Lendlease collects $310m for its services Business that was always destined for the chopping block

Lendlease collects $310m for its services Business that was always destined for the chopping block

Melbourne-based critical networks development and maintenance provider Service Stream (ASX: SSM) has today announced the acquisition of Lendlease Group’s (ASX: LLC) services wing at a purchase price of $310 million.

The deal was struck at five-times earnings, on an enterprise value to EBITDA basis post synergies.The deal marks the end of a long-winded sales process for construction giant Lendlease, which first began looking for a suitor in January 2020. Though plans were put on ice due to the pandemic, that auction was restarted this May.

Lendlease Services was first flagged for offloading as part of an internal review in November 2018, which deemed both the services and engineering divisions to be non-core. Lendlease first moved to sell its services and engineering operations in 2019 after cost blowouts on projects. At that time it offered a pre-tax $500-million provision for three underperforming roadworks projects in 2018 and underpinned a $310-million loss in 2019-20.

Incoming owner, the ASX-listed Service Stream, holds a market value of about $350 million. The company provides integrated end-to-end asset life cycle services to utility and telecommunications owners, operators and regulators across Australia.

The deal, which is scheduled to close by the end of the calendar year 2021, is subject to a number of conditions, including client and third-party approvals.

Service Stream is using a fully underwritten placement and pro rata accelerated non-renounceable entitlement offer to raise roughly $185 million for the purchase.

The raising comprises a one for three entitlement offer of around $123.1 million, comprising an institutional entitlement offer and a retail entitlement offer, and placement of roughly $61.9 million.

All shares under the offer will be issued at $0.90 per share with approximately 205.6 million new fully paid shares to be issued, equivalent to approximately 50.1 per cent of existing ordinary shares on issue.

The offer price represents a 6.2 per cent discount to the last traded share price of 96 cents.

Under the entitlement offer, each eligible shareholder is invited to subscribe for one share for every three they own as of 7 pm AEST July 23.

At the offer price, a $61.9 million fully underwritten placement will be offered to institutional investors in Australia and in some other countries.

Global Chief Executive Officer, Tony Lombardo, said: “The divestment of the Services business, along with other recent divestments including the sale of the Engineering business and the US Telecommunications and Energy businesses, aligns with the Group strategy to be more focused on the areas where our competitive edge is the strongest.”

Service Stream Managing Director, Leigh Mackender, said: “The combination of our two businesses will create a diverse, multi-network essential service provider, operating across the growing infrastructure services sector.”

Following the announcement, Lendlease share prices rose. The company opened at $11.57 this morning, and at time of publication, was trading at $11.71.

Analysts broadly welcomed Lendlease’s long-anticipated exit from the services business. “Execution on sale a marginal positive, but the result is in line with expectations,” Macquarie analyst wrote in a client note.

“The capital from the sale of the services business should now be released into investments/developments, aiding growth in core earnings.

“Into reporting season, we see upside risk from the announcement of a significant cost-out program, albeit downside from continued delays in progress on the urban regeneration pipeline.”


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