Johns Lyng Group Ltd (ASX: JLG) shares are currently in a trading halt as it raises money to make two acquisitions.
The business provides building and restoration services in Australia and the US. Its main activity is to rebuild and restore a variety of properties and contents after damage by insured events including impact, weather and fire events.
Johns Lyng acquisitions
It has announced that it’s going to buy 100% of Project Safety Holdings, operating as Smoke Alarms Australia (SAA), and 70% of Link Fire Holdings.
The upfront total is A$61.8 million, and a further total of up to $17.25 million if certain milestones are met.
The company said that these acquisitions set the foundation for its fifth strategic growth pillar ‘essential home services’. It says that it wants to become a “full turnkey solution for homeowners, property managers and strata managers.”
Johns Lyng highlighted that providing fire, electrical and gas compliance, testing and maintenance are “highly complementary offerings” that the ASX share already provides and there are significant cross-selling opportunities with its existing businesses, along with cost synergies.
What’s attractive about these particular businesses?
The company said that the businesses are profitable and growing, and provide a platform for follow-up acquisitions and consolidation in a highly fragmented sector.
Johns Lyng pointed out that both SAA and Linkfire operate ‘annuity style’ business models underpinned by subscription-based revenue with EBITDA (EBITDA explained) margins of over 20%. There’s a “strong line of sight on forward earnings”. An annuity is where someone can invest their money and get a guaranteed, predictable return – it’s sort of like a term deposit.
The ASX share also noted that state and federal regulatory compliance requirements are providing tailwinds and enforce the “defensibility of earnings”.
Existing management teams, which were described as high-calibre, will remain and have ongoing equity ownership.
The combined price for these two businesses is around 7.2x the forecast EBITDA for FY23.
Capital raising
The company is going to fund this with a fully underwritten $65 million institutional capital raising and a non-underwritten share purchase plan (SPP) for regular investors of up to $5 million.
The institutional placement will be priced at either a floor of $5 per new share (which is a 7.9% discount to the last traded price) or a bookbuild process.
Regular investors will be able to apply up to $30,000 of new shares, priced at either the institutional placement price or a 2% discount to the 5-day average Johns Lyng share price up to and including the closing date of the SPP. The SPP offer booklet will be released on approximately 12 July 2023.
Final thoughts on the Johns Lyng share price
The business is doing well at growing profit and it’s exposed to supportive tailwinds because of damaging storms and climate change.
These acquisitions make a lot of sense and could help the ASX share diversify and grow its earnings even further than it already has.
If I were a shareholder, I’d want to buy as many shares as my investing budget would allow – I believe this business has a very promising future and the capital raising price is attractive.
