Renew beefs up rail business with £7m deal

Renews new chief executive Paul Scott said the acquisition of Giffen means it can offer an expanded range of services across the rail network
Renews new chief executive Paul Scott said the acquisition of Giffen means it can offer an expanded range of services across the rail network
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Engineering services company Renew Holdings​ ​has bought a railway services business​ ​in a £7m deal​ that will strengthen its links with national rail operators.

Leeds-based ​​Renew has paid £5m to buy​ ​Giffen Holdings and a further £2m is being paid​ ​to redeem loans from Giffen’s private equity owners.

Giffen specialises in mechanical, electrical and power services within the railway sector and works for​ ​Network Rail​, ​London Underground and a number of train ​o​perating ​​companies.

Giffen has four frameworks with Network Rail and six frameworks with London Underground.

​The firm​ is a direct delivery organisation, employing 123 staff and skilled operatives.

Following the acquisition, Giffen, whose entire management team is remaining with the company, will report into Amco Rail, Renew’s rail infrastructure business.

For the year ​to September ​30​, Giffen is expected to record revenue of a​round £22m and an adjusted ​pre-tax ​profit of £​700,000.

The whole consideration will be paid from Renew’s existing cash resources. At completion, Giffen had a cash balance of less than £75​,000.

​Renew’s new chief executive Paul Scott said the ​acquisition of Giffen’s ​complementary skills ​means Amco Rail will be able to offer an expanded range of services across the rail network as well as creating opportunities for the ​g​roup to provide services to London Underground.

A​nalyst Nick Spoliar at WH Ireland said: “Renew’s acquisition of Giffen Holdings, a specialist in mechanical,​ ​electrical and power services in the rail context, caused us to upgrade our forecasts​ ​by 4​ per cent​ and our target price from 450p to 470p correspondingly.​“

​He said the deal is “extremely complementary​“​ and​ ​represents no departure from R​enew​’s previous successful model.

​It also opens​ ​up access to contracts which were previously barred to R​enew on account of its​ ​previous lack of these specialist power skills in its core rail maintenance​ ​business​. Mr Spoliar described this as ​a major plus.

​“​The first acquisition under the new CEO, and only the second from private equity since the AMCO deal, we view this as a reminder of the qualities which have enabled the company to progress through good times and bad in the past decade. Buy,” added Mr Spoliar.

​Analyst Howard Seymour at Numis added: “We have argued for some time that the Renew business model has enabled double-digit organic growth in predictable and key non-discretionary infrastructure markets, while the strong balance sheet will provide funding for complementary earnings enhancing acquisitions.

“The acquisition of Giffen provides clear evidence of this and we upgrade our estimates by 4 per cent for the current year to take account of what looks to be a very sensible and timely acquisition to expand Renew’s existing Rail operations.

“Post acquisition Renew remains in a net cash position and we therefore believe both organic and acquisitive potential remains significant.​“

Earlier this month Renew ​reported growth in revenue and profit for the year to September 30 and said full year results will be in line with market expectations​.

​​Renew’s new CEO Paul Scott replaced the highly respected Brian May​, who retired as chief executive earlier this month.

At the time the group said: “The board would like to thank Brian for his outstanding leadership of Renew over the last 11 years, during which he transformed the group from a loss making building contractor into a leading business in engineering services and delivered an increase in market capitalisation from £17m to £229m without recourse to equity financing.”

Mr Scott is not expected to alter the strategic direction or business model of the group, which has enabled it to grown 13-fold over 11 years.