Methven, the tapware maker, will buy its Chinese manufacturer for as much as US$10 million, which it says will improve margins and profits.
Auckland-based Methven agreed to buy Heshan, Guangdong province-based Invention Sanitary for four times the manufacturer's profit in the 12 months ending June 30, 2014, up to a maximum of US$8 million before potential earn-outs, the company said in a statement.
Methven is exercising its right to buy the business after founder Hui Zhuang decided to retire. The businesses are closely aligned after Zhuang set up Invention Sanitary 12 years ago exclusively to supply Methven-designed tapware and valve products.
"Our partnership with Invention Sanitary has been a key contributor to the expansion and success of Methven's proprietary tapware ranges," Methven chief executive Rick Fala said. "The acquisition of Invention Sanitary is value accretive and will provide additional profits to fund further investment in research and development and international market growth initiatives as well as underpinning future dividends."
Shares in Methven rose 2.4 per cent to $1.30, having dropped 7.3 per cent this year.
The payment to Zhuang consists of US$4 million in cash, funded by existing bank facilities, and as much as US$4 million in new shares, which must be retained for two years, Methven said. Additional payments of as much as US$1 million will be made should earnings exceed targets in 2015 and 2016, the company said.
A Methven appointed general manager will be assimilated into the Chinese unit, with Zhuang retaining overall responsibility for the performance of the business, reporting to the Methven chief executive, for two years until June 2015 when he will retire, the company said.