Melrose disposal

Melrose Industries, an engineering company that seeks to acquire businesses it understands, improve them by a mixture of investment and changed management focus, realise the value created and then return it to shareholders.  I have a holding in my income portfolio (epic code: MRO)

The company has signed a conditional agreement for the disposal of Truth Hardware to Tyman PLC. The total consideration of US$200m (£129m) is payable in cash on completion and is on a debt and cash free basis. For the year ended 31 December 2012, Truth recorded sales of US$126.0m, operating profit of US$18.6m and EBITDA of US$22.5m. Melrose intends to use the proceeds to pay down existing borrowings.  Truth was originally purchased as part of the FKI acquisition in 2008.  At 10.8x operating profit, this is a good price for a company that designs and manufactures products such as windows and patio doors for the residential housing market in the US.  The purchasers are probably betting on a recovery in the market.