Mining services provider Macmahon Holdings Limited (ASX: MAH) is gearing up to acquire Western Australia-based construction company Decmil Group (ASX: DCG). The acquisition involves Macmahon purchasing 100% of Decmil’s issued share capital.
This acquisition aligns with Macmahon’s strategic focus on achieving continued earnings growth while diversifying into the less capital-intensive civil infrastructure business. The transaction offers a strategic fit, accelerates earnings diversification, and has compelling financial metrics for Macmahon shareholders.
Managing Director and CEO Michael Finnegan said, “The acquisition of Decmil is a significant milestone in Macmahon delivering on its long-stated strategy to diversify its earnings and deliver a more resilient, scalable business enabling greater returns to shareholders.
“Decmil provides an established, well-credentialed platform to allow Macmahon to better pursue the large opportunity pipeline of resource civil infrastructure and rehabilitation opportunities while diversifying earnings towards renewables and infrastructure, which are both expected to have an increased level of spending in the next decade.”
Decmil works on multidisciplinary projects across the infrastructure, resources, and renewable energy sectors. It also provides an established and scalable foundation to grow Macmahon’s civil infrastructure business, diversify earnings, and improve overall returns on invested capital.
On completion, Macmahon plans to operate Decmil as a wholly owned subsidiary and to maintain the Decmil branding, with the existing Macmahon civil business to integrate into the subsidiary. Decmil will continue to be led by its current Chief Executive Officer, Rod Heale.
Under the agreement, Decmil ordinary shareholders will receive $0.30 cash per share, representing an 81.9% premium over Decmil’s 30-day VWAP. Decmil RCPS (redeemable convertible preference share) holders will receive $0.343 cash per share, a 71.5% premium over the RCPS’s face value. The implied enterprise value for Decmil stands at $127 million.
Decmil’s operations complement Macmahon’s services by providing integrated civil construction and infrastructure solutions to Australia’s resources, infrastructure, and renewable industries. This acquisition increases Macmahon’s exposure to the renewable and government infrastructure sectors.
Macmahon specialises in both surface and underground mining across Australia and Southeast Asia. It aims to leverage Decmil’s processes and operating systems to accelerate growth towards its long-term civil infrastructure revenue target of $1 billion annually, representing one-third of group revenue. Decmil holds the licenses to carry out a full range of road and bridge projects throughout Australia.
The acquisition adds approximately $6 billion to Macmahon’s existing civil pipeline of $4 billion and contributes an order book of approximately $450 million. It also provides access to non-mining civil construction, broadening Macmahon’s presence along Australia’s east coast, including Victoria and Queensland, with an opportunity to expand into New South Wales and South Australia.
The transaction is expected to be earnings accretive (pre-cost and revenue synergies) due to Decmil’s anticipated improved earnings in its civil construction business. Funding for the acquisition will be sourced from cash reserves, including $44 million in proceeds from recently announced equipment sales and existing debt facilities.
This agreement is set to support Macmahon’s goal of exceeding its 20% return on average capital employed target, recently increased from 15%. The board of Decmil has unanimously recommended that Decmil shareholders vote in favour of the schemes, subject to an independent expert concluding that the schemes are in the best interests of Decmil shareholders.
Azure Capital and Highbury Partnership will act as joint financial advisers, and HWL Ebsworth will be Macmahon’s legal adviser.
Net debt at the end of FY25 is not expected to increase due to the acquisition.
Alinda is a Business Reporter for The Sentiment
Latest posts by Alinda Gupta (see all)
- Ovanti’s iSentric signs contracts worth $14.4m with Malaysian commercial bank - June 27, 2024
- Baby Bunting fights back from retail downturn with 5-year strategy, includes Gen-Z focus and self-funded growth - June 27, 2024
- CLEO meets with US FDA to develop strategy for ovarian cancer test launch - June 26, 2024
Leave a Comment
You must be logged in to post a comment.