The SeaLink Travel Group Ltd (ASX: SLK) share price will remain in a trading halt on Tuesday whilst the travel company seeks to raise funds for a transformational acquisition.
What has happened?
This morning SeaLink announced that it has entered into a binding agreement to acquire 100% of Transit Systems Group for an enterprise value of $635 million plus an earn-out component of up to $63 million.
The release explains that Transit Systems Group is Australia's largest private operator of metropolitan public bus services and is an established international bus operator in London and Singapore.
It currently operates approximately ~3,129 buses across 40 contracts in Australia, London and Singapore on behalf of governments, transport authorities and private bodies. Transit Systems Group carries ~344 million passengers annually on its services and generated revenue of $895 million, pro forma normalised EBITDA of $78 million and pro forma normalised EBIT of $61 million in FY 2019.
Management believes the acquisition will create Australia's leading integrated land and marine passenger transport business, with enhanced scale and capabilities to compete for large government contracts and ability to provide multi-modal solutions.
It is also expected to diversify its end-market exposure, provide a pipeline of opportunities both domestically and internationally, realise synergies of up to $4.6 million, and be 20% earnings per share accretive.
Funding.
To partly fund the acquisition, SeaLink is undertaking a fully underwritten $65 million placement to new and existing institutional shareholders and a fully underwritten $89 million pro-rata, accelerated, non-renounceable entitlement offer to raise a total of $154 million at $3.50 per share.
The balance of the consideration will be funded by the issue of $269 million of SeaLink scrip to the vendors of the Transit System Group, and by drawing down on new multi-tranche debt and revolving credit facilities.
This means that certain vendors of Transit Systems Group will become substantial holders of SeaLink and are expected to hold in aggregate ~33.4% of its shares post acquisition. These shares will be subject to a staggered two-year escrow arrangement from the date of issuance.
Change of CEO.
The current Transit System Group CEO, Clint Feuerherdt, has agreed to replace Jeff Ellison as SeaLink Group CEO. Mr Ellison has agreed to provide support to the new CEO to ensure a smooth transition of leadership and will remain an executive director for a short period of time. After which, he will remain on the SeaLink board of directors as a non-executive director.
Ellison said: "This is a transformational acquisition for SeaLink. After many months of due diligence, I am delighted to have reached an agreement to acquire Transit Systems Group which has steadily grown over 24 years to become a leading provider of metropolitan public bus services both in Australia and internationally."
"I am excited by the combined capabilities of Transit Systems Group and SeaLink, bringing 'best-in-class' capabilities across scheduling, route optimisation, fleet management, ticketing and tendering. The announcement today represents the start of SeaLink's next phase of growth as an integrated multi-modal passenger services provider. I look forward to continuing to support the combined management team and build on the great momentum that currently exists within both businesses," he added.
Overall, I think this is a great acquisition by SeaLink and I suspect the market may respond very positively to it when its shares return to trade on Wednesday.
