Balcatta-based Repcol has announced plans to invest nearly $20 million in mining services company Resource Equipment Rentals and sell its debt collection business for $350,000.
Balcatta-based Repcol has announced plans to invest nearly $20 million in mining services company Resource Equipment Rentals and sell its debt collection business for $350,000.
Resource Equipment Rentals (RER) is a specialist pump rental equipment business.
Under the terms of the acquisition, Repcol will pay an initial $16.7 million in cash and shares, and will pay a further $3 million if RER earnings beofre interest, tax, depreciation and amortisation for fiscal 2010 exceed $8.9 million.
Repcol has also agreed to repay a $1.8 million RER shareholder loan.
Repcol will undertake an $8.5 million capital raising to fund RER's growth with $7 million set aside for clients of Patersons Securities and $1.5 million for the company's shareholders.
Should the capital raising be full subscribed, RER founders Anthony Ryder and Keith Lucas will each own 19.9 per cent of Repcol.
Mr Ryder will continue to manage RER for a period of three years and, together with Mr Lucas, will join the board of directors.
Current Repcol executive director James Cullen will become chief executive of Repcol.
Other changes to the board include the addition of former PCH Group chairman Bill Ryan while current managing director George Wilson and executive director Hua Jer Liew will resign at the general meeting.
Following the acquisition, which is subject to shareholder approval, Repcol said it will change its name to suit its new business direction and will sell its debt business.
Repcol said it has already accepted an offer from an unnamed buyer for an agreed sum of $350,000, with shareholders to vote on the sale in late May.
For the 2008 financial year, RER reported earnings before interest and tax of $4 million and has forecast earnings for fiscal 2009 of $6 million.
Should the acquisition proceed, the combined entity's net asset value will be $31.4 million.
The acquisition follows a substantial restructure of the company in the 2008 financial year when it sold its debt purchasing business, Transpacific Debt Purchase, and also sold its Indian division.
Since the restructure, the company has been actively seeking opportunities to step away from its debt collection business.
Part of the announcement is below:
The Directors of Repcol Limited ("Repcol" or "the Company") are pleased to announce that the Company has reached agreement to acquire all of the issued capital in Resource Equipment Rentals Pty Ltd ("RER"). RER is a specialist rental business serving the mining and oil & gas sectors with a track record of growth and a record level of new work on hand.
ACQUISITION AND CHANGE IN DIRECTION
As previously foreshadowed, Repcol has been seeking investment opportunities to enhance shareholder value.
Mr James Cullen was appointed to the position of Executive Director in August 2008 to actively seek investment opportunities.
The process has focused on identifying specialist industrial businesses with national and international growth potential, generating around $5 million or more in pre-tax profit. The search has culminated in the Company agreeing, subject to Shareholder approval, to purchase all of the shares in RER.
Repcol is today announcing the following:
- The signing of an agreement to acquire 100% of the share capital of RER, subject to the satisfaction of certain conditions precedent;
- A change in business purpose to pursue this investment opportunity;
- A change in name;
- Changes to the Board of Directors;
- A share capital consolidation;
- A capital raising to support the anticipated growth in RER; and
- Divestment of Repcol's debt collection business.
RESOURCE EQUIPMENT RENTALS
RER is considered a market leader in Western Australia in the specialist pump rental equipment business. The company maintains a purpose built fleet of pumping, mine dewatering, pipeline testing and mobile power generation equipment.
The majority of its revenues are generated from mine dewatering, which is "mission critical" and often of a permanent nature, unaffected by changes in mining production levels. The company focuses on the supply of large, fuel efficient, high capacity equipment where both technical and financial barriers to entry exist, as opposed to the smaller, more competitive sector of the market.
In contrast to traditional rental, RER incorporates its rental equipment into custom designed systems and infrastructure built to address and accommodate specific site conditions. RER designs, installs, commissions, rents and, where required, manages tailored systems and associated infrastructure.
No direct competitor operates using this approach, which, combined with the company's highly experienced management team and in-house technical knowledge, has seen RER record impressive growth in recent years.
RER has a proven business model and has recently expanded into the Queensland market with instant
success, securing multiple contracts at the largest coal mine in Australia. It has also recently entered the
NSW market.
RER is benefiting from the difficult world financial market conditions, which have resulted in mining companies substantially reducing capital expenditure. This has led them to seek rental solutions instead of purchasing their own equipment, creating new opportunities for RER.
Once on site, the benefits of RER's specialised systems and technical expertise typically become visible and apparent to clients ‐ to the extent that the business has a near perfect client/site retention rate.
Therefore, there is a high level of confidence that the new opportunities that are presenting will translate into long term site presences and recurring income streams in the years ahead.
RER currently has a record amount of total work on hand and a record amount of new orders, mostly with blue chip clients.
It has minimal exposure to marginal mines and exploration activities. The majority of its customers are in the gold, iron ore, coal, manganese, uranium and oil & gas industries.
As more fully described below, Repcol has agreed to acquire the business for an initial consideration of $16.7 million. Whilst it has sufficient funds to meet the cash component of the consideration, the Company is undertaking an $8.5 million capital raising to fund RER's future growth as more fully described below. This will leave Repcol with no net debt and a solid platform from which to capitalize on the opportunities at hand.
The co-founder and Managing Director of RER, Mr Anthony Ryder, will continue to manage the RER business and will enter into a 3 year service contract. Mr Ryder will also be the Company's largest shareholder, along with co‐founder Mr Keith Lucas. Messrs. Ryder and Lucas, who will join the new Board of Directors, will each own 19.9% of Repcol's issued share capital if the $8.5 million capital raising is fully subscribed.
Current Repcol Executive Director, Mr James Cullen, will become Chief Executive Officer of Repcol Ltd. Mr Cullen has considerable experience in the rental and contracting industry, both in Australia and internationally and will work closely with Mr Ryder in setting and executing the growth strategy.
Growth for the business is expected to come from:
- interstate expansion;
- continuing outsourcing and resultant new site presences;
- introduction of further items of specialised equipment and services;
- international expansion; and
- acquisition opportunities.
The Board sees the acquisition of RER as an opportunity for Repcol's Shareholders to secure a position in a growth business with unique selling points and exciting prospects at an opportune time. The Board's view is that the RER business has displayed good growth in the current environment and in the medium term, commodities prices and the broader mining sector will recover and further stimulate growth opportunities and activity levels.
In addition, the acquisition offers Shareholders an opportunity to begin recouping some or all of approximately $25 million in tax losses from previous years. The ultimate extent of recoupment of those tax losses is dependent upon continuing satisfaction of various tests that are applied by the Australian Taxation Office. Whilst there can be no guarantee of partial or full recoupment, the Company is advised that it currently satisfies the tests for recoupment.
