Imdex acquires WA manufacturer for $12m

16/10/2008 - 10:50

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Mining services company Imdex Ltd is set to acquire Western Australian manufacturer Australian Drilling Specialities for $12 million in cash and scrip.

Mining services company Imdex Ltd is set to acquire Western Australian manufacturer Australian Drilling Specialities for $12 million in cash and scrip.

Both companies have signed a heads of agreement with Imdex to pay $6 million in cash and issue 5.45 million of shares at $1.10 each for the acquisition.

The acquisition is subject to due diligence.

Shares in Imdex fell 7.5 cents or 9.7 per cent to 69.5c at 13:49 AEDT.

 

Below is the full announcement:

 


Imdex Limited (Imdex) has executed a Heads of Agreement to acquire all shares in WA-based drilling fluids and chemicals manufacturer Australian Drilling Specialities (ADS).

The total cost of the transaction is $12 million and will be satisfied by the payment of $6 million in cash and the issue of 5.45 million Imdex shares at an issue price of $1.10 per share.

The ADS business is a dedicated manufacturer for the Imdex Group subsidiary Australian Mud Company (AMC) and gives Imdex greater control over the manufacturing process. ADS owns the formulations and intellectual property for the manufactured products and the acquisition is consistent with Imdex's strategy of owning intellectual property rights, wherever possible.

Imdex Limited Managing Director Bernie Ridgeway said that despite market volatility Imdex was still well placed to continue growth through acquisitions.

"Imdex's strong cash position enables us to look for companies that keep us on the growth path, " Mr Ridgeway said.

"Imdex has a long standing relationship with ADS so we know this acquisition will deliver operational efficiencies, growth opportunities and be immediately earnings accretive".

ADS owns the technology rights for the polymer plant being constructed at Samchem's premises in South Africa. Given that Imdex will acquire ownership rights to the technology, Imdex will be positioned to construct additional polymer plants in strategic locations to service other markets globally.

The acquisition of ADS complements our existing Drilling Fluids and Chemicals operations and will deliver additional growth opportunities in key market segments, as well as enhanced product and service delivery opportunities for customers.

Mr Ridgeway said Imdex was delighted to have ADS General Manager, John Knox, as part of the Imdex team.

"Mr Knox's specialist knowledge in oil based drilling fluids for the oil & gas industry, strengthens our push into the Caspian Sea region and in other niche markets where oil based drilling fluids are widely used."

The acquisition of ADS:

1. is complementary to the current Imdex drilling fluids & chemicals business and gives Imdex greater ownership and control over the manufacturing of its products;

2. provides good growth opportunities, particularly in relation to manufacture and supply of polymer products globally and is consistent with Imdex's expansion strategy;

3. will enable Imdex to provide oil based drilling fluids and chemicals to the oil & gas industry and continues our strategy of expanding the oil & gas business of Imdex;

4. shifts IP ownership from ADS to Imdex as all of the product formulations are included in the transaction;

5. increases Imdex's margins on the basis that ADS is Imdex's dedicated manufacturer in Australia; and

6. is reasonably priced in relation to earnings, being a six times multiple of actual pre tax earnings for the 12 months ended 30 June 2008.

ADS manufactures a range of drilling fluids and chemicals for the mining industry and is AMC's exclusive supplier.

ADS was formed in 1987, with the aim of supplying high quality products to the mining industry. Sales and profitability have been increasing year on year and for the year ended 30 June 2008 revenue was approximately $10 million producing pre-tax earnings in the order of $2 million.

The ordinary shares issued as vendor consideration will be held in voluntary escrow for two years from the date of issue.

The transaction is scheduled to be effective 1 January 2009 with settlement planned during January 2009.

Conditions Precedent

Conditions precedent to the acquisition of ADS include:

1. due diligence on all aspects of ADS to the satisfaction of Imdex in its sole discretion;

2. negotiation and execution of a definitive share sale agreement; and

3. Mr John Knox signing a consultancy contract with ADS as General Manager, the terms of which will require Mr Knox to be employed by ADS for a period of two years with an option, by mutual agreement, to extend that period for a further three years.

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