More than two years after it signalled a move into the oil and gas sector, laboratory testing group ALS, formerly Campbell Bros, has agreed to pay $US437 million ($476 million) for the privately held Reservoir Group 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 its 40 per cent equity in the company, which will be mostly escrowed for three years.
The purchase will be funded partly through a 1-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 remainder 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 buy 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 on a laboratory testing arm, with this service to be offered by ALS through three bases globally.
The purchase is at a multiple of nearly two times 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 said markets for geochemical and coal services were "challenging", with geochemical sample volumes down by a third in North America, along with pressure on pricing. Coal division revenue had also declined, it said, as the market continued to tighten.