Reece Group – Acquisition of MORSCO (REH)

Although I haven’t written about Reece before, the acquisition of MORSCO, announced today, prompted me to write about this amazing company, of which I have been a shareholder for the past 12 months.

Most Australians have heard of Reece Group, but most of us won’t appreciate how significant they are as a company: $5B market cap, with FY17 revenues of $2.4B and 600 stores across ANZ.  Reece are a significant company.

The Wilson Family have controlled Reece for over 50 years, and own nearly 80% of the shares.  It is Wilson owned and Wilson run, with Peter Wilson having run the business for the past decade and grown the business significantly over that period.

Today they announced a capital raise to help fund the acquisition of MORSCO, a plumbing and HVAC distributor based in Fort Worth, TX, and spread across the Southern United States, a rapidly growing region of the USA.

Reece would actually be the perfect acquisition for Berkshire Hathaway to deploy some of their excess cash – they are sizeable enough to be worth pursuing, and have extremely competent management with an ownership mindset of the business and a wide, wide moat. Maybe the expansion into America will put Reece on Warren Buffett’s radar?

While the acquisition cost of 14.4x EBITDA seems very high, I will freely admit that I know nothing about distributing toilets and air conditioners, but if it’s good enough for the Wilson family to make this acquisition, that’s all I need to know.

It goes without saying that I will be taking up the rights offer, and am excited to witness this great leap forward for a home-grown Australian icon.

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