Diploma PLC announces acquisition of Peerless Aerospace Fastener to bolster aerospace fastener distribution

Diploma PLC, an international value-add distribution group, has recently unveiled its plan to acquire Peerless Aerospace Fastener LLC, a leading distributor of specialty aerospace fasteners in the US and European markets, for approximately £236 million ($300 million). This significant transaction is poised to enhance Diploma’s foothold in the aerospace fastener sector, with completion anticipated in the coming weeks pending customary regulatory approvals.

The acquisition is seen as a high-quality addition to Diploma’s portfolio, bringing Peerless’s esteemed reputation for quality products, swift market delivery, and value-added customer service into Diploma’s fold. Peerless boasts a remarkable track record of organic growth, approximately 9%, and impressive operating margins around 30%. This move is expected to complement Diploma’s established presence in the aerospace fasteners market, extending its capabilities from aircraft cabin to airframe fasteners, and accelerating growth by expanding its reach in the US and key European markets.

Peerless, founded in 1952 and headquartered in Farmingdale, NY, is recognized as one of the largest independent value-added distributors of aerospace fasteners. It serves about 80 subcontractors to principal Original Equipment Manufacturers (OEMs), showcasing strong organic growth potential in a fragmented market. With this acquisition, Diploma aims to further penetrate developed geographies, expand its product range, and explore cross-selling opportunities between Peerless and Clarendon, Diploma’s existing business in the sector.

From a financial perspective, the acquisition carries an attractive valuation of approximately 7x FY24 EBIT and is expected to be immediately accretive to Diploma’s growth, operating margin, and deliver an 8% EPS accretion in the first year. The aerospace fasteners market, worth around $7 billion, presents a structurally growing end market with a significant backlog for commercial aircraft manufacturing, underpinning sustainable long-term market growth.

The acquisition not only aligns with Diploma’s strategy for quality compounding through high-quality, scalable business investments but also offers substantial financial returns. Peerless has reported a long-term organic revenue CAGR of about 9%, with EBIT margins around 30%, underlining its financial strength and the strategic fit within Diploma’s growth strategy.

Diploma has prepared for this acquisition through recent financial restructuring, including a £555 million Revolving Credit Facility and a €250 million debut US Private Placement. The initial payment for Peerless will be approximately £228 million in cash, with a contingent future payment based on FY27 performance. This acquisition is anticipated to maintain Diploma’s strong balance sheet, with year-end leverage expected around 1.3x, and sustain a robust ROATCE of about 18%, consistent with FY23 performance.

Johnny Thomson, Chief Executive of Diploma, expressed his enthusiasm for the acquisition, highlighting Peerless’s strong market reputation and the synergistic potential with Diploma’s existing businesses. The acquisition is expected to further Diploma’s track record of fostering organic growth and delivering sustainable quality compounding.