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Allegion to Buy Australian Residential Door Hardware Leader

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Allegion plc (ALLE - Free Report) recently inked an agreement to acquire GWA Group Limited’s Door and Access Systems Business, thereby bolstering its presence in Australia as well as the Asia-Pacific region as a whole. The transaction, valued at AUD 107 million, is expected to close in the third quarter of 2018.

Buyout Benefits

The acquisition is expected to enhance Allegion’s residential presence with market-leading brands, while accelerating its electronic security solutions’ development. GWA’s Door and Access Systems Business, which recorded sales of approximately AUD 95 million in 2017, comprises well-known Australian brands such as Gainsborough Hardware and API Locksmiths.

Notably, Gainsborough, the market-leading residential door hardware brand in the country, includes the country’s top entrance door lock. On the other hand, API Locksmiths serves the commercial market with its keying, installation and access control services across the country.

With the close of the acquisition, GWA’s Door and Access Systems Business will operate in Allegion’s Asia-Pacific region. Excluding merger and acquisition costs, the company expects the deal to be slightly accretive to adjusted EPS in 2018.

Allegion’s Strong Inorganic Drive

Allegion, the global leader of security solutions/products manufacturing, has been exceptionally active in the acquisition space. The security products industry is highly fragmented, particularly in the developing markets and involves the use of emerging technology products that employ newer technologies. This creates numerous opportunities to broaden its product portfolio as well as geographic footprint, and enhance its position in the strategic market segments through buyouts. In 2017, acquisitions contributed 1.4% to revenue growth of 7.6%. In the first quarter of 2018, the company’s buyouts contributed 4.7% to the overall growth.

In March 2018, Allegion acquired the manufacturer of high-performance interior and healthcare door systems — Aurora Systems, Inc. (AD Systems). In February, the company acquired one of Middle East’s largest manufacturers of commercial steel and wood doors and frames, Qatar Metal Industries. With the addition of Qatar Metal, Allegion will be able to expand its code-compliant products to include doors in the Middle Eastern market. In January, Allegion acquired the leading North American manufacturer of advanced fire-rated entrance and wall systems, Technical Glass Products or TGP, which is expected to enhance the company’s core product lines.

Notably, Allegion’s inorganic drive has helped it to perform well in the industry, as is evident with its share price performance. The company’s shares have outperformed its industry so far this year.

Also, Allegion’s earnings have trumped estimates in three of the trailing four quarters. The Zacks Rank #3 (Hold) company is expected to sustain the momentum driven by acquisitions, its focus on innovation and solid footprint in the emerging markets.

Meanwhile, a gradually recovering U.S. housing market bodes well. Allegion has wide exposure in the U.S. residential sector, especially in the commercial and residential construction and remodeling markets, and its revenues are expected to increase with the gradual strength in the housing market and consumer spending patterns.



 

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