Seven Group Buys Out Coates Hire
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It's been talked about for years, mentioned for months and then negotiated for almost as long - or so it seems from the numbers of reports to that effect - we are talking about Kerry Stokes’ key company, Seven Group Holdings finally buying the 53% of Coates Hire it didn’t own from Carlyle Group and others for $517 million.
In reality its Stokes recycling the money he will make from selling his company's long held Caterpillar franchise in northeast China into a business based in Australia, without the attendant risks associated with currency, demand and politics.
Seven Group said in a statement that it plans to acquire the 53.3% of Coates it does not own from an affiliate of Carlyle Asia Partners II, a fund managed by private equity firm The Carlyle Group.
Seven said the acquisition would increase its fiscal 2017 underlying earnings per share by 15% and increase pro-forma core pre-tax profit to $415 million from $297 million.
Rising speculation about such a deal had seen Seven Group shares lose more than 10% of their value in the five days up to Tuesday night. The deal was announced before trading and the shares took off, climbing more than 12% in the first minutes of trade. They ended up 9.5% at $12.25
A month ago Seven Group sold its Chinese business for $A540 million which is being reinvested into the rest of Coates.
At the time Ryan Stokes, Seven’s CEO and son of billionaire chairman Kerry Stokes said in a statement
“The sale of WesTrac China will allow us to reallocate capital into other opportunities in Australia, including investment in our WesTrac Australia business.”
It said yesterday that the purchase would be funded by existing cash and undrawn debt facilities of $982 million at June 30, plus the net proceeds from the China sale.
The big imponderable is the $1.087 billion in debt in Coates. Seven Group said it will try to get approval from existing lenders to roll over that debt into its balance sheet, or failing that it may seek to refinance the debt.
That may be a big ask seeing Seven Group had $1.480 billion in debt on its own balance sheet at June 30. A proforma balance sheet of the two companies after the deal closes shows debt of $2.565 billion and intangible assets of a huge $4.40 billion.
SGH has a long-standing involvement with the Coates Hire business, having first invested alongside Carlyle and management in 2008.
Seven Group said full ownership of Coates Hire, which delivered a five per cent lift in revenue in 2016/17 and has more than 200 branches nationwide, would enhance its portfolio and increase exposure to industrial services.
Managing director and chief executive Ryan Stokes said the equipment hire company is well placed to deliver value for shareholders.
"We have had a long history with the Coates Hire business and believe with the visible market opportunity... along with the current performance of the business and management team, the company is extremely well positioned to create value for all shareholders," Mr Stokes said in a statement on Wednesday.
"The move to full ownership of Coates Hire will enhance Seven Group's position ... with a strong macroeconomic environment and a positive outlook providing the potential for significant opportunities to be realised." Coates Hire generated $918 million in total revenue and other income during the 12 months to June 2017, and $308 million in underlying earnings.
Mr Stokes said the hiring business had experienced a strong start to the 2018 financial year with July and August tracking more than 15% ahead on the prior corresponding period, driven by operational performance.
Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.
At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.