The A$561 million (US$377 million) price of Orica’s proposed acquisition of Canadian mining and civil technology company Terra Insights from Los Angeles PE firm Vance Street Capital “appears full” on available Terra financial metrics, says investment bank Morgan Stanley.
Orica says Vancouver-based Terra’s end-to-end sensors, software and data delivery technology platform complements its GroundProbe monitoring and burgeoning digital solutions business. An existing commercial “partnership” between GroundProbe and Terra spans about 10 years, Orica says.
Mining accounts for 56% of Terra’s revenue; civil activities 44%. It is North America and Europe-centric (plus-75% of revenue). It’s monitoring instrumentation, sensors, data loggers and software products are used to track and report on deformation, displacement, tilt, vibration, water levels and pressure.
Morgan Stanley says in a note the deal, expected to close in the first half of 2024, certainly seems complementary and in line with Orica’s tech-expansion strategy. The acquisition price, though, “appears full given a circa-10% EBITDA three-year CAGR”.
“While synergies are referred to there is no quantification or indication of where these will come from,” the bank says.
“Similarly, we have no track record of revenue growth or other financial history other than the EBITDA CAGR.”
Terra’s C$505 million enterprise value implied 15.3-times CY23 pro-forma EBITDA of C$33m.
Orica expects to fund the deal via existing cash and committed undrawn bank debt facilities and maintain its gearing below the low-end of its target range.
The acquisition should be earnings-per-share accretive by FY25, it says.
Orica CEO Sanjeev Gandhi said: “The acquisition allows Orica to offer a more complete geotechnical offering to customers as well as adding an established stream of recurring software revenue.”
Terra’s EBIT contribution in FY2024 was expected to be “largely offset by integration costs; increased net financing costs and incremental amortisation to be confirmed post transaction completion”.
Vance Street managing partner Brian Martin said the Terra Insights exit would mark the fifth realisation for the firm’s Vance Street Fund II.
“Terra CEO Mark Price and the Terra team have done an exceptional job of executing on the strategy, taking niche hardware solutions and transforming Terra into one of the leading innovative sensors and data delivery technology providers for geotechnical, structural and geospatial monitoring in mining and infrastructure,” Martin said.
The 20-year-old mid-market PE firm invests in “highly engineered solutions businesses” across the medical, industrial, aerospace and defence sectors.
