ALS buys into oil, gas sector
More than two years after it flagged a move into the oil and gas sector, laboratory testing group ALS, formerly known as Campbell Bros, has agreed to pay $US437 million ($481 million) for the privately held Reservoir Group, with the acquisition to help offset an earnings slowdown.
The cash component of the offer is an estimated $US386 million, since management of Reservoir is receiving ALS shares for half of their 40 per cent equity in the company, which will be mostly escrowed for three years.
The purchase will be funded partly through a one-for-11 rights issue priced at $7.80 a share, a handy discount to its last traded share price of $9.41, which will raise $246 million, with the rest of the purchase to be debt funded. The acquisition would be earnings per share accretive from fiscal 2014, ALS said.
Managing director Greg Kilmister said an initial approach to acquire Reservoir 18 months ago was rebuffed, with negotiations beginning in earnest late last year.
"This is not an opportunistic acquisition," he said. "In the oil and gas sector, you can't be a one-show pony ... you need to provide a basket of services, and a lab-only offering is not enough."
Reservoir had been looking to add a laboratory testing arm, with the service to be offered by ALS through three bases globally.
The purchase is at a multiple of nearly twice Reservoir's annual revenues of $US223 million, with earnings before interest, tax, depreciation and amortisation of $US55 million, which puts the deal on a multiple of more than 11 times pretax earnings.
ALS also confirmed investor fears that it has been hit hard by the slowdown in resource sector spending, flagging a six months to September net profit of $95 million to $105 million, down 26 per cent.
This is after including an initial contribution of up to $5 million from the acquisitions outlined to investors. ALS said markets for geochemical and coal services were "challenging".
Reservoir generates half of its revenues in North America, and has not been immune to the downturn in oil and gas sector spending there, although activity has begun to pick up more recently.
Along with the purchase of Reservoir, ALS is to pay $18 million for local group Earth Data, which also services the oil and gas sector.
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