Burswood-based Otraco International Pty Ltd has been acquired by engineering services group Downer EDI Ltd.
Burswood-based Otraco International Pty Ltd has been acquired by engineering services group Downer EDI Ltd.
Otraco, a global leader in tyre and rim management for the mining sector, will form part of Downer EDI's mining arm, the Roche Mining Group.
In its announcement released today, Downer EDI believes the acquisition of Otraco completed the investment strategy for Roche Mining's move to a full mining service provider, offering an expanded range of mine management products and related services.
Otraco was founded more than 30 years ago by Basil Winterbourn and has approximately 200 employees across Australia, Canada, Chile and Brazil.
Downer EDI has also completed the acquisition of Australian pavement and road surfacing company Emoleum and UK-based DMQA Ltd.
In addition, Downer EDI proposes to raise $125 million of ordinary equity through an institutional placement.
Below is Downer EDI's edited announcement:
Summary
Engineering services group, Downer EDI Limited (Downer EDI), has completed the
acquisition of Emoleum and invested in two further bolt-on acquisitions in its Mining and Infrastructure divisions.
In addition, Downer EDI proposes to raise $125 million of ordinary equity through an institutional placement and implement a Share Purchase Plan (SPP) for existing shareholders.
Acquisitions update
In the first quarter of 2006, Downer EDI completed the acquisition of the Emoleum business from Rinker and ExxonMobil that was announced in December 2005.
Emoleum is an Australian pavement and road surfacing company with a national road maintenance footprint and long-term contracts for road services in place in all states.
Managing Director, Stephen Gillies, said the combined operations of Emoleum and
Works Infrastructure provide Downer EDI with the largest road business in Australia.
"This acquisition completes the Works Infrastructure platform in Australia as we look to replicate the success of the New Zealand business. When integrated with the existing Australian operations there are significant opportunities to expand revenues and generate higher margins in the Australian road business. We would expect revenue of the combined Works Infrastructure business (in Australia and NZ) to grow to $1.5 billion in 2 years," Mr Gillies said.
In addition to the acquisition of Emoleum, Downer EDI has also invested in two further bolt-on acquisitions, Otraco Pty Ltd (Otraco) and DMQA Ltd (DMQA).
The acquisition of Otraco completes the investment strategy for Roche Mining's move to a full mining service provider, offering an expanded range of mine management products and related services.
Otraco was privately owned and is the leading global supplier of earth mover tyre maintenance and consulting services, offering significant operational synergies with Roche Mining and Snowden Consulting. It will also provide Roche Mining with further leverage to the strong growth being experienced in the resources sector globally.
Based in Western Australia, Otraco has a major presence in Australia and permanent operations in Brazil and Canada. Otraco's operations extend through South America with significant growth opportunities available to replicate its successful business model.
In addition to the domestic businesses of Emoleum and Otraco, the Company's first European based acquisition was completed with the purchase of DMQA, a privately owned business based in Rotherham, England, with operations in York and Hull.
DMQA has two main divisions in the United Kingdom servicing a number of blue chip companies. The operations include: DMQA Rail, specialising in trackside maintenance and renewals; and DMQA Utilities, primarily undertaking projects with roading and water authorities.
Managing Director, Stephen Gillies, said that the acquisition of DMQA was a logical move for Downer EDI, broadening the Company's jurisdictional presence to leverage the consulting and maintenance business models offshore.
"Our total investment in these three recent acquisitions (Emoleum, Otraco and DMQA), to facilitate further growth, is expected to be $180 million.
"These three businesses will provide minimal earnings contribution to Downer EDI in FY06 given the timing of the acquisitions and costs associated with acquisition and integration. In FY07, we expect these acquisitions to deliver sales revenue of approximately $500 million and contribute at least $30 million in EBIT as the benefits of integration and further investment begin to flow through.
"Downer EDI has a history of successfully acquiring, integrating and strengthening businesses that can deliver sustainable earnings growth. We are confident that these acquisitions will be no exception as we embark on the next stage of the Company's growth," Mr Gillies said.
"Moving forward our focus in the short-term is to further develop our consulting business in Australia," Mr Gillies said.
Capital raising
Downer EDI proposes to raise $125 million of ordinary equity through an institutional placement, which will be conducted by way of a global bookbuild to Australian and offshore institutions.
In addition, following the placement, Downer EDI proposes to make a further pool of shares available to all Australian and New Zealand shareholders under an SPP. Further details of the SPP offer will be released following completion of the placement. Additional equity raised under the SPP may be capped.
Shares issued pursuant to the institutional placement and SPP will rank equally with existing ordinary shares on issue.
The proceeds of the capital raising will be used to strengthen the balance sheet following the completion and funding of the recent acquisitions of Emoleum, Otraco and DMQA.
By completing the proposed placement, Downer EDI will be able to maintain gearing (net debt to equity) within the Company's target range (of 42% to 66%) and close to its preferred gearing level of 50%. Any additional funds raised via the SPP will further strengthen Downer EDI's financial position. Strengthening the balance sheet will provide Downer EDI with the additional financial capacity and flexibility to pursue further growth opportunities.
Downer EDI expects that the placement will be completed overnight and an
announcement providing further details will be made by the Company before trading recommences tomorrow morning, Wednesday, 12 April.
