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NRW (ASX:NWH) share price jumps on acquisition update

takeover M&A NRW takeover

The NRW Holdings Limited (ASX: NWH) share price is outperforming today as the engineering contractor successfully acquired Primero Group Ltd (ASX: PGX).

The NRW share price surged 3.4% to $2.78 in after lunch trade when the S&P/ASX 200 Index (Index:^AXJO) gained a more modest 0.5%.

Even NRW’s peers are having trouble keeping up. The Downer EDI Limited (ASX: DOW) share price gained 1.5% to $5.80 while the Monadelphous Group Limited (ASX: MND) fell 0.7% to $12 at the time of writing.

Compulsory acquisition lifts NRW share price

NRW announced that it now controls 98.43% of shares in the takeover target. This is well above the 90% threshold that will allow a bidder to compulsorily acquire a target.

Primero shareholders who haven’t pledged their shares to NRW have until 19 February to do so if they want to be paid quicker.

Those who don’t will still get the same offer, but will have to wait longer for their payout if they went through the compulsory acquisition process.

Time value of money argument

“The compulsory acquisition process, which is subject to the Corporations Act, is likely to take approximately 4 to 6 weeks, but may take longer in some circumstances,” said NRW.

“Primero shareholders who have not yet accepted the Offer may still, and are urged to, do so before the Offer closes at 7.00pm (Sydney time) on 19 February 2021 in order to receive their consideration within 10 business days of their acceptance being processed.

“Otherwise, their Primero shares will be compulsorily acquired and they will have to wait at least four weeks to receive their consideration.”

NRW is offering 27.5 cents cash plus 0.106 of NRW shares in exchange for each PGX share.

M&A rational for NRW

Investors could be getting excited about the growth prospects of the enlarged NRW following the circa $100 million takeover. The Primero acquisition will allow NRW to offer a wider range of services to clients as the target’s business is seen to be complementary to NRW.

Primero focuses on the minerals and energy sectors and has a FY21 contract book worth around $285 million. It’s also the preferred EPC contractor on multiple projects totalling around $900 million.

Is bigger really better?

NRW’s takeover comes at a time when mergers and acquisitions (M&As) are in vogue. Northern Star Resources Ltd (ASX: NST) has also completed its merger with Saracen Mineral Holdings (ASX: SAR)

Ultra-low interest rates and the hunt for earnings growth by companies needing to justify the run-up in share price valuation are likely to drive further deals on the ASX.

Let’s hope these mergers work for the sake of shareholders given that most M&As flop.

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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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