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Investing.com -- Rentokil Initial Plc (LON:RTO) has agreed to sell its French workwear division to H.I.G. Capital for gross proceeds of €410 million, with net cash proceeds expected to be approximately €370 million.
Shares of the British company were up 1.4% at 04:00 ET (08:00 GMT).
The transaction, which is anticipated to close in the fourth quarter of 2025, includes a performance-based earn-out of $34 million tied to business results in 2026.
The sale aligns with Rentokil’s ongoing strategy to concentrate on its core operations in Pest Control and Hygiene.
The French Workwear unit accounts for around 5% of the group’s forecast EBITA for 2024.
According to analysts at Jefferies, the deal values the business at roughly 9.5x forecast EV/EBITA for 2025, which is broadly in line with their sum-of-the-parts estimates.
Morgan Stanley (NYSE:MS) analysts calculate the deal value at about 1.4x EV/sales and 8.2x EV/EBIT for 2024, comparing it with Elis, which currently trades at 2x sales and 12.5x EBIT.
Jefferies noted that the disposal helps to further sharpen Rentokil’s operational focus, increasing the group’s concentration in Pest Control to approximately 80%, up from 44% in 2015, with the remaining 20% in Hygiene and Wellbeing.
Morgan Stanley added that the move streamlines the business without affecting group operating margins but is expected to enhance cash generation, improving free cash flow conversion by about 100 basis points.
Rentokil plans to use the proceeds to reduce its leverage. Jefferies estimates the sale will bring down net debt by around 0.4x EBITDA to approximately 1.8x in fiscal 2025, while Morgan Stanley forecasts a smaller reduction of 0.2x to 2.3x.
The capital freed up from the sale will also lower Rentokil’s future capital expenditure and working capital needs, as the Workwear business had been more capital intensive than the group’s core operations.
While reports in late 2024 had suggested that a sale was under consideration, the announcement is not expected to surprise investors.
Both Jefferies and Morgan Stanley view the transaction as a positive step for Rentokil, citing its alignment with strategic priorities and its role in strengthening the company’s balance sheet and operational focus.