Diploma PLC : Acquisition of J Royal Co. Inc. in the US and a minority shareholding in related Chinese supplier

13 December 2011

Diploma PLC, the international group of businesses supplying specialised technical products and services, is pleased to announce the acquisition of the business, assets and goodwill of J Royal Co. Inc. ("J Royal") for a maximum of £11.8m (US$18.4m) in cash, together with the purchase of a 10% shareholding in Kunshan J. Royal Precision Products Inc. ("JRPP"), a related Chinese supplier for £0.6m (US$1.0m).

Purchase of J Royal

J Royal is a well developed and long established supplier of seals, O-rings and custom rubber moulded and machined parts to a range of industrial OEM customers. J Royal employs ca. 25 staff at its principal locations in Clemmons NC, Barrington RI and Tallassee AL.

This acquisition is a very good fit with the other Industrial OEM distributors within Diploma's North American seals business. J Royal's strong established presence in the Eastern States will be very complementary with the businesses of RT Dygert in the Mid-West and All Seals on the West Coast of the US.

J Royal was jointly owned by Mr R Vroom (President) and Mrs S Xiao (Vice President), who are also the majority shareholders in JRPP. Following the acquisition, both individuals will remain with the business in their current roles and will focus on expanding the customer base of J Royal and developing the sales of JRPP's products through Diploma's existing Industrial OEM seal businesses.

J Royal's revenues in the year ended 31 December 2010 were £10.0m (US$15.6m) and reported profit before tax was £1.5m (US$2.3m). Revenues in the year ending 31 December 2011 are expected to be ca. 10% ahead of the previous year. Gross assets at 31 December 2010 were £2.9m (US$4.6m). 

The initial cash consideration for J Royal will be £10.4m (US$16.3m), which will be met from the Group's existing resources.  Deferred consideration of up to a maximum of £1.1m (US$1.7m), may be payable in 2012, depending on the 2011 profit out-turn of J Royal. An amount of up to £0.3m (US$0.4m) may also be payable based on the net assets at completion.  

The Board expects this acquisition to be immediately earnings enhancing for the Group.

Purchase of minority shareholding in JRPP

Diploma PLC has also signed contracts to purchase, for consideration of £0.6m (US$1.0m) in cash, a 10% shareholding in JRPP from Mr R Vroom and Mrs S Xiao, who remain the majority shareholders. JRPP is located in Kunshan, near Shanghai in China and manufactures, primarily for J Royal, a range of products and assemblies that are complementary to J Royal's sealing products. JRPP's product manufacturing capabilities include machined components, glass lenses, stampings and injection moulded plastics.

As part of this 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 PLC to have pre-emptive rights to participate in any future disposal of all or part of the remaining equity in JRPP.

The JRPP transaction will formally close when the required approvals have been received from various statutory bodies in China.

Bruce Thompson, Chief Executive of Diploma PLC said:

NOTE TO EDITORS:

Diploma PLC is an international group of businesses supplying specialised technical products and services to the Life Sciences, Seals and Controls industries.

Diploma's businesses are focussed on supplying essential products and services which are funded by the customers' operating rather than their capital budgets, providing recurring income and stable revenue growth.

Our businesses design their individual business models to closely meet the requirements of their customers, offering a blend of high quality customer service, deep technical support and value adding activities. By supplying essentialsolutions, not just products, we build strong long term relationships with our customers and suppliers, which support attractive and sustainable margins.

Finally we encourage an entrepreneurial culture in our businesses through our decentralised management structure. We want our managers to feel that they have the freedom to run their own businesses, while being able to draw on the support and resources of a larger group.  These essential values ensure that decisions are made close to the customer and that the businesses are agile and responsive to changes in the market and the competitive environment.

The Group employs ca. 900 employees and its principal operating businesses are located in the UK, Germany, US and Canada.

Over the last five years, the Group has grown adjusted earnings per share at an average of ca. 19% p.a. through a combination of organic growth and acquisitions.  Diploma is a member of the FTSE 250 with a market capitalisation of ca. £375m.

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