Published Date: 2021-10-13 | Source: INCE|Community | Author: The Finance Ghost
A bolt-on acquisition is a deal that adds a relatively small business to a large group, slotting straight into one of the existing segments. This is the least-risky strategy for inorganic growth, which is a fancy term for growth through acquisitions.
A perfect example is the latest deal by Murray & Roberts (M&R), in which Clough North America (a subsidiary of M&R) will acquire all the shares in J.J. White Incorporated.
The target is a privately owned business in Pennsylvania that specialises in industrial maintenance and related construction services. It has a 100-year history and is licensed to deliver its services in 22 states, so this is a serious business. The in-house fabrication facility designs and fabricates American Petroleum Institute oil storage tanks.
This acquisition falls into the Energy, Resources and Infrastructure platform within M&R. Clough will be able to tap into J.J. White's customer base to provide engineering, procurement and construction services across the US.
The maximum deal value is USD28,25 million, of which USD5,75 million is deferred. Of that, USD2,25 million is an earnout structure over a three-year period and the remainder appears to be a guaranteed payment at a date in the future.
An average earnings before interest, tax, depreciation and amortisation (EBITDA) of USD5,1 million was achieved over the last four financial years. The SENS announcement doesn't refer to any debt in the business, so it looks like the EV/EBITDA multiple was around 5.5x provided the full earnout is achieved by the sellers.
Interestingly, the tangible net asset value is only USD12,2 million, with a further USD16 million recognised for intangible assets. This would suggest that M&R is paying book value for the company, although I'm not sure if the USD16 million of intangibles already takes into account the goodwill that M&R is paying. Confirming this wouldn't make any difference to the deal economics.
Technical accounting debates aside, M&R is continuing down its path of executing a platform strategy with interesting international businesses. This seems like a modest deal multiple for a US business with a long history and it's great to see the positive momentum continuing in this group.