SYDNEY, AUSTRALIA: Austin Engineering Limited (ASX: ANG) has entered into a binding agreement to acquire Australian mining equipment manufacturer, Mainetec Pty Ltd, for an initial amount of $19.6 million.

Three further earn-out payments will be made if Mainetec achieves agreed performance hurdles in the three years following completion.

The acquisition will give Austin Engineering access to Mainetec’s Hulk range of high performance mining buckets, increasing the potential customer base in all of Austin’s markets.

The Hulk buckets complement Austin’s recently-launched JEC bucket range and the dual product offering will increase Austin’s bucket market share in Australia, especially on the East Coast where Mainetec has a well-established presence.

Austin also plans to offer Mainetec’s high value dipper buckets into its global markets, particularly North and South America, where there is high demand and a large dipper bucket market.

Mainetec is a leader in the design and manufacture of high performance, customised excavator mining buckets and currently supplies several blue chip mining companies. It builds and upgrades dipper buckets, and supplies the majority of dipper bucket systems in Australia. It also manufactures rope shovels, and offers bucket repairs and spare parts.

Mainetec is expected to have revenue of more than $40 million (on an annualised basis) for the 2023 financial year.

The acquisition is expected to deliver significant synergies through the lower supply chain costs Austin Engineering is able to provide, and optimised operating costs.

The transaction is expected to be >20% accretive to Austin’s FY23 forecast broker consensus-based EPS, including synergies (or >10% excluding synergies) in each case on a full year basis.

Austin CEO and Managing Director, David Singleton said: “The key benefits of this acquisition for Austin are the ability to expand our mining bucket offering in Australia and then to offer that into our other markets around the world.

Mainetec is a technology led business that has developed the Hulk range of buckets suited to demanding applications and has also become a key supplier in Australia for dipper buckets used on rope shovels.

Dipper buckets are typically the largest used in the industry and we will be able to introduce these upgrades through our operations in the much larger Americas markets. Mainetec’s presence on the East Coast of Australia will also support our re-energised activity in that region.

“The acquisition has clear synergies for both companies. Mainetec complements our core business offering and Austin is able to integrate more competitive supply chain economics and cost synergies into the Mainetec business.

“Additionally, in Mainetec we gain a very talented team as well as some leading design IP. I am pleased to welcome the founders of Mainetec and their workforce to Austin, with the determination that Austin will assist them to continue product development that will enable further growth and success in Australia and beyond.”

Financial terms

Austin will acquire Mainetec for $19.6 million less net debt of approximately $1.5 million. The agreement includes a locked-box mechanism under which (subject to completion) Austin will have economic exposure to the Mainetec business from 19 August 2022.

The initial consideration will be paid in cash in three instalments spread over two years, with the first instalment (of circa $11.1 million) due on completion, and the next two equal instalments (of $3.5 million each) payable at the end of years one and two, subject to continued contributions from the three founders of the business.

The initial instalment will be partly funded through a proposed $11 million, three year, fully amortising debt facility from HSBC with the remaining instalments intended to be paid from cashflow. HSBC also currently provides a separate committed $35 million Multi-Option Facility to the Company. The proposed new facility would carry a competitive interest cost of 2.05% above BBSW, in line with the existing Multi-Option Facility.

Austin has also agreed a post-completion arrangement to incentivise further performance over a three-year period, under which up to a further $6 million can be paid (in Austin shares) if various performance hurdles are met.

This incentive arrangement encourages financial and strategic achievement over and above that assumed in the acquisition accretion case. The incentive hurdles relate, respectively, to a higher than assumed revenue level for the Mainetec business; an accelerated roll out of Mainetec’s dipper bucket capability; and the implementation of a new business offering by Mainetec (not disclosed for commercial reasons).

The three founders will be required to continue to be employed by Austin at the end of the three year incentive period in order to receive any earn-out8, and any shares issued will be subject to voluntary escrow for a further 12 month period. All shares to be issued under these incentive arrangements will be issued out of existing placement capacity under ASX Listing Rule 7.1, and so the issue of these shares will not require shareholder approval.