Hellaby buys industrial services firm
Hellaby Holdings, the listed investment group that owns Hannahs and Number One Shoes, has spread its reach overseas after an 18-month hunt - buying most of heavy industrial services company Contract Resources.
The Auckland-based investment firm will spend $73 million on an 85 per cent stake in the New Zealand-founded oil and gas services company and laden it with $30 million debt, Hellaby said in a statement to the New Zealand stock exchange today.
The deal puts a $116 million enterprise value on Contract Resources, which does specialised engineering maintenance, industrial cleaning and related services for clients including Fonterra and oil giants BP, Shell, Caltex and Chevron.
Some 90 per cent of its sales are to clients overseas, especially in Australia, which should help bump Hellaby's overall share of overseas sales from about 5 per cent of the business currently to about 25 per cent, said Hellaby chief executive John Williamson.
Contract Resources, which is run out of New Zealand and Australia and whose CEO is based in Australia, has been operating since 1989 and has subsidiaries in Australia, Singapore, Malaysia, Taiwan, Thailand, the Middle East and the United States.
It was 50 per cent owned by Wellington investment company Rangatira before Hellaby's acquisition, after Rangatira bought into Contract Resources in 2004 and expanded the business.
Rangatira CEO Ian Frame said the company had not been looking to sell but Contract Resources had grown to account for more than a third of the unlisted investment portfolio.
"With some of our initial partners selling and Hellaby's offer for control at an attractive level, we have decided it is an appropriate time to realise the funds of just over $50 million for reinvestment into other growth opportunities."
Shares in Hellaby were up 1.64 per cent at midday to trade at $3.10, up from $2.40 a year ago.
Hellaby has been hunting for a year and a half for a business in a growing sector to boost its earnings outside New Zealand.
Further purchases remain on the cards, Williamson said. "This is our first acquisition since turning around the Hellaby business over last five years and it won't be the last."
He acknowledged the Australian mining and oil sectors were competitive but said Contract Resources was "very specialised [with] very good intellectual property around safety systems and engineering."
Exposure to the oil and gas sector was a key attraction. "Most of our existing businesses are relatively mature," said Williamson.
The buy-up adds a fifth plank to Hellaby's industrial equipment, automotive, packaging and shoe retail divisions.
The other 15 per cent of Contract Resources will be shared equally between chief executive Andrew Wells and senior managers Trevor Penny and Gray Gardner, who already held similar-sized stakes in the company before the Hellaby buy.
Other existing and former management shareholders have sold their stakes.
Hellaby will fund the equity component of the purchase using existing banking facilities, and the deal is scheduled to settle on March 31 next year subject to finance and other conditions.
Williamson told shareholders at this year's annual general meeting that while it would keep pushing its existing portfolio hard, continued meaningful profit growth would not happen without higher gross domestic product growth and/or acquisitions.
The economy remained "stubbornly flat" in the sectors Hellaby operated in, he said.
Today Williamson said Contract Resources was expected to quickly have a positive impact on Hellaby's earnings. For the year to March 31, 2014, it was expected to generate sales of $150 million and earnings before interest, tax, depreciation and amortisation of more than $20 million.
In the year to June 2012, Hellaby made revenue of $498 million and earnings before interest, tax, depreciation and amortisation of $37 million.
The acquisition would boost earnings per share for the Hellaby financial year to 30 June 2014, Williamson said.8