American conglomerate General Electric could buy up Australian mining products and services provider Industrea in a $470 million deal, in a branding and investment coup brought about by several years of hard slog.
In a very unusual move, General Electric is not insisting on buying the entire company. It has given Industrea until the meeting in which shareholders vote on the deal in October to sell off one of its divisions, Industrea Mining Services (IMS). If Industrea can’t find a suitable buyer by then, GE will offer to buy the company outright.
The proposed sale is a remarkable result for Industrea’s chief executive and managing director Robin Levison. When he became the managing director in September 2004, its share price was just two cents. Shareholders stand to make $1.27 cash a share if the sale goes through, which is a 48% premium on its Tuesday close, which was 85 cents.
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Levison tells LeadingCompany that GE approached it after conducting a global review of possible acquisitions in the mining equipment market and deciding it was a suitable business to acquire.
Levison originally joined the company as a consultant. GPS Online, as it was called then, named after its product, which prevents collisions on mine sites and in other industrial environments. Founded in 1987 and listing in 1999, the company struggled and had accumulated losses of more than $15 million since listing. Investors brought in Levison, a Kiwi accountant turned investment banker and broker, who after eight weeks advised he thought the company could be saved. The investors were so impressed they told the company they would continue to fund it only if Levison became CEO.
To make good on his optimistic assessment, Levison accepted. As chief executive and a year later managing director, his base salary was $120,000. He also received two million shares as well as options.
It wasn’t smooth sailing at the start. Industrea was in dire straits, and Levison had to reduce the company’s staff from 48 to 12, and halt most of the group’s research and future development projects. He refused a board seat until November 2005. He demanded a formal insolvency statement every four weeks to see how close to the precipice the company was.
Things slowly improved as Industrea bought out companies with promising growth potential in complementary areas, coupled with a focus on delivery. The first acquisition was QVEN in February 2005, followed by Advanced Mining Technologies in December that year, Wadam Industries in September 2006 and PJ Berriman just two months later.
Industrea had little cash on hand. Levison would pay for the acquisitions by small capital raisings, and by offering the target company owners Industrea shares to supplement the money. This required the owners to take a leap of faith in Levison’s abilities.
All made millions by hitching their wagon to Industrea. Industrea’s revenue in 2004-2005 was $3.5 million, with $1.4 million in pre-tax loss. A year later, sales were $10.5 million and pre-tax profit was 1.9 million. In the 2010-2011 financial year, it made $47.5 million in profit.
“I’m personally delighted with the outcome,” Levison tells LeadingCompany.
“I think what it indicates is the success of the strategy we put in place nearly eight years ago now, to move what was a very small and unsuccessful business, and orient it towards the mining sector, as well as the focus we’ve maintained towards the really unique, high intensity products that improve productivity and safety.”
“We’ve grown in eight years from about seven or eight people to well over 700. From a few million in revenue to some hundreds of millions coming from multiple overseas jurisdictions. We’re all delighted that a company like GE is interested in us.”
With the timing of the GE deal, Levison looks to have made another smart move. Analysts told LeadingCompany the acquisition by GE comes just in the nick of time for Industrea shareholders, as they believe a large fall in the share price was staved off by the announcement of the acquisition.
As well as the acquisition announcement, Industrea yesterday posted guidance for a net profit of between $40 million and $45 million, below its $47.5 million result last year. The poor result was due to a delay in the placement of expected orders and a lag in bringing to market a full gas draining solution that impacted the company’s Chinese and Australian sales. “A new Five Mine contract will more than compensate for the lost revenue in FY2013,” the company said in a statement.
Regarding the unusual acquisition structure, Levison tells LeadingCompany that in negotiations, the board decided parties other than GE may be willing to pay more for the IMS business, an assessment GE agreed with.
The unusual deal rewards investors twice, analysts said. One analyst contacted by LeadingCompany said he hadn’t come across any similar deals before.
Despite recent downgrades, Levison has done brilliantly for the company’s long-term investors. By taking a large part of his salary in shares, he’s done well for himself too.
“When I look at GE and think how they made the jet engines that powered the A380, I think that they’re really about excellence,” he says. “And I’m really proud of the fact that in a global review of businesses they wanted, Industrea was the main acquisition that they made.”
“It made me very proud of it and all the people who’ve assisted in this process.”
The sale isn’t an exit strategy for Levison and his team. “The positive thing is that GE doesn’t have any businesses like Industrea,” he explains. “So it’s not really an integration situation – we’re a platform they intend to build upon. So while we’ve had very limited talks about the future, it’s my expectation there’ll be a job for everybody.”
“GE will apply its expertise and capital, as well as their global reach, to assist us in growing the business.”