Cardno acquires oil and gas engineering services business and completes $50m equity raising

3/17/2014

​ASX200 professional infrastructure & environmental services consultancy Cardno Limited (ASX:CDD) today announced its largest acquisition to date with the purchase of the PPI Group of companies (PPI) headquartered in Houston, Texas for US$145 million.

PPI provides specialist engineering services to the oil and gas sector in the United States, West Africa and Asia Pacific and employs 760 staff. PPI generated annual revenue of US$133 million and EBITDA of US$21.5 million in the year ended 31 December 2013.

The acquisition including the impact of the A$50 million equity raising is expected to be immediately earnings accretive contributing approximately 2.0 cents per share in FY2014 and an expected full year contribution of around 5.0 cents a share.

To help fund the acquisition, Cardno raised A$50 million in equity via a Placement. The Placement, which was oversubscribed, was underwritten by Morgans Corporate Limited. These funds assisted in financing the acquisition and will provide balance sheet capacity for future potential acquisitions.

Cardno CEO, Michael Renshaw said the acquisition of PPI is in line with the firm’s strategy of expansion in attractive growth markets such as energy. “This acquisition will strengthen Cardno’s ability to service the expanding oil and gas sector in the United States and in key emerging markets.” Mr Renshaw said.

He said PPI’s engineering services to the midstream and upstream oil and gas sector will complement Cardno’s existing environmental and permitting capabilities in this market. Mr Renshaw said PPI provides Cardno with new capabilities and proprietary systems in asset and quality management which has application in other asset intensive industries.

“While concentrated on the oil and gas market, PPI is diversified in terms of services offered and in geographic markets served. In addition to the primary markets of the United States and Nigeria, PPI is currently delivering projects in Australia, Singapore, South Korea, Japan, Malaysia and Angola,” Mr Renshaw said.

Integral to PPI’s significant growth history and reputation has been their ability to maintain long-term relationships with the major multi-national and national oil and gas clients such as five of the oil majors, BHP Billiton, Cobalt and Noble Energy.

Mr Renshaw said: “The complementary and overlapping client base of Cardno and PPI presents strong potential for cross-selling across the United States, Latin America, Africa and Asia Pacific.”

“Oil, gas and energy clients will now account for around 25% of Cardno’s annual revenue. We believe this market presents solid opportunities for organic growth,” Mr Renshaw said.

The acquisition aligns with Cardno’s strategy of market and service diversification and creates a range of organic growth opportunities through:

  • Deepening Cardno’s capabilities to support upstream and midstream oil and gas sector growth
  • Experienced leadership bringing new and mutual relationships with multi-national and national oil and gas companies
  • Building on a combined successful track record across Africa and complementary expansion plans for emerging economies in addition to Australia and the US
  • Providing a platform to expand PPI’s services across other asset intensive sectors and clients.

Key acquisition risks are mitigated by Cardno’s robust due diligence and integration process.

“Plans and incentives are in place to ensure PPI’s key management will remain active in the company, which will be known as Cardno PPI.” Mr Renshaw said.

PPI President Randy Sullivan said the global reach and broader service lines offered by Cardno would be well received by their clients.

“Our staff are excited to join Cardno. There is a strong cultural alignment between the two firms, a fierce commitment to safety and a track record in delivering projects in both developed and emerging markets” Mr Sullivan said.

The A$50 million Placement was made to both existing and new Australian and international institutional investors with a long-term interest in Cardno and its business strategy. The issue price of A$6.10 per share was a discount of 5.1% to the close price prior to the commencement of the trading halt and a 4.4% discount to the 10 day VWAP immediately prior to issue. Cardno will issue approximately 8.2 million shares were issued which will rank equally with the existing shares on issue.

The purchase price is subject to a US$14.5 million holdback payable in 18 months.

On closing, 5.4 million of Cardno shares were allotted to the PPI shareholders (escrowed for 18 months) at a price of A$6.38 per share. The balance of the closing payment was made in cash. Upon release of the holdback the vendors will receive 25% of their consideration in Cardno shares calculated at the 10 day VWAP prior to issuance.

Outlook

Mr Renshaw said Cardno continues to deliver solid returns for its shareholders.

“Cardno’s proven growth strategy and focus on diversification of markets and geography underlines the sustained performance of the company” he said.

Mr Renshaw restated the half year outlook saying “Most of Cardno's markets remain challenging and that adverse winter weather conditions in the USA will have a short term impact. However, the business is well placed to capitalise on opportunities that may arise when broader economic growth is realized in our core markets.”

“The addition of PPI, Cardno’s largest acquisition to date, significantly expands Cardno’s exposure to the oil and gas markets and offers clear opportunities for cross selling. It is expected to contribute strongly to the Company’s earnings in FY2015.”

“External indicators and research suggests that the market for upstream oil and gas will remain strong. We expect the addition of PPI presents opportunities for organic growth.” he said.

Mr Renshaw said following completion of the acquisition and Placement, Cardno’s balance sheet remains healthy with gross debt to equity under 40%, in line with the Board’s target level.

“This financial strength provides Cardno with the capacity and flexibility to continue to pursue organic expansion and acquisitive growth opportunities,” he said.

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For further information:
Michael Renshaw, Chief Executive Officer, +617 3369 9822 or +61 448 091 267
Graham Yerbury, Chief Financial Officer, +617 3369 9822 or +61 450 324 613

About Cardno: Cardno is an ASX200 professional infrastructure and environmental services company, with specialist expertise in the development and improvement of physical and social infrastructure for communities around the world. Cardno’s team includes leading professionals who plan, design, manage and deliver sustainable projects and community programs. Cardno is an international company, listed on the Australian Securities Exchange [ASX: CDD]. www.cardno.com

About PPI Group: PPI is a multi-discipline engineering group headquartered in Houston, Texas. PPI offers total project management services including initial scoping, field development planning, front end engineering and design (FEED), detailed engineering and design, drilling and construction project management, field operations, procurement and Quality Assurance. With expertise in all facets of drilling, production and construction operations. www.ppitech.net

Kirkland & Ellis advised Cardno on this transaction and in particular compliance with regulatory filings associated with the acquisition in the United States.

This announcement has been prepared for publication in Australia and may not be released or distributed in the United States. This announcement does not constitute an offer to sell, or a solicitation of an offer to buy, securities in the United States or any other jurisdiction. Any securities described in this announcement have not been, and will not be, registered under the US Securities Act of 1933 and may not be offered or sold in the United States except in transactions exempt from, or not subject to, the registration of the US Securities Act and applicable US state securities laws.