Shares in Southern Cross Electrical Engineering surged on news the company has entered into an agreement to buy a local telecommunications contractor in a deal worth up to $17.2 million.
Shares in Southern Cross Electrical Engineering surged on news the company has entered into an agreement to buy a local telecommunications contractor in a deal worth up to $17.2 million.
SCEE will buy Perth-based electrical and communications contractor Datatel Electrical & Communications, which is currently assisting in the rollout and maintenance of the NBN in Western Australia.
Datatel was established in 1998 by Paul Johnson and Wayne Hogan, and currently has a workforce of 180 employees.
Under the terms of the deal, SCEE will wholly acquire Datatel in exchange for an initial $6.2 million in cash and shares (90 per cent cash), while a further $3.5 million will be paid as a deferred consideration.
The $9.7 million payment represents a 3.3-times forecast FY16 underlying earnings before interest, tax, depreciation and amortisation.
SCEE will also pay a $7.5 million stretch consideration subject to earnings growth targets in the coming three financial years, split 70 per cent cash and 30 per cent equity.
SCEE will fund the cash component of the acquisition with its existing $50.4 million in cash reserves.
Investors welcomed the news, with SCEE shares up 17.6 per cent to 60 cents each this morning.
“This is a significant and immediate market entry into the telecommunications sector and provides SCEE with a credible platform which can be leveraged to enter other geographical markets,” SCEE chief executive Graeme Dunn said.
“The acquisition also presents us with an opportunity to widen our services offering to SCEE’s existing resources clients and to leverage off Datatel’s presence in the commercial, health and education service sectors.
“I believe there is a strong cultural alignment between the two organisations and, together with everyone at SCEE, I look forward to working with Paul, Wayne and the rest of the Datatel team to capitalise on the significant opportunities that exist in the current market.”
Mr Hogan and Mr Johnson have both entered into long-term employment contracts with SCEE to remain with the business.
PwC acted as financial adviser to SCEE, while K&L Gates acted as legal adviser.
The deal is expected to be completed in the coming weeks.
In December last year, Decmil Group purchased Osborne Park-based telecommunications solutions provider SC Services, which provides design installation and commissioning services to telecommunications network owners, manufacturers and NBN services providers.
