Dynamic to diversify offering with earnings accretive Welldrill acquisition
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Dynamic is looking to build a third revenue stream with its move to acquire Western Australia-based water well driller Welldrill – and its general manager Tim Westcott – for a total of $19m.
And it will do so straight off the bat, given that Welldrill has a tier 1 client base that includes BHP, the Department of Water and Environmental Regulation and OZ Minerals, and will increase the company’s earnings per share by more than 30% in the current financial year.
The water driller is expected to generate revenue of between $26m and $28m along with earnings before interest, taxes, depreciation, and amortisation (EBITDA) of $7m to $8m in the 2023 financial year.
This provides Dynamic Group Holdings (ASX:DDB) with a defensive revenue stream with increased exposure to government contracts and production mining while adding complementary service offering, technology systems, customer base and management expertise.
As part of the acquisition, leading drilling executive and Welldrill general manager Tim Westcott will join the company’s executive management team.
“The Welldrill acquisition will be transformational for the Dynamic business. Welldrill is expected to provide a critical third limb to our existing drill and blast, and exploration and resource definition drilling services,” managing director Mark Davis says.
“The acquisition is consistent with the growth strategy we have articulated since our listing in mid-2020 with Welldrill providing a complementary service offering, increased customer diversification and scale to drive cost efficiencies.
“We are particularly excited to have Tim Westcott, a well-regarded and industry leading drilling executive joining the Dynamic executive management team.”
Westcott highlighted the value of the acquisition by noting that Welldrill had seen its revenue increase over 100% since 2019 and had recently expanded its fleet to meet expected growth opportunities.
The upfront consideration of $14m cash will be funded through the company’s upsized bank facilities and existing liquidity.
Dynamic will also pay the vendor $1m in shares and another $4m in cash at 31 March 2023, as well as adding a newly built water well rig and ancillary equipment.
Besides adding more than 30% to the company’s expected earnings per share, the acquisition of Welldrill will also add six water rigs to its fleet, increasing the total rig count up to 45.
It also brings headroom to increase fleet utilisation and cross-selling opportunities to respective customer bases.
Additionally, Welldrill brings proprietary safety, automation and performance tracking technology that is complementary to Dynamic’s existing offering and will be adopted across its broader fleet.
The acquisition is also expected to provide cost synergies including optimisation of overheads, site personnel, maintenance, and optimisation of plant and equipment utilisation.
This article was developed in collaboration with Dynamic Group Holdings, a Stockhead advertiser at the time of publishing.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.