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Johns Lyng share price rockets to an all-time high on game-changing acquisition

James Mickleboro

Although it faded as the day went on, at one stage the Johns Lyng Group Ltd (ASX: JLG) share price was one of the best performers on the All Ordinaries index on Tuesday.

The integrated building services company’s shares stormed as much as 13% higher to reach an all-time high of $1.75 before finishing the day just over 4% higher at $1.62.

Why did the Johns Lyng share price rocket to an all-time high?

Investors were buying the company’s shares after it announced a new acquisition which is expected to be accretive to earnings in FY 2020.

According to the release, Johns Lyng has acquired a controlling equity interest in the Sydney-based Bright & Duggan Group, effective today.

The release explains that Bright & Duggan is a leading Strata and Facilities Management business with 14 offices across four states and territories with more than 220 full time equivalent staff.

The business operates well-established and widely recognised strata and facilities management brands including Bright & Duggan and Cambridge Management Services. It currently has over 55,000 strata titled units under management across more than 1,500 strata schemes.

What are the terms of the deal?

Johns Lyng has agreed a fee of $13.8 million cash for a 51% voting/46% economic equity interest, which will be funded from its existing acquisition finance facilities.

The deal includes a potential earn-out based on Bright & Duggan’s FY 2020’s financial performance.

Existing net interest-bearing debt of approximately $1.5 million will be assumed by Johns Lyng on completion, with third-party interest-bearing debt to be re-financed with Australia and New Zealand Banking Group (ASX: ANZ) post completion.

The acquisition of Bright & Duggan is expected to be earnings accretive and is forecast to contribute revenue in the order of $31 million and EBITDA of approximately $4.5 million in FY 2020.

Game-changer.

The company’s chief executive, Scott Didier AM, believes the acquisition will be a game-changer.

He said: “This acquisition is truly a game changer for Johns Lyng Group. The Australian strata market comprises in excess of 2.6m strata titled lots nationally. This opportunity presented a compelling investment proposition and growth opportunity for the group with inherent revenue synergies in collaboration with our other businesses.”

Adding: “With a 40-year demonstrable track record, significant brand equity and a diverse client base, Bright & Duggan’s capital-light business model and strong cashflow aligns well with the group.”

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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. 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. 2019