In this week’s video insight David takes a closer look at IMDEX’s (ASX:IMD) acquisition of Devico AS.  The strategic combination expands the product suite and client footprint offers extended market presence in key mining regions as well as cross-selling opportunities for IMD’s integrated solutions, with the global number one position in each of Rock Knowledge Sensors, Drilling Optimisation Products and Real-Time Data and Analytics.

Transcript 

David Buckland: 

Hi I’m David Buckland and welcome to this week’s video insight.

In a significant transaction with a strategic fit, Imdex Limited (ASX: IMD) has announced the acquisition of Devico AS, the Norwegian-based global leader in drill site technology, providing Sensor Technology (# 2 market position) and Directional Drill Technologies (# 1 market position), for an enterprise value of A$324m.  This, plus the $19m of transaction costs, is being funded by a $124m raise (102m shares at $2.20 each) and $120m debt.

Sensor Technologies account for around 46 per cent or A$28m of Devico’s revenue, whilst Directional Drilling Technologies accounts for 54 per cent or $33m of Devico’s revenue. The Company’s $61m revenue has been growing at 17 per cent per annum over the past three calendar years, while its $29m of EBITDA has been growing at 33 per cent per annum over the same period. Like IMD, Research and Development approximates 8 per cent of revenue, and this is expensed.  Pre-tax cashflow conversion approximates 80 per cent.

IMD paid 11.2X EBITDA and 12.8X EBITA, before an estimated $2m of synergistic benefits (or 7 per cent of Devico’s EBITDA) from consolidation of offices, supply chains, manufacturing and operating systems.  IMD will end up with around 500m shares on issue, net debt of $91m, and an enterprise value of around $1.2 billion at the raising price of $2.20 per new share.

This strategic combination expands the product suite and client footprint offers extended market presence in key mining regions as well as cross-selling opportunities for IMD’s integrated solutions, with the global number one position in each of Rock Knowledge Sensors, Drilling Optimisation Products and Real-Time Data and Analytics. 

In terms of Super Sites, defined as operations with 5 or more drills on site, IMD will with the Devico acquisition have nearly 50 per cent global market share, up from 38 per cent, providing a significant boost in each of North and South America and Europe, as illustrated in the table on the screen.

Overall, the consensus forecasts for Fiscal 2024 has IMD producing around $150m of EBITDA, placing it on an Enterprise Value to EBITDA ratio of 7.6x; whilst net earnings (after amortisation) is expected to approach $80m of 16 cents per share.  At the fund-raising price of $2.20 per IMD share, this looks good value to us given the strategic importance of the Devico acquisition. 

Thanks for watching, that’s all we have time for this week and don’t forget to follow us on Facebook and twitter.

The Montgomery Small Companies Fund owns shares in IMDEX. This video was prepared 23 January 2023 with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade AUB Group you should seek financial advice.