Earlier in the week Propel Funeral Partners Ltd (ASX: PFP) announced that it would be executing a call of option deed in connection with 19.9% of the issued share capital of Norwood Park Limited.
However, Propel wanted more of the business and has announced today that it has made an all-cash offer for all of the shares of Norwood Park at the same price as the call option price.
If the entire issued share capital of Norwood Park is acquired the total cash payable will be approximately $13.65 million, which represents an enterprise value of approximately $14.3 million. Management expects the acquisition will be accretive to earnings in year one.
Propel's head of mergers & acquisitions, Fraser Henderson, said "We look forward to continuing to work with Norwood Park's directors, shareholders and advisers with a view to completing an orderly transaction as soon as practicable.
Norwood Park has a long history, having been established in 1964 and currently performs around 2,000 cremations and 300 burials each year. It generated approximately $4.8 million revenue in FY17.
Propel intends to fund this proposed acquisition from cash reserves.
I think Propel could be one of the best performing small caps over the next five to ten years. The business has already shown a thirst for acquisitions whilst smartly using cash reserves to do so. I think it's important that Propel doesn't overstretch its balance sheet in the long run.
If the predicted growth of death care services of 1.4% per annum in Australia over the next decade occurs, then Propel has a very supportive tailwind for future organic revenue and profit growth.
Foolish takeaway
I don't expect Propel to shoot the lights like Altium Limited (ASX: ALU) and MNF Group Ltd (ASX: MNF) have done, but it could create steady earnings per share growth over the coming years. There's a good chance it may deliver higher total shareholder returns than InvoCare Limited (ASX: IVC) due to its smaller starting size.
It's hard to say what valuation it's trading at with the recent Brindley Group and Norwood Park acquisitions, but a rough guess would be around 30x FY18's estimated earnings. I think this is a fair price to pay for how many more acquisitions the business may make over the next few years.
