Shares in Seven Group Holdings surged almost 10 per cent on Wednesday to close at $12.28 after the company announced it would acquire full ownership of the nation's largest equipment hire business, Coates Hire.
The industrial services, media, energy and investments company said it would buy the remaining 53.3 per cent of Coates Hire for $517 million from private equity giant The Carlyle Group.
Seven Group, which bought almost half of Coates Hire in 2008, said it would use existing debt facilities and available cash to fund the deal, including money from the sale of WesTrac China.
It is expected to be paid about $516 million, after tax, for WesTrac.
Coates Hire has more than 200 branches across Australia, and offers a wide range of equipment for hire and rent used in fields including engineering, construction, events, manufacturing and mining.
It was established as an engineering business in Melbourne in the 1880s, and has grown to become a large-scale operation generating a significant amount of cash. In fiscal 2017 it recorded almost $920 million of total revenue and other income, and underlying earnings before interest, tax, depreciation and amortisation of $308 million.
"The acquisition of Coates Hire continues SGH's focus on becoming the leading operator of industrial services businesses in Australia and driving efficient capital allocation across the portfolio," Seven Group Holdings said in a statement to the ASX.
"The acquisition provides SGH with increased exposure to the Australian and east-coast infrastructure sector, with Coates Hire well positioned to benefit from the increased number of projects and the resultant demand for construction equipment and heavy machinery."
Seven Group said full ownership of Coates would enhance its portfolio and expand its industrial services division. The acquisition would deliver significant extra earnings, increasing "pro-forma fiscal 2017 earnings before interest, tax, depreciation and amortisation from $328 million to $611 million".
Ryan Stokes, managing director of Seven Group, said the company was pleased to acquire the Coates Hire shares it did not already own.
"We have had a long history with the Coates Hire business and believe with the visible market opportunity associated with east-coast infrastructure activity, along with the current performance of the business and management team, the company is extremely well positioned to create value for all shareholders," he said.
"The move to full ownership of Coates Hire will enhance SGH's position as a leading operator of industrial services businesses, with a strong macroeconomic environment and a positive outlook providing the potential for significant opportunities to be realised."
In a presentation document summarising the acquisition, Seven Group said Coates Hire was about four times larger than its nearest competitor. It also said: "The acquisition of the remaining 53.3 per cent represents a low-risk opportunity to obtain control of an attractive asset."
