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Afrimat's Big-Little Acquisition |
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Written by Keith McLachlan
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Tuesday, 04 May 2010 |
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Afrimat just announced the acquisition of Glen Douglas (no, not a whiskey!) from Exxaro Resources for R35 million. The Group goes on to explain that Glen Douglas "...operates a dolomite mine located in the southern part of Gauteng, some 32km south of Alberton and 26km north of Vereeniging. The mine has been in existence since 1954 and there are remaining dolomite reserves for between 30 to 40 years. ... [The mine] recorded sales volumes in respect of its 2009 financial year of approximately 1.2 million tons, which equates to 20.7% of Afrimat`s current aggregates sales volumes." A quick little calculation reveals the following: - Current aggregates account for 63% of Afrimat's total 2009 revenues (i.e. around 63% of the Group's business)
- Thus, around 63% of the Group's market cap of R466 million must be attributable to its aggregates business, or
- R264 million worth of "aggregate market ca" already (=466 mil x 63%)
- 20.7% of R264 million is worth R60,8 million...which is just under half of what the Group paid for Glen Douglas.
In other words, paying R35 million for something that incorporated into the Group looks set to be worth around R61 million is quite a solid deal. In fact, there will probably be at least synergies through cost saving duplicate overhead functions and operational-level details that may well see the post-deal Glen Douglas worth a fair bit more... Like in all deals, time will tell if what makes sense on paper works in reality. But, at first glance and given the rough calculations above, the deal looks good for Afrimat shareholders.
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