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ALS Ltd lining up as next takeover target

ALS Ltd (ASX: ALQ) appears to be a takeover target after the company put its shares into a trading halt, pending a potential ‘change of control event’.

A change of control event is exactly that – new owners – signifying that ALS may have received a takeover offer, although it’s likely non-binding and highly conditional at this stage.

The laboratory services company has been heavily hit by the downturn in the resources and energy sectors, with miners, drillers and explorers cutting back on their prospective drilling meaning less work for ALS – as the following mineral exploration expenditure chart shows.

Source: ALS Ltd presentation

Source: ALS Ltd presentation

The company’s share price plunged as low as $2.93 earlier this year, well off the company’s five-year high of $12.98 set in early 2012, although they have since recovered somewhat to close yesterday at $4.05. Earnings crashed from 62 cents in the 2013 financial year (FY13) to just 18 cents in FY16 with mining, oil & gas still representing nearly 40% of revenues.

The low price is obviously why the sharks are now circling.

Earlier this year, the Australian Financial Review (AFR) flagged that private equity and a European strategic player were running the ruler over ALS. That has followed troubled bids for other mining services-type companies, Cardno Limited (ASX: CDD) and Bradken Limited (ASX: BKN).

The jewel in the ALS crown is the company’s life sciences division, which has continued to grow steadily every year since 2002, and which now generates the lion’s share of earnings before interest and tax (EBIT).

Foolish takeaway

While ALS has been trying to grow its life sciences division, some investors may have become frustrated with the lack of progress and some mistimed acquisitions, and have bigger plans for the company.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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