Paladio pays $50m for Karratha construction firm

Belmont-based industrial services company Paladio Ltd has announced its fourth and by far biggest acquisition in the past year, with plans to buy Karratha construction company Decmil Australia Pty Ltd for $50 million in cash and scrip.

Decmil was established by Denis Criddle in 1979 and has enjoyed rapid growth in recent years, with turnover rocketing from about $30 million in 2004-05 to an estimated $90 million in 2006-07.

The acquisition is pitched at five times Decmil's forecast 2006-07 earnings before interest and tax (EBIT) of $10 million.

The vendors will be receive $30 million in cash and 26.6 million shares (based on a share prive of 75 cents), which will give them a 19 per cent stake in Paladio.

In addition, the vendors may receive a further $4 million in cash and 2.5 million options (exercisable at $1) subject to the performance of the Decmil business in 2007-08.

The cash payments will be funded by a $33 million capital raising pitched at 75 cents per share. Perth firm Capital Investment Partners has been mandated to lead manage the raising.

Paladio has forecast its turnover will increase to $180 million in 2007-08 - Decmil will contribute about 60 per cent of the total, based on projections included in a Paladio investor presentation.

More interesting, Paladio has forecast that its EBIT will increase to $12 million in 2007-08. Decmil will contribute most of this amount, since its EBIT this year is expected to be $10 million and it is projecting more growth next year.

In the past year, Paladio has acquired Fabcon Constructions Pty Ltd, Westec Engineering Services Pty Ltd and drafting business Eastman Fort Pty Ltd.

It has also established an environmental solutions business in partnership with US company Remntech.

An announcement from Paladio is pasted below:

PALADIO ACQUIRES DECMIL AUSTRALIA

The Directors of Paladio Group Limited are pleased to announce that a conditional agreement has been reached to purchase all of the shares in Decmil Australia Pty Ltd (Decmil). Decmil is a leading construction and maintenance services provider specialising in accommodation villages, non-process infrastructure and civil contracting to the resources and oil & gas sectors.

Decmil was founded in 1979 by Mr. Denis Criddle in Karratha, Western Australia. The Company currently employs approximately 150 people and has the majority of its operations in north-west Western Australia. Typical works undertaken by Decmil include temporary
buildings, workshops and miscellaneous civil works. Since its inception, Decmil has undertaken work predominantly for large resource clients including BHP Billiton, Chevron, Rio Tinto and Woodside.

The acquisition provides Paladio with an increased scope of services and also provides a number of immediate opportunities for the group including the capacity to undertake increased project size, further expansion of new and existing services nationally, and the
ability to leverage off respective client bases.

The initial consideration payable by Paladio for Decmil will be $50 million and comprises 40% in Paladio shares and 60% cash. This represents an acquisition multiple of 5 times forecast FY06/07 EBIT of $10 million. The equity consideration is based on a Paladio share price of 75 cents. An additional 2.5 million options to acquire ordinary shares in Paladio exercisable at 75 cents will be issued to Decmil senior management and will vest in equal tranches over the next three years. Decmil vendors will also be entitled to an additional $4 million in cash and 2.5 million options exercisable at $1 each subject to the satisfaction of certain financial performance criteria for Decmil in the 2007/08 financial year.

Following completion of the transaction and associated proposed capital raising, the Decmil
vendors will retain approximately a 19% shareholding in Paladio.

Of the initial $50 million consideration, 10% will be held in retentions and released over the next 2 years subject to the continuous retention of several key executives and on the achievement of certain financial performance milestones. In addition, all shares issued will be voluntarily escrowed until the release of the 2007/08 financial results in late August 2008. All the senior management team and workforce of Decmil will be retained. In addition, the major shareholder and founder of Decmil, Mr. Denis Criddle, will be invited to join the Paladio Board of Directors following settlement of the acquisition.

Paladio's Managing Director, Dick Wright said, "This acquisition by Paladio augments its services capability, customer and geographical base in line with the stated strategy of providing integrated services to resources and oil & gas infrastructure projects throughout Australia."

"The acquisition of Decmil is expected to substantially increase Paladio's group revenue to $180 million with $12 million EBIT in the 2007/08 financial year. In addition, Paladio's debt level will be minimal after the transaction, which will provide the enlarged group with
the flexibility of gearing to fund further organic growth", Mr Wright said.

The majority of the cash portion of the acquisition price will be funded via a proposed capital raising of approximately $33 million. Paladio has a mandate with Capital Investment Partners to act as lead managers for the raising which is proposed to be at $0.75 per share. Further details on this capital raising will be announced to the market once completed.

Paladio's Board has also approved the issue of a Share Purchase Plan to offer shareholders the opportunity to increase their shareholding in the Company. Details of this will be announced shortly.

Settlement of this acquisition is subject to Paladio shareholders approval and a successful capital raising.