I know Steelcase (NYSE: SCS ) isn't the most popular stock these days. Furniture makers in the home furniture industry -- La-Z-Boy (NYSE: LZB ) , Hooker (Nasdaq: HOFT ) , Stanley (Nasdaq: STLY ) and Bassett (Nasdaq: BSET ) -- are all sick with the "sluggish retail conditions" flu. So investors tend to sneeze when they look at Steelcase and see that it, too, is in the furniture biz.
That said, like 59 other investors, I have rated Steelcase a likely outperformer on Motley Fool CAPS. I like the company. And with this afternoon's news that Steelcase bought Chinese furniture maker Ultra Group Company Limited, I like Steelcase even more.
They bought what?
Ultra Group. OK, I know you've never heard of it. I've come across the name only a handful of times in the past few years myself. Here's a quick primer on Steelcase's new Sino-subsidiary, courtesy of the press release: "One of the leading office furniture manufacturers in China ... Ultra manufactures and sells a wide offering of seating, desks, systems and storage products for the Chinese and broader Asian market. Ultra's fiscal 2007 year sales revenue was approximately US$38.4 million."
Focus on that number for a moment, because it's the key to why this is such a good deal for Steelcase. The buyer paid $13.28 million to capture a revenue stream nearly three times as large -- a 0.34 price-to-sales ratio (P/S), in industry parlance. Steelcase itself, in contrast, commands a P/S of 0.77, so right there you see that if the Chinese prize were half as profitable as Steelcase, the buyer would still get a fairly good deal.
Now, Steelcase didn't bother to tell us how profitable Ultra is. Fortunately, the Fool's data provider, Capital IQ, can fill us in. According to the data source, Ultra is actually more profitable. Over the last 12 months, Ultra posted an operating profit of $2.1 million on $40.8 million, which works out to a 5.1% operating margin. Steelcase gets 4.9%.
It's anyone's guess why the market is down on the news, but the acquisition certainly warrants a closer look at the company.
Now that you've met the acquir-ee, learn more about the acquirer here:
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