Pinned straw:
I've caught up this morning with yesterday's capital raising presentation.
This morning $ABB announced a successful $120m institutional placement at $3.55 per share, a 9.4% discount to the last close before the Trading Halt. As might be expected the market moved down this morning in that direction, with SP at $3.60 at time of writing.
An SPP will open to raised a further $15-20m, taking total for the raise to $135 to $140m, which compares with the acquired value of $SYM which I put at around $260m, of which 75% was in cash, or c. $195m.
So, an important part of the drive for the CR is to maintain balance sheet strength. Prior to the acquistion, $ABB was at Net debt-to-EBDITA of 1.0x. Now twith the acquisition and the CR, leverage moves to 1.5x. Reasonably conservative.
Assuming all shares are issued at $3.55 then $140m will be around 40 million shares, compared with current SOI of 239m, so a dilution of 17%.
Of course its not really a dilution as it adds GM of $99m to ABB's GM of $279m, or 35% to give a combined GM of $378m.
So the question to mull over is whether to take this opportunity to increase my position via the SPP.
The presentation is informative, because if provides some insights into how $ABB sees $SYM complementing its business. The chart below shows just how important $SYM is in adding weight to the B+W+E&G segments. And the other slides articulate just how $ABB sees the $SYM product set in complementing its existing capabilities, as well as adding key customers and important partnerships.
In earlier exhanges with $StrawPeople, I think there is a consensus that $ABB continues to win in Resi, and the next battle will be in the other segments. These higher margin segments will be defended strongly by the incumbents and so $ABB adding heft to its capabilities and product set makes good sense.
With my central view on valuation of $ABB being around $4.50, if I believe the $SYM acquisition will be executed successfully and deliver an enhance ability to compete in B+E&G+W, then it makes sense to take the opportunity of the SPP.
So, I will mull this over, but at this stage I am favourably disposed. The acquisition makes sense to me. $ABB have demonstrated their ability to integrated acquisitions successfully as shown by $OTW and they have also shown that they are already competing well in these segments.
I'm still no so sure about the regional / international play, and I hope this doesn't blur the laser focus on the Aussie customer experience. I look forward to deep-diving into this at the next Investor Day.
Disc: Held in RL and SM with strong conviction
My position is totally opposite to that of @mikebrisy. I own symbio but not Aussi. I think Aussi got a good bargain to be honest. Symbio has just gone into 5 years of investment cycle and now was ready to take the benefit of that. I am not sure how two companies get integrated and would alignment be the same.
I am mulling over if i keep the shares of ABB or sell down..
@Strawman , how would staw portfolio will calculate cash and share split - if this transaction goes ahead?
FWIW this is how JP Morgan (who are currently Underweight) viewed it ...
EPS accretion in FY2025 could need substantial synergies
Aussie Broadband is looking to raise A$135-140 million in equity to complete the previously announced acquisition of Symbio. While the company has outlined there is strategic rationale for acquiring Symbio (including diversification, cost synergies and access to new capabilities), we estimate the capital structure used to acquire the business would make it 9% NPV-dilutive before synergies. Additionally, we cannot reconcile management's suggestion the transaction will be EPS-accretive in FY2025. Ultimately, we believe it would take a significant amount of synergies to make the transaction value and EPS accretive (amounting to up to 35% of Symbio's EBITDA). However, with the balance sheet under 1.0x net debt/EBITDA, the transaction leaves room for Aussie Broadband to conduct further M&A
Aussie Broadband raising A$135-140 million of equity: Aussie Broadband today announced an equity raise consisting of A$120 million from an institutional placement and A$15-20 million from a share purchase plan. The use of the funds will be the Symbio acquisition, capital investment pipeline and further M&A opportunities. The combined equity raise and the scrip from the Symbio takeover will see shares on issue rise by over 23%. Accounting for the A$36 million of cash on Symbio????s balance sheet, we estimate the the raising and scrip will almost cover most of the consideration to acquire the company with only a A$25-30 million short fall (excluding transaction costs) to be covered by debt facilities
We cannot reconcile pre-synergy EPS accretion in FY2025: Including the equity raise, scrip consideration, the additional cash required for the purchase of Symbio, we expect the transaction to be EPS-dilutive in FY2024 or FY2025. In our analysis, we have assumed the transaction is effective from February 2024, used proportionate guidance numbers for Symbio FY2024 contribution and Bloomberg Finance L.P consensus numbers for FY2025. We have assumed the new debt facilities will have an effective interest rate of 7% and that the Institutional Placement and Share Purchase Plan will done be at A $3.55/share. While Symbio is net cash, we have included finance costs from lease liabilities
We see 9% NPV dilution from the equity raise and acquisition pre-synergies: Using Symbio's FY2024 guidance, and consensus FY2025 EBITDA, then a growth rate of 3.5% per annum to FY2035 and capex in line with FY2023, A$21 million on PPE and software development, we estimate the transaction and equity raise to be NPV-dilutive. While there will undoubtedly be synergies from the acquisition, these are not as obvious as those from Over the Wire (OTW) given Aussie Broadband is already a Tier-1 voice carrier in Australia. Aussie Broadband's target synergies from acquiring OTW were A$8-11 million over three years. We estimate the Symbio transaction would need A$13 million in synergies after FY2025 to make the acquisition and equity raise NPV-neutral. Albeit the balance sheet at under 1x net debt to EBITDA will be well placed to make further acquisitions
DISC: Held in RL and SM