Reece taps the market for $600m

Plumbing group Reece is jumping ahead of the pipeline of companies lining up to tap the market for capital.

Reece chief executive Peter Wilson Picture: Aaron Francis

Plumbing group Reece is jumping ahead of the pipeline of companies lining up to tap the market for capital, and will seek to raise $600m to fortify its balance sheet so it can make deals from a position of strength as the corona­virus crisis passes.

Reece was founded one year after the Spanish Flu swept around the globe killing up to 50 million people, and the company today, like then, is positioning itself as an essential service provider based on the idea that clean and workable pipes are core to ensuring public sanitation.

Wrapped around this concept sold to investors on Monday was the slogan “Doctors cure. Plumbers prevent” — and Reece has seen a spike in its sales during March as consumers in Australia and the US repair pipes, seek plumbing work and install new water heaters.

Reece chief executive Peter Wilson told The Australian now was the right time to trigger the capital raising to provide Reece with maximum firepower to trade strongly through the health crisis and emerge at the other end with a strong balance sheet.

“This whole thing has moved really quickly,” Mr Wilson said.

“It is unprecedented what we are dealing with. There are lots of unknowns and, where we were coming from, as a business and a board, was to look to do this raising from a position of strength.

“We have a long history of being a conservatively run business and we felt this was the right time to get ahead of the curve. And essentially to do that, we are making sure we have got enough liquidity and cash flow for the business, so at the end of the raise we will have $950m from a total liquidity position — that really puts us in a strong position to withstand wherever it goes.

“We really want to fortify the business so we can take advantage of the opportunities that we know are going to arise, both during and after so that we can accelerate our strategy.”

A big favourite among fund managers but with traditionally tight liquidity, the second Reece capital raising in as many years is expected to be rushed by large and small shareholders — its $560m equity raising in 2018 to help pay for its acquisition of Morsco in the US was oversubscribed.

The Wilson family that controls Reece, which has a network of retail stores across Australia, New Zealand and two years ago moved into the US, will take up its allotted $170m worth of new shares to see its stake in the 100-year-old business fall to 67.7 per cent, from 73.3 per cent.

Reece is also conducting a fully underwritten three-for-55 entitlement offer to raise $232m and a fully underwritten $368m placement with equity raised at $7.60 a share against a closing price of $8.69 on Friday. A share purchase plan will allow existing Reece investors to apply for up to $30,000 in new shares. Reece shares went into a trading halt as the capital raising is run.

“It was only three weeks ago we were celebrating our 100-year anniversary,” Mr Wilson said. “It started in 1920 after the Spanish Flu epidemic had ripped through the world and at that time there was a campaign that the plumber protects the health of the nation. The importance of sanitation was important then, it is almost like history repeating itself.’’

During an investor presentation to sell the raising, Mr Wilson said trading in the US for March had been up on last year with sales of its water heaters, plumbing services and other essential repairs products selling well.

He said Reece would be strategic and prudent when it came to forging new deals when the pandemic ended, which could include growing its US business organically and via acquisitions.