Perth-based equipment parts and servicing business Gateway Group has been partially acquired by surface engineering company LaserBond (ASX: LBL) in a move that strengthens the Company’s presence in Western Australia and opens doors to new market segments.
The acquisition, valued at 4.5 times Gateway’s EBITDA, involves a mix of cash and scrip. LaserBond will initially own 40% of equity interest in Gateway, with the option to increase its stake to 51% within three years. The purchase will include Gateway Parts & Services Pty Ltd and the business of Gateway Hydraulics & Hardchrome.
Chief Executive Officer and Executive Director, Wayne Hooper, said, “The Gateway acquisition significantly advances our aim for local facilities with local management servicing the needs of WA customers and affording them greater efficiencies with shorter lead times and closer operations.”
LaserBond uses advanced 3D printing to repair components, create products, and license their tech. They serve multiple industries like mining, focusing on R&D for new applications and improvements.
LaserBond’s business case and the decision to proceed with the acquisition rests on several important factors. First, Gateway’s strong network in WA complements LaserBond’s existing customer profile, providing access to new industries like mining and machinery. Secondly, combining LaserBond’s 3D printing expertise with Gateway’s parts and servicing capabilities creates a more comprehensive offering for WA customers.
Established over a decade ago, Gateway is a machinery parts supplier. The Gateway acquisition provides better access to a group of significant and particularly relevant sectors in the West in the context of LaserBond’s offering.
Hooper added, “The synergies between the two businesses are many, with the initial opportunity for our Services division. However, with a local presence, a strong brand and a large customer base, we’re confident that other opportunities will emerge for other areas of our business in the WA market.”
Considering Western Australia’s industry profile, the opportunities for its products, services and technologies are substantial. The production of minerals and metals, petroleum, chemicals and related products are the most significant contributors to gross state product, followed by machinery, equipment, and metal products.
Given the level of infrastructure these sectors require, construction is also a significant contributor, as is agriculture, all of which can benefit from LaserBond’s products, services, and technologies for specific purposes.
LaserBond will fund the cash component of the acquisition from internal resources, leaving approximately $4.8 million to support further growth activities and working capital requirements. The scrip component will comprise the issue of new shares which fall within LaserBond’s annual placement limits, and thus will not require additional shareholder approval. The acquisition is expected to be earnings per share accretive in its first year.
In FY23, Gateway Group reported $32.6 million in revenue with EBITDA of $5.6 million and net assets of $15.4 million. On the other hand, in H1 FY24, LaserBond reported declining earnings (9.1%) and NPAT (15.6%), even though revenue shot up by 8.7% to $20.2 million.
As a non-majority shareholder, and per accounting standard requirements, LaserBond’s share in the business will be equity accounted until it reaches the 51% ownership level agreed upon at the third anniversary of the initial settlement date. At that point, Gateway’s financial performance and position will be consolidated with that of LaserBond.
Going forward, LaserBond also has its sights on entering the North American market through a buy-side broker.
Alinda is a Business Reporter for The Sentiment
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