Metcash Limited (Independent Hardware Group) set to acquire Total Tools

22/06/2020

Metcash (IHG) has entered the final stage of negotiations to acquire 70 per cent of Total Tools Holdings (TTH), for $57 million, with an option to acquire the remaining stake at a later date.

After a set of full-year earnings bolstered by COVID-19, the $2.9 billion retailer revealed its full-year accounts this morning, with overall revenue growing two per cent to $14.9 billion and an underlying profit after tax of $209.7 million.

TTH is the franchisor to the largest professional tool retail networks in Australia with 81 Total Tools-branded stores nationwide generating ~$555m in sales annually, IHG Chief Executive Officer, Annette Welsh, today revealed in a letter to IHG suppliers.

“The proposed acquisition will include the TTH franchisor operations and a company owned store in Moorabbin, Victoria. Consistent with IHG’s successful network strategy today, we would intend, over time, to adopt a mix of store ownership within TTH, including both independently owned and joint venture stores,” Ms Welsh recently outlined in the letter.

Ms Welsh also announced that the rationale for acquiring Total Tools is compelling because it:

  • Aligns with Metcash’s strategy to be the leading supplier to independents in each of its three pillars of food, liquor and hardware.
  • Enhances Metcash’s position in the Australian hardware market which will benefit independent retailers in both Total Tools and the Independent Hardware Group.
  • Increases Metcash’s exposure to trade customers.
  • Supports Total Tools’ vision to remain a leading professional tool retail network.
  • Strengthens both Metcash’s and Total Tools’ existing independent networks.
  • Results in significant value creation opportunities and synergies.

Metcash also announced that it can give no assurances as to whether the discussions will lead to a binding transaction, as the transaction is still subject to approval by the ACCC.

In the letter to suppliers Ms Welsh also pointed out that she expected suppliers to be contacted by the ACCC in regards to the transaction.

“The interests and values of IHG and TTH are closely aligned. We believe a successful transaction will enable our combined group to be stronger, more efficient, more competitive and better able to serve both businesses customers and communities. Our objective remains to continue to build successful independents and grow a vibrant independent hardware sector for the long term,” Ms Welsh said.

TTH operates in the commercial trade market, partnering with leading local and global brands of tools, accessories, consumables and specialist equipment, true to its motto ‘Every Tool, Every Trade’, Ms Welsh said. TTH has been operating for over 30 years servicing the professional trades market. 

The tool wars erupted late last year when Metcash began preparing an offer to acquire Total Tools and bid as part of an auction run by Miles Advisory, on behalf of the Total Tools franchisors, who each own five per cent or less of the retailer, according to an AFR report.

Metcash was up against a private equity firm at the time, with Metcash taking counsel from Luminis Partners. 

Total Tools was pitched to potential buyers as the country’s largest independent professional tools retailer, with earnings running at about $25 million a year. Interested parties were told the 30-year-old retailer, which includes its Total Tools Online Store, has more than 7000 products on hand and access to 60,000-plus products across Australia.