At a time when the Australian resources industry is booming thanks to strong commodity markets, mining services provider SSH Group (ASX: SSH) has expanded its service offering in the Pilbara region with the savvy acquisition of Karratha Machinery Hire under attractive terms to shareholders.
Established in 1989 and a 100% locally grown business, Karratha Machinery Hire specialises in mobile plant, earthmoving equipment and mine site compliant vehicles which can be hired on a long or short term basis. The business has grown to service a range of Tier 1 clients in the Pilbara region across the mining, construction, and civil sectors with an equipment asset value of more than $10 million.
Located in the epicentre of the Pilbara mining region, SSH will acquire 100% of Karratha as part of its plans to expand its equipment hire division which has been in high demand from existing clients, accelerated by a bevy of new mining projects commencing in the region seeking to capitalise on high commodity prices.
“The transformational acquisition of Karratha Machinery Hire (“KMH”) represents a highly synergistic and earnings accretive acquisition that is in line with our stated intention to acquire quality businesses with strong foundations,” said SSH Group Managing Director, Daniel Cowley-Cooper.
“Not only will the acquisition represent an immediate improvement to the revenues and profits of the SSH Group, we also expect to generate significant synergies from the ability to offer our existing clients and those of KMH with a complete and holistic offering of services that should lead to increased margins and revenue.”
Across FY21, Karratha generated $6.3 million in revenue which delivered very healthy margins with unaudited EBITDA of $3.8 million.
Comparatively, SSH generated $70.5 million in revenue for $2.4m EBITDA.
On a pro-forma basis, the combined entity would have a combined $76.8m revenue and $6.2m EBITDA on a pro forma basis.
Total consideration for the earning accretive acquisition will be $15m, consisting of an upfront $10.5m cash payment which will be funded via equipment financing facilities.
The remaining $4.5m will be payable over the next six months in the form of $3.375m in cash and $1.125m in SSH shares.
Most attractive to shareholders will be the fact that the cash components will be funded entirely from finance and existing cash flows while the shares component ensures minimal dilution for the attractive acquisition at a 3.9x EBITDA multiple.
“As part of the transaction, we insisted on receiving shares in SSH to participate in the upside we believe will be achieved from SSH Group’s People, Safety and Equipment divisions,” said Karratha Machinery Hire Founder and Director, Phil Patterson.
Alfred Chan is a Business Reporter at The Sentiment specialising in ASX-listed small cap companies, a bloodstock enthusiast and former equities analyst.
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