Lab testing group moves into oil and gas sector
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.
Frequently Asked Questions about this Article…
ALS has agreed to buy the privately held Reservoir Group for about US$437 million (around A$476 million). The deal price reflects the full consideration ALS will pay to acquire Reservoir’s oil and gas services business.
ALS will partly fund the purchase with a 1‑for‑11 rights issue priced at A$7.80 a share (a discount to its last traded price of A$9.41), which is expected to raise about A$246 million. The remainder of the acquisition price will be funded with debt.
Reservoir management will receive ALS shares for half of its 40% equity stake in Reservoir, which reduces the cash component of the offer to an estimated US$386 million. Those ALS shares will be mostly escrowed for three years.
Yes. ALS said the acquisition would be earnings per share (EPS) accretive from fiscal 2014, meaning the deal is expected to increase ALS’s EPS once integrated.
ALS says the purchase helps it move further into the oil and gas sector and build a broader ‘basket of services’ beyond lab-only offerings. Reservoir had also been seeking to add a laboratory testing arm, which ALS will provide through three global bases.
The purchase is nearly two times Reservoir’s annual revenues of US$223 million. With reported EBITDA of US$55 million, the deal sits at more than 11‑times pretax earnings, indicating a relatively high acquisition multiple.
ALS said markets for geochemical and coal services were ‘challenging’: geochemical sample volumes in North America were down by about one‑third and there was pressure on pricing, while coal division revenue had also declined as the market tightened.
ALS’s managing director Greg Kilmister said the acquisition was not opportunistic. An initial approach to buy Reservoir about 18 months earlier was rebuffed, with serious negotiations beginning late last year before the agreement.
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