MRO distribution giant W.W. Grainger, Chicago, has a definitive agreement to acquire Cromwell Group (Holdings) Limited, together with its subsidiaries, for £310 million, (approximately $482 million) in cash. The transaction should be completed in early September.
Founded in 1970 and headquartered in Leicester, England, Cromwell is the largest independent MRO distributor in the United Kingdom, serving more than 35,000 industrial and manufacturing customers worldwide with more than 80,000 industrial products and employing more than 2,150 team members. Sales for the fiscal year ending August 31, 2015, are forecasted to be £283 million ($440 million) with the vast majority coming from the U.K.; EBITDA margins are expected to be approximately 10 percent.
The U.K. and Germany are two of the largest e-commerce markets in Europe, though adoption is lower than in the United States, Grainger said in a release. Grainger believes there is a compelling opportunity in the U.K. to grow its MRO online model, similar to what the company has already accomplished in Japan with MonotaRO and in the United States with Zoro. This acquisition will bring together Cromwell's product strength and customer relationships with Grainger's expertise in supply chain and e-commerce to accelerate growth in the core and online Cromwell business. Additionally, this acquisition will enable Grainger to profitably scale its single channel online business, Zoro Germany, which will benefit from access to a large portfolio of private label product sourced from Cromwell.
"We have demonstrated that when we have a broad product line and supply chain scale as we do in the United States, we can develop a profitable online model very quickly. Cromwell is a great company with an outstanding product offering, strong management team, and stable supply chain and will be a strong addition to Grainger," said Jim Ryan, Chairman, President and CEO, Grainger. "This transaction meets our criteria of identifying high growth potential opportunities that leverage Grainger's core strengths. Cromwell's solid foundation will enable us to accelerate the growth of the online model in Europe within the next six months. Over the next five years we expect sales growth from low single digits to approaching double digits, and EBITDA margins to improve from 10 percent to 15 percent. This acquisition will also accelerate the profitability of Zoro Germany."
Upon completion of the transaction, Grainger intends to operate Cromwell as a standalone business unit led by Kerins. The acquisition will be funded with debt both in the U.K. and the United States. The transaction will not affect Grainger's previously announced share repurchase plan.