Nortek, owner of leading security, home automation, audio/video and ventilation brands, is being acquired by turnaround specialists Melrose Industries, Plc (AIM: MRO), a UK-based ‘investment vehicle’ with a history of buying industrial-products manufacturers, slashing overhead and re-selling the businesses within two to three years.

Nortek shareholders will receive $86 per share in cash – a 38% increase above Tuesday’s closing price—in this reverse-merger. The transaction is valued at $1.4 billion, with an overall enterprise value of $2.8 billion including the assumption of debt. MRO shares jumped 25% on the news.

With annual revenues of about $2.5 billion, Nortek owns leading ventilation brands incuding Broan and Nutone, as well as the mass-market security and home automation company 2Gig. In addition, Nortek owns a slate of audio, video and control companies under the Core Brands umbrella. Those brands, sold through home-technology specialists, include Elan Home Systems, Gefen, SpeakerCraft, Niles, Panamax and Xantech.

Melrose was founded in 2003 with a £13 million listing on AIM, the London Stock Exchange’s international market for smaller companies. The company has bought and sold several companies since then under its ‘buy, improve, sell’ model, touting an average return to investors of 22% per deal.

Currently, Melrose owns just one company, Brush Turbogenerators, reportedly the world’s largest independent manufacturer of electricity-generating equipment for the power generation, industrial, oil & gas and offshore sectors. Brush generates about $350 million in revenues.

Changes Ahead for Nortek

Melrose says its “focus is to acquire high quality industrial manufacturing businesses with strong fundamentals whose performance can benefit from a change in circumstances.”

The company prides itself on reducing overhead to repackage its properties for sale, suggesting significant ‘efficiencies’ ahead for Nortek.

According to Melrose, its strategy involves ‘incentivising management teams’ to improve profits ‘through a combination of overhead reduction and gross margin expansion’.

At the same time, Melrose typically infuses about one-third of the original purchase price into its acquired businesses through ‘targeted investments’.

The company claims it improves operating margins by five to nine percentage points on average before selling portfolio companies.

The acquisition by Melrose follows the non-acquisition of Nortek by competitor United Technologies Corp. Rumoured merger talks between the two companies ended late last year.

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