Wednesday 22 June 2022

Scottish homebuilder Springfield Properties (AIM: SPR) has entered an agreement to acquire the Scottish housebuilding business of Mactaggart and Mickel Group Ltd, the company said.

Mickel Group has been delivering housing across the Central Belt of Scotland for almost 100 years.

The total consideration is GBP 46.3m (USD 56.77m), comprising GBP 10.5m cash paid on completion and a deferred cash consideration of GBP 35.8m to be paid proportionally as homes are sold over the next five years.

The acquisition will be funded from Springfield's internal resources and existing debt facilities with Bank of Scotland.

Under the terms of the acquisition, the group has acquired six live private and affordable sites with work in progress with a fair value of approximately 15m and fixed assets.

The group has also acquired a brand licence to build homes as Mactaggart and Mickel on a further 11 private and affordable sites, which will transfer to Springfield as homes are sold in line with the payments of the deferred consideration.

The total 17 sites, of which 16 have planning permission and equating to the delivery of c. 700 homes, have a gross development value of c. GBP 2 30m.

The group expects to generate gross margins on these sites materially in line with margins delivered by the rest of the group.

Springfield said it plans to retain all of Mactaggart and Mickel's housebuilding business employees.

The acquisition also includes Timber Systems, a timber frame factory near Glasgow.

The group already constructs 90% of its homes from timber kits and the addition of a second timber frame factory will secure kit supply and increase capacity for future growth while further reducing its carbon footprint. Springfield will retain all of Timber Systems' employees.

In addition, Springfield and Mactaggart and Mickel have established a strategic alliance with an agreement that gives Springfield opportunities for future acquisitions of sites from Mactaggart and Mickel's remaining land bank of approximately 2,300 acres across Scotland.

The housebuilding business of Mactaggart and Mickel is a premium brand housebuilder primarily targeting the larger private home market.

The land bank is in highly desirable locations within the Central Belt of Scotland, expanding the group's footprint in areas with a higher price point.

The payment of the deferred cash consideration is subject to an annual minimum payment of 7.7m from the second year following completion.

Each annual minimum payment will be reduced by any excess deferred consideration paid by the group over the annual minimum payment in the prior year. The group has the option to defer any year's minimum payment by 12 months.

The consideration for the acquisition will initially be satisfied from the group's existing cash and debt facilities and the deferred consideration will be paid proportionally as homes are completed. It will also partly utilise the group's existing uncommitted land purchase budget for the next five years.

The acquisition is expected to be earnings enhancing in the current year to 31 May 2023.