ALS buys into oil, gas sector
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.
Frequently Asked Questions about this Article…
ALS agreed to buy the privately held Reservoir Group for about US$437 million (A$481 million). The cash component of the offer is estimated at US$386 million, and ALS is also paying A$18 million to acquire local oil and gas services group Earth Data.
ALS will partly fund the purchase with a one‑for‑11 renounceable rights issue priced at A$7.80 a share, expected to raise about A$246 million (a discount to the stock's last traded price of A$9.41). The remainder of the purchase will be debt funded. Existing shareholders who participate in the rights issue can avoid dilution, while those who don’t may see their holdings diluted.
Yes. ALS said the acquisition would be EPS accretive from fiscal 2014, meaning it expects the deal to increase earnings per share starting in that financial year.
ALS, formerly Campbell Bros, is expanding into oil and gas to provide a broader basket of services—management says a lab‑only offering isn’t enough in the sector. Reservoir also wanted a laboratory testing arm, which ALS will supply through three global bases, helping ALS diversify revenue and offset a slowdown in its traditional resource testing markets.
The purchase price is nearly twice Reservoir’s annual revenues of US$223 million. Reservoir reported EBITDA of US$55 million, which puts the deal at more than 11 times pretax earnings.
ALS confirmed a hit from the resource sector slowdown, flagging net profit for the six months to September of A$95 million to A$105 million, down about 26%. ALS said the acquisitions would contribute an initial amount of up to A$5 million to that period.
Key risks noted include the broader slowdown in resource and oil and gas sector spending (which has already hurt ALS), Reservoir itself having been affected by the downturn in North America (though activity has recently picked up), and the fact part of the purchase will be debt funded. Also, management of Reservoir will receive ALS shares for half of their 40% stake, with most of those shares escrowed for three years.
Reservoir generates about half its revenues in North America, giving ALS greater exposure to that market. Management first approached Reservoir about 18 months ago and began serious negotiations late last year, indicating this was a deliberate strategic move rather than an opportunistic deal.
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