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Will the SeaLink share price move on recent acquisition completion news?

On Thursday 16 January, SeaLink Travel Group Ltd (ASX: SLK) announced the completion of its acquisition of 100% of the Transit Systems Group. 

At close of trade on the 16th, the SeaLink share price was only up 0.9% on the news and rose another 0.6% in Friday’s trade.

Originally announced in October 2019, the acquisition is a strong strategic play that will help to diversify the business. Here’s a closer look at the details of the acquisition and how it might impact the SeaLink share price moving forward.

The parties

Prior to the acquisition of Transit Systems Group, SeaLink Travel Group operated across New South Wales, Queensland, the Northern Territory, Western Australia, South Australia and Tasmania. The company moved more than 7 million customers each year. With the acquisition, it has now expanded its area of operations into Victoria and internationally

The globally recognised Transit Systems Group currently operates approximately ~3,129 buses across 40 contracts in Australia, London and Singapore on behalf of governments and transport authorities. Transit Systems Group carries ~344 million passengers annually on its services.

The transaction

During October 2019, SeaLink raised approximately $154 million through an equity raising. This was used to fund part of the acquisition of the Transit Systems Group for an enterprise value of $635 million plus an earn-out component of up to $63 million.

According to SeaLink, the key strategic and commercial rationale for the acquisition includes:

  • The creation of 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
  • Diversification of SeaLink’s end-market exposure, growing contribution from resilient passenger transport activities, with an enhanced domestic footprint and scalable platform for significant international expansion with established businesses in Singapore and the United Kingdom
  • Increased exposure to long-term government contracted revenues
  • The ability to leverage combined expertise, client relationships and geographical presence
  • Attractive financial metrics of the transaction and potential synergy realisation.

Other news

In a leadership change, current Transit Systems Group CEO, Clint Feuerherdt, has replaced Jeff Ellison as SeaLinkGroup CEO. This change was effective from 16 January. The outgoing CEO will be providing some short-term support as an executive director of SeaLink.

On 10 January, SeaLink announced that significant damage had been sustained to its Vivonne Bay Lodge on Kangaroo Island as a result of recent bush fire activity. The full extent of the damage is not yet known, with further assessment to be completed.

SeaLink also confirmed that it carries appropriate insurance, has access to alternative sites for Kangaroo Island tours and operations, and currently does not believe that the damage will have a material impact on earnings.

The summary

There has been a lot of action for SeaLink recently and the market has responded well, with the SeaLink share price up 26% since word of the fundraising and acquisition announcement. The recent gains mean the shares look fairly valued, but the acquisition could make the stock interesting going forward.

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Motley Fool contributor Lloyd Prout has no position in any of the stocks mentioned and expresses his own opinions. 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 Scott Phillips.

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