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Johns Lyng share price rises on acquisition announcement

Phil Harpur
ASX shares soaring higher

The Johns Lyng Group Ltd (ASX: JLG) share price has surged 3.5% so far today following an announcement that it has acquired a 60% interest in Air Control Australia.

What does Johns Lyng do?

Beginning in 1950s, JLG has grown into a national business with over 800 employees servicing a client base comprising major insurance companies, commercial enterprises, local and state governments, body corporates/owners’ corporations and retail customers.

Johns Lyng currently has a market capitalisation of $621 million and its share price has increased by more than 120% over the past 12 months. Shares currently trade with a price-to-earnings ratio (P/E) ratio of 46 and offer a fully franked trailing dividend yield of 1.1%.

What did Johns Lyng announce?

This morning, Johns Lyng announced is has signed a binding contract to acquire a 60% controlling equity interest in Melbourne-based Air Control Australia Pty Ltd, a leading heating, ventilation and air conditioning mechanical services business.

Founded in 2004, the business has established a strong track record servicing commercial office buildings, hotels, shopping centres, and large retail chains. Air Control’s client base comprises blue-chip brands including Hyatt, Pullman and Miele, among others.

Johns Lyng announced it will pay $1.6 million cash as well as $0.3 million in JLG shares at the completion of the acquisition, plus a potential earn-out over 18 months for its equity interest in the business.

Residual equity will be retained by Air Control’s co-founders and joint managing directors Luke Vandersluis and Anthony Zisis.

John Lyng commented that Air Control generates recurring, annuity-style maintenance revenues plus project and emergency work from a diversified client base and maintains a capital-light business model well aligned with Johns Lyng Group.

Significant synergies that can be tapped into

Johns Lyng believes that Air Control’s client base and established brand equity, coupled with its maintenance and emergency work, present significant organic growth opportunities for the group. In turn, this offers major cross-sell opportunities for its existing businesses.

Johns Lyng commented that this includes adding capability to its core Insurance Building and Restoration Services segment through addressing the broader maintenance requirements of Air Control’s clients.

The company also believes that it can leverage Air Control’s offering through its existing client base, including cross-selling into the strata market through its subsidiary Bright & Duggan.

While Air Control has developed a strong brand presence in the Melbourne market, Johns Lyng will look to expand upon that nationally through its existing platform, and also explore further acquisition opportunities.

The deal is expected to complete in mid-March (subject to customary closing conditions) and is expected to be earnings accretive in FY20. The acquisition will be funded through the company’s existing debt facilities with Australia and New Zealand Banking Group (ASX: ANZ).

The post Johns Lyng share price rises on acquisition announcement appeared first on Motley Fool Australia.

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Motley Fool contributor Phil Harpur owns shares of Australia & New Zealand Banking Group Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2020