Here’s why the SeaLink (ASX:SLK) share price is charging higher today

The Sealink Travel Group Ltd (ASX:SLK) share price is charging higher today after announcing a new acquisition…

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The SeaLink Travel Group Ltd (ASX: SLK) share price is charging higher on Thursday morning.

At the time of writing, the travel and transport company’s shares are up 3.5% to $10.18.

Why is the SeaLink share price charging higher?

Investors have been buying the company’s shares this morning following the release of an acquisition announcement.

According to the release, SeaLink has entered into binding agreements to acquire 100% of the Western Australia-based Go West Tours for an enterprise value of $84.7 million. The deal also includes an earnout component of up to $25 million. In addition to this, SeaLink revealed that it will purchase strategic property assets comprising three depots for $3.8 million.

The deal will see the company pay an upfront consideration of $72.4 million on completion, a deferred contingent consideration of $16.1 million payable in equal tranches over two years (provided current earnings levels are maintained in FY 2022 and FY 2023), and an earn-out consideration up to $25 million. The latter is based on exceeding specific financial hurdles over the period to 30 June 2023.

Management advised that the acquisition will be funded from existing cash reserves and existing undrawn senior debt facilities. It expects the deal to be high single-digit earnings per share accretive in the first full year.

What is Go West?

The release explains that Go West is one of the largest specialist bus operators serving the resources sector in Western Australia. It has a modern bus fleet of approximately 287 buses across 9 depots and approximately 181 employees.

Management notes that Go West has enjoyed strong growth in recent years. It has won multi-year contracts with leading mining companies and other regional services such as school bus transfers.

The bus operator generated approximately $46.2 million of revenue in the 12 months to 30 September 2020 and maintains an attractive tender pipeline of new contract opportunities in the state.

SeaLink’s Chief Executive Officer, Clint Feuerherdt, said, “The acquisition of Go West provides SeaLink with a unique opportunity to expand into a new market that is highly complementary to our existing Australian bus transport capabilities.”

“Go West has valuable contract counterparties and delivers an essential service for these clients. The operations of Go West were unaffected by the COVID-19 pandemic and continued at near 100% levels throughout, keeping their communities and worksites connected.”

“The Go West team has built a high-quality business focused on providing great service whilst maintaining high safety standards for their clients. Our intention is to retain the well-recognised and established Go West brand and continue to work with, and support, Go West’s existing client base. We are very excited about the growth opportunities this acquisition provides SeaLink and look forward to welcoming all of Go West’s employees to the Group,” he concluded.

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Motley Fool contributor James Mickleboro 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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