Metcash moves to take over Total Tools

by | Nov 15, 2023

Supermarket wholesaler Metcash will take full control of the Total Tools business. Metcash currently owns 85 per cent of the Total Tools chain but is acquiring the remaining 15 per cent for $101.5 million after the current owners of the minority stake exercised a put option.

Total Tools Chief Executive Paul Dumbrell will step down after more than five years in the position. He plans to stay until the end of April, before taking an extended break with his family, Metcash said, reported Inside Retail.

“Paul has played a key role in the growth of Total Tools and in the smooth and seamless transition to Metcash ownership. He is leaving the Total Tools business in great shape with a successful winning strategy and a strong leadership team,” said Metcash Group Chief Executive Officer Doug Jones.

An executive search has been launched to find a new Chief Executive Officer among internal and external candidates.

Total Tools is franchisor to the largest professional hardware chain in Australia and Metcash acquired its majority stake back in 2020. Since then it has delivered significant sales growth in the network, almost doubling turnover to $1.09 billion in 2023 from $585 million in the 2020 financial year. The store network also expanded from 81 sites to 112, with future plans to add around 10 stores a year.

Metcash’s Independent Hardware Group – which includes the Mitre 10 and Home Timber & Hardware brands – is Australia’s largest home improvement wholesaler, supplying more than 1500 stores.

The Financial Review reported E&P analyst Phil Kimber said the Total Tools purchase had been very successful for Metcash. “Given the challenges in forecasting the overall Total Tools business, we do not expect [consensus earnings] to change,” he said in a note to clients.

Metcash has a mix of independently owned and majority-owned joint venture Total Tools stores. Currently, there are 44 joint venture stores that have put-and-call option arrangements over their remaining ownership. Metcash is in talks with most of these stores on resetting the deal, which would result in Metcash buying further equity and deferring the put option in relation to their residual ownership for a further three to five years.

Barrenjoey analyst Tom Kierath estimates that all up Metcash will have paid $525 million for the Total Tools business, which has a healthy growth runway since it is aiming for 140 stores by 2026 and generates around $135 million of EBITDA – making it one of the better transactions in the consumer space.

Total Tools Traralgon

Metcash is set to release its first-half results on December 4. According to Mr Kierath, this could be a significant event for the company’s stock, as they will need to demonstrate earnings growth in an increasingly challenging retail market. Mr Kierath is predicting a 1.4 per cent increase in EBIT to $259 million, which is in contrast to the consensus estimates of a 3.6 per cent decline.

Mr Kierath added that greater disclosure on Total Tools and Metcash’s broader hardware business should build investor confidence in its growth outlook.