LONDON: Severfield plc has entered into an agreement to acquire 100% of the share capital of DAM Structures Limited for a net initial consideration of £12.0 million payable in cash on completion, a news release said.

A further maximum deferred consideration of £7.0m is payable in 2022, together with a performance-based contingent consideration of up to £8.0m, which would be payable over a five-year period.

Highlights:

• The Acquisition will give Severfield immediate access to attractive, complementary market sectors with strong growth potential including the propping, railway and steel piling markets. Combining the businesses will enhance Severfield’s position as the UK’s broadest structural steel services group.
• The Acquisition will provide the Group with new clients from which to grow its existing services and gives Severfield a platform to widen its supply chain into its existing client base.
• For the twelve months to 31 October 2019, DAM Structures recorded audited revenues of £22.3m and a profit before tax of £1.9m. The value of the gross assets as at 31 October 2019 was £14.2m.
• The Acquisition consideration will be funded by a combination of cash reserves and a term loan.
• The Acquisition is anticipated to be earnings enhancing in its first full year of operation.

The Board of Severfield believes that DAM Structures is an attractive acquisition opportunity. It is profitable, cash generative, operates in complementary market sectors with strong growth potential (including propping, railway and steel piling) and offers the opportunity to broaden and deepen existing and new customer relationships in the construction and railway sectors.

DAM Structures is highly regarded by its clients and presents a number of opportunities for further profitable growth.

The core business of DAM Structures involves on-site work with main contractors and ground and demolition contractors, often prior to the stage of project construction at which Severfield would typically become involved.

The Acquisition will allow Severfield to establish relationships and contracts at an earlier stage in site development with both existing and new customers.

Prior to the Acquisition, DAM Structures was approaching its maximum production capacity, which had the potential to constrain its future growth. With the scale and capabilities of the Group, the Acquisition will facilitate an immediate increase in the production capacity of DAM Structures, enabling the company to realise the growth opportunities which have been identified.

In addition to its core steel fabrication markets, DAM Structures operates in the propping, railway and steel piling markets. Within the railway sector, there are significant opportunities for growth in the UK from Network Rail electrification programmes and elements of the HS2 project that are not currently addressed by Severfield, such as temporary and permanent tunnel work.

All these opportunities will complement the Group’s existing expertise in bridges and stations.

The Network Rail electrification programmes also offer opportunities in the steel piling market for immediate and significant growth over the next ten years in England, Scotland and Wales.

The propping business of DAM Structures provides bespoke fabricated propping systems to demolition and groundwork contractors, an area of the business which also represents a growth opportunity for Severfield.

DAM Structures is being acquired for an initial net cash consideration of £12.0m on a cash free, debt free basis assuming a normalised level of working capital on completion.

The total initial consideration will be £17.0m, including cash and cash equivalents of £5.0m, which is being funded by a combination of Group cash reserves and a new term loan.

In addition, a maximum deferred consideration is payable in cash in April 2022. This deferred consideration payment will amount to £7.0m unless certain performance criteria have not been achieved, in which case the deferred consideration payment shall be reduced to £5.0m.

An additional performance-based contingent consideration is also in place which could further increase the purchase price by up to £8.0m, if certain work-winning targets in the railway and steel piling sectors are achieved over a five-year period, ending in April 2026.

Alan Dunsmore, Chief Executive Officer, Severfield commented: “This is a very exciting, highly complementary acquisition which will help the Group continue to deliver on its strategic growth objectives. DAM Structures will provide us with access to existing and new customers earlier in the construction process as well as access to new market sectors with strong growth potential including the growing rail electrification sector.

DAM Structures has an established client base and proven track record of delivering quality services and will fit in well with the Severfield culture and team.

“We look forward to working with the DAM Structures management team on building new business opportunities together and driving future growth from within the combined Group.”

Severfield plc is the largest structural steel specialist in the UK. The North Yorkshire based company’s major works include The Shard, the Olympic Stadium, and the Tate Modern. Severfield plc is listed on the London Stock Exchange.

www.severfield.com