(Reuters) - Britain's Melrose Industries (MRON.L) has agreed to buy U.S. ventilation and home security products maker Nortek NTK.O for $2.81 billion, including debt, in a bet on the U.S. construction market.
Shares in Melrose, an engineering turnaround specialist that buys firms with the aim of selling them at a profit, rose as much as 42 percent to a record 580.5 pence, as the news ended investors' almost year-long wait for it to announce a deal.
Some analysts said the deal could be part of an emerging trend for European companies to make acquisitions in the United States, as Britain's decision to quit the European Union unsettles markets closer to home and Asian economies falter.
"The more uncertainty and weakness there is in Europe, the more attractive the U.S. is going to look. Brexit is one more reason that the U.S. looks relatively good to European firms," said Jeffrey Nassof, director at Freeman Consulting Services, an investment-banking consultant.
Melrose has been scouting for an acquisition since it sold its utility consumption metering business last year, leaving it with only one business, Brush - a maker of electricity generating equipment that gets over half of its revenue from Europe.
Negotiations with Nortek kicked off in March and the deal was set to be announced by the end of June, soon after the UK referendum on EU membership, said a source close to Melrose.
"Melrose had to take stock of the referendum's outcome and wait for markets to settle down," the source said. "Nortek generates the bulk of its revenues in dollars and remains an attractive opportunity for Melrose."
Nortek made 90 percent of its 2015 revenue in North America. According to Melrose, the deal comes against a backdrop of "key U.S. economic indicators pointing to continued momentum in construction".
Although U.S. construction spending recorded its biggest decline in more than five years in April, that contrasted with an upwardly revised jump in March and fairly strong data on industrial production and housing which have bolstered views the U.S. economy is regaining speed.
Nortek, whose products are in 80 percent of U.S. homes, said earlier it expected 2016 net sales in constant currency to grow.
Company valuations are vulnerable to concerns that Brexit could trigger a UK recession, and wider economic fallout.
The Nortek deal has an equity value of $1.44 billion, which Melrose is funding by a rights issue of new shares to raise about 1.6 billion pounds ($2.1 billion), and new debt.
At 1725 GMT, Nortek's shares were up 38.9 percent at $86.75 on the Nasdaq, trading just above Melrose's cash offer of $86 and at their highest in over 10 months.
Two analysts said another player may counter bid for Nortek. The Wall Street Journal reported last year that United Technologies Corp (UTX.N) was briefly interested.
"Melrose is an unusual example of post-Brexit M&A. Only the brave can pull off deals in this environment," said the source close to Melrose.
"Some investors are prepared to take on more risk because they have cash to deploy but it's challenging to find a business proposition that still works. The economic impact of Brexit is still unclear," he said.
Melrose said its focus would be to improve the Nortek business.
Finance Director Geoffrey Martin said Melrose would consider increasing investment in automation and new machinery for Nortek's manufacturing facilities and seeking complementary acquisitions.
It will also reduce the debt burden on Nortek, which had filed for bankruptcy in 2009 to eliminate $1.3 billion in debt and emerged from Chapter 11 protection in 2010.
Nortek shareholders holding a combined 68.7 percent in the company have already backed Melrose's offer, which Nortek's board intends to recommend.
JPMorgan was financial adviser, bookrunner and global coordinator to Melrose. Nomura International and Bank of America Merrill Lynch also advised Melrose on the deal. Barclays and Citi advised Nortek.
Reporting by Esha Vaish in Bengaluru; additional reporting by Pamela Barbaglia, Ankit Ajmera, Freya Berry and Arno Schuetze; Editing by Sunil Nair, Ruth Pitchford and Mark Potter