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(Sharecast News) - React Group, a specialist in cleaning and soft facilities management services, announced the acquisition of 24hr Aquaflow Services, a drainage and plumbing services provider based in London and the South East, on Monday.
The AIM-traded company said the acquisition, made through its subsidiary React SC Holdings, was valued at up to £7.4m on a debt-free and cash-free basis.
It said it aimed to enhance its service offering and client base through this strategic acquisition.
Aquaflow, established more than 20 years ago, was described as a profitable and cash-generative business with a focus on blocked drainage, leaking pipework, planned preventative maintenance, and reactive callouts.
With a strong track record, 79% of its business was repeatable, and 43% came from planned preventative maintenance.
The majority of its customer base - over 95% - consisted of facilities management clients, many of which would be new to React.
In the year ended 30 April, Aquaflow reported unaudited revenue of £6.1m, gross profit of £3.4m, and adjusted EBITDA of £1.2m.
The management team, including the founders, would remain with the business following the acquisition.
React said the acquisition was expected to be immediately accretive, enhancing its earnings per share by an estimated 31% in its first full year of consolidation to 30 September 2026.
The deal would also strengthen its service offerings, providing complementary drainage and plumbing services in demand by existing facilities management customers.
It said the move was anticipated to drive organic growth, particularly in London and the South East.
The total consideration of £7.4m included an initial payment of £5m, with a performance-based contingent consideration of up to £2.4m based on EBITDA performance criteria.
React said the initial payment comprised £4m in cash, funded by a new debt facility from HSBC and its existing resources, with an additional £0.48m due in June next year.
The vendors of Aquaflow would also receive 617,283 shares in React, which would be locked in for three years, followed by a 12-month orderly market period.
In conjunction with the acquisition, React proposed a placing of up to 1,358,025 new shares, aiming to raise £1.1m at 81p per share.
The board said the proceeds would provide additional working capital for the company.
Trading for the year ended 30 September was said to have been robust, with revenue expected to rise by around 5.6% to £20.7m, and gross profit projected to reach £5.7m, up from £5.2m the prior year.
Adjusted EBITDA was anticipated to be at least £2.4m - an improvement from £2.3m in the prior financial year.
"We are delighted to welcome Sherry Mundy, Paul Mundy, Neil Holmes and the Aquaflow team into the React group," said chief executive officer Shaun Doak.
"Over the last 20 years they have established a very strong reputation for consistently delivering high-quality services and solutions greatly valued by customers.
"The acquisition is expected to be immediately earnings enhancing and contribute significantly to the future profitability of the group."
Doak said it was React's third acquisition, adding that it further demonstrated the company's stated inorganic growth strategy.
"We are excited by the opportunities that lie ahead as we continue to invest in profitable growth and offer our complementary services across the broadening customer base of the enlarged business."
At 1454 GMT, shares in React Group were up 1.42% at 82.15p.
Reporting by Josh White for Sharecast.com.