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Plush buy: The Nick Scali (ASX:NCK) share price is going nuts

The Nick Scali Limited (ASX: NCK) share price has soared higher by around 10% after revealing the acquisition of Plush-Think Sofas.

Nick Scali buys Plush

Plush is a leading Australian sofa retailer with 46 showrooms across Australia. It’s buying this business for $103 million, on a cash free and debt free basis.

Plush is a very sizeable business. In FY20 it generated $111 million of revenue and made $10 million of underlying EBITDA (EBITDA explained).

In FY21 it grew strongly – Plush achieved $160 million and underlying EBITDA of $27 million in the last financial year.

Why is this deal being done?

Management believe the acquisition will strengthen Nick Scali’s position as a leading sofa retailer across Australia and New Zealand.

The company points out that the two businesses have highly complementary product offerings and business models. There are opportunities for further growth, including a new store roll out for both brands in Australia and New Zealand.

This combined business will be able to target a broader customer demographic.

Management also said that it’s a strong strategic fit expected to deliver material synergies to the combined business after a two-year integration period, excluding one-off implementation costs.

It’s expected to add to profit/earnings per share (EPS) in the first full year of ownership before realisation of potential business synergies (which are expected after the integration).

After the deal is complete, the combined business will have 108 showrooms across Australia and New Zealand. In FY21, the combined business would have made $533 million of revenue and $153 million of underlying EBITDA.

Summary thoughts about Nick Scali and the share price

Nick Scali shares have reacted positively to this announcement, and it’s no surprise – this seems like a good deal.

I think Nick Scali has more potential than some investors give it credit for. A growing showroom network gives it stronger scale benefits and more local markets to reach. The potential high-margin growth of the online segment is very promising.

In my opinion, Nick Scali is one of the ASX dividend shares to watch.

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At the time of publishing, Jaz does not have a financial or commercial interest in any of the companies mentioned.
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