Forge looks to round out with bolt-ons

With the downturn in resources spending gathering pace, mid-size operator Forge Group is moving to take advantage of the cycle by becoming a consolidator.

By InvestSMART · 30 Aug 2013

By InvestSMART ·
30 Aug 2013

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With the downturn in resources spending gathering pace, mid-size operator Forge Group is moving to take advantage of the cycle by becoming a consolidator.

Run by David Simpson, a former senior executive with UGL, Forge is bedding down one recent purchase and is on the prowl for more.

"We're looking for one or two bolt-ons, and then something bigger," Mr Simpson said. "There are good consolidation opportunities."

From its base in Western Australia, Forge plans to boost its presence on the east coast, as well as extend in the US, where it recently bought Taggart Global, which operates in the power sector.

In particular, Forge is keen to take advantage of its strong balance sheet to snare a larger player with weaker finances, so it can bulk up more quickly.

Forge also looks to organic expansion in areas adjacent to its existing operations, such as power transmission, water, coal seam gas and government-related work.

This in part is aimed at building up the maintenance side of the business, which would lift recurring revenue streams and help offset the lumpy one-off projects on the engineering side of the business.

In the year to June, Forge's pre-tax profit of $90.1 million came on revenue of $1.05 billion.

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Frequently Asked Questions about this Article…

What is Forge Group’s current strategy and why should investors care?

Forge Group is pursuing a consolidation strategy, using acquisitions (one or two bolt-ons and then something bigger) to grow. Management sees opportunities from a downturn in resources spending and is using its strong balance sheet to buy weaker players. For investors, this strategy aims to drive faster scale and diversification across services and geographies.

Why is Forge looking to make bolt-on acquisitions now?

With resources spending weakening, Forge sees good consolidation opportunities. The company is looking to buy bolt-on businesses to quickly bulk up, especially targets with weaker finances that can be absorbed using Forge’s strong balance sheet.

Which recent acquisition has Forge completed and what does it add?

Forge recently bought Taggart Global in the US, which operates in the power sector. That purchase helps Forge extend its presence in the US and expand its capabilities in power-related work.

Where is Forge aiming to expand geographically through acquisitions?

Forge plans to boost its presence on Australia’s east coast and extend further in the United States, building on its base in Western Australia and the recent Taggart Global acquisition.

What kinds of businesses or sectors is Forge targeting for organic expansion and bolt-ons?

Forge is targeting areas adjacent to its existing operations, including power transmission, water, coal seam gas and government-related work. These areas support its aim to build recurring maintenance work alongside engineering projects.

How will focusing on maintenance work affect Forge’s revenue profile?

Forge aims to build up the maintenance side of the business to lift recurring revenue streams. That recurring income is intended to help offset the lumpy, one-off nature of engineering project revenue and make overall earnings more predictable.

What recent financial results did Forge report that investors should know?

For the year to June, Forge reported a pre-tax profit of $90.1 million on revenue of $1.05 billion, reflecting its scale and recent performance as it pursues expansion and acquisitions.

Who is leading Forge and what is his background?

Forge is run by David Simpson, a former senior executive with UGL. His industry experience is guiding the company’s consolidation and expansion strategy.