will make a real difference to energy and water consumption in its market.  We can now hand that technology to a high quality buyer with specialist aspirations and skills. 

We are continuing to show that it is possible to make great returns for shareholders, while looking after pensioners and answering the environmental demands of the modern world."

Successful execution of Melrose's strategy for Air Management

When acquiring Nortek, Inc. in 2016, the Melrose Board immediately removed the top layer of cost-intensive central management functions and empowered the operational and executive teams to transform their businesses from top to bottom.

Thereafter, Melrose worked with the operational teams to improve production processes, increase R&D, develop new products and build stronger customer relationships. Having identified substantial opportunities for incremental sales growth as well as the opportunity to materially improve the business's efficiency and profitability, Melrose then committed significant resources towards improving Air Management.

Melrose has achieved the following in respect of the Air Management business during its ownership:

·      In 2016 Melrose seed funded a new technology for the nascent StatePoint business, with an initial $2 million of start-up funding followed by approximately a further $75 million of investment;

·      The StatePoint Liquid Cooling technology for data centre cooling, has since added over $300 million in fully contracted future revenues with an impressive growth pipeline;

·      Almost doubled Air Management's Adjusted operating margin from approximately 8.6% to 15.3% through the implementation of operational best practices, and increased profits from £91 million to £188 million;

·      Implemented significant pricing controls, exited non-profitable businesses and reinvigorated

Air Management's salesforce to improve efficiency and drive growth; and

·      Streamlined its product portfolio, funded and accelerated new product development initiatives and realigned the business with key secular trends.

Principal terms and conditions of the Disposal

The consideration for the Disposal is based on an enterprise value of approximately $3.625 billion and is payable in cash on Completion, subject to limited customary adjustments.

Completion is conditional upon, amongst other things, customary antitrust approvals and the approval of the Shareholders at a General Meeting of Melrose Shareholders.

Melrose's strategy

The Disposal is in line with Melrose's established business model to buy good manufacturing businesses, improve their performance typically over a three to five-year investment horizon, sell a more profitable and a better cash generating asset to a new owner and return cash to Shareholders and other key stakeholders.

Melrose's focus has always been to unlock the value of underperforming but high quality manufacturing businesses through investment and to generate superior returns for its Shareholders. Since acquiring Nortek, Inc., Melrose has transformed Air Management into a streamlined, efficient business with excellent margins. Furthermore, in addition to representing a significant return for Melrose investors, the sale of Air Management allows the Company to focus on executing its improvement plans within its retained divisions, comprising the Aerospace, Automotive, Powder Metallurgy and Other Industrial segments.

A circular convening a General Meeting to consider and approve the Disposal is expected to be published and posted to shareholders shortly (the "Circular"). The Circular, when published, will be made available on Melrose's website (www.melroseplc.net) and will be submitted to the National Storage Mechanism and available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.

Baird and Citigroup Global Markets Inc. ("Citi") are acting as joint financial advisers, and Simpson Thacher & Bartlett LLP is acting as legal adviser, to Melrose in respect of the Disposal.

This announcement is released by Melrose and contains inside information for the purposes of Article 7 of EU Regulation 596/2014, as amended (as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018). The person responsible for arranging for the release of this announcement on behalf of the Company is Jonathon Crawford, Company Secretary.

Capitalised terms used but not defined in this announcement have the same meaning as defined in the Circular.

Enquiries:

Information on Air Management and Melrose

Air Management is a world leader in providing critical air management, thermal and HVAC solutions across broad commercial, residential and datacentre markets. Air Management comprises two operating segments: GHVAC and AQH, representing a range of world class products spanning custom and commercial air solutions for high-performance environments, residential and commercial HVAC and fresh air ventilation systems for homes. For the financial year ended 31 December 2020, Air Management generated £1,227 million of Adjusted revenue and £188 million of Adjusted operating profit (representing approximately 13% and 55% of Group Adjusted revenue and Adjusted operating profit respectively) and, as at 31 December 2020, had gross assets of £1,436 million (representing approximately 9% of Group gross assets).

Bruno Biasiotta (Chief Executive Officer of GHVAC), Michael Marcely (Chief Financial Officer of GHVAC), Frank Carroll (Chief Executive Officer of AQH) and Ryan Haines (Chief Financial Officer of AQH) are expected to remain with Air Management going forward, and will therefore exit Melrose as part of the Disposal.

Melrose buys good manufacturing businesses with strong fundamentals whose performance can be improved. Melrose finances its acquisitions using a low level of leverage, improves the businesses by a mixture of investment and changed management focus, sells them and returns the proceeds to shareholders. Melrose's shares are traded on the London Stock Exchange. For more news and information on Melrose, please visit www.melroseplc.net.

Disclaimers

Baird, which is authorised and regulated by the SEC in the United States is acting as financial adviser for Melrose and for no one else in connection with the matters described in this announcement and will not be responsible to anyone other than Melrose for providing the protections afforded to clients of Baird nor for providing advice in connection with the Disposal, or any other matters referred to in this announcement. Neither Baird nor any of its affiliates, directors or employees owes or accepts any duty, liability or responsibility whatsoever (whether direct or indirect, consequential, whether in contract, in tort, in delict, under statute or otherwise) to any person who is not a client of Baird in connection with this announcement, any statement contained herein, the Disposal or otherwise.

Citi, a broker-dealer registered with the U.S. Securities and Exchange Commission, is acting as financial adviser for Melrose and for no one else in connection with the matters described in this announcement and will not be responsible to anyone other than Melrose for providing advice in connection with the Disposal, or any other matters referred to in this announcement. Neither Citi nor any of its affiliates, directors or employees owes or accepts any duty, liability or responsibility whatsoever (whether direct or indirect, consequential, whether in contract, in tort, in delict, under statute or otherwise) to any person who is not a client of Citi in connection with this announcement, any statement contained herein, the Disposal or otherwise.

Investec Bank plc which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority in the United Kingdom, is acting exclusively for Melrose and for no one else in connection with the subject matter of this announcement and will not be responsible to anyone other than Melrose for providing the protections afforded to its clients or for providing advice in connection with the subject matter of this announcement.

This announcement contains certain ''forward looking statements'' including with respect to certain of the Melrose group's plans and its current goals and expectations relating to its future financial condition, performance, results, strategy and objectives. Statements containing the words ''believes'', ''intends'', ''should'', ''plans'', ''pursues'', ''seeks'' and ''anticipates'' (or negatives thereof), and variations thereof or words of similar meaning, are forward looking. By their nature, all forward looking statements involve assumptions, risk and uncertainty because they relate to future events and circumstances which are beyond Melrose's control including, among other things, the domestic and global economic and business conditions, market-related risks such as fluctuations in interest rates and exchange rates, and the performance of financial markets generally; the policies and actions of regulatory authorities, the impact of competition, inflation and deflation; the timing, impact and other uncertainties of future acquisitions or combinations within relevant industries and the impact of changes in capital, solvency or accounting standards, and tax and other legislation and any regulations in the jurisdictions in which Melrose and its affiliates operate. As a result, Melrose's actual future financial condition, performance and results may differ materially from the plans, goals and expectations set forth in the forward looking statements and no assurances can be given that the forward looking statements in this announcement will be realised.

Any forward looking statements made herein speak only as of the date they are made. Except as required by the Financial Conduct Authority, the London Stock Exchange or any other applicable law or regulation, Melrose expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward looking statements contained in this announcement to reflect any change in Melrose's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.