Despite a challenging period, Steel & Tube was beginning to see positive signs, including a potential recovery in manufacturing activity, Malpass said.
Interest rate cuts could stimulate activity, while government spending on infrastructure projects and the fast-track approval process would lead to increased project work, he said.
‘Nice adjacency’
Steel & Tube announced the purchase of privately owned Perry Metal Protection for $43.5m.
The company said Perry Metal Protection would provide earnings consistency through the cycle and had strong brands with market-leading positions, including in hot-dip galvanising, where it held more than 40% market share.
Malpass told analysts there was an existing 75% overlap between Steel & Tube and Perry’s customers, with an opportunity to sell its products to the other 25%.
Where Steel & Tube was using competitor products to Perry, it could redirect that business, he said.
“It’s a really nice adjacency for us.”
A further $6m performance payout was part of the deal, and Steel & Tube would pay for the business with 70% cash and 30% with newly issued shares.
Earnings accretive
Malpass said integrating the acquisition would cost about $800,000, while synergy benefits were estimated to be about $1m per year following integration.
The acquisition would be earnings accretive “from day one”.
The deal should be completed by early May after Steel & Tube has worked through conditions, including lease arrangements for some galvanising sites and environmental baseline reports for the plants.
The acquisition included Perry Metal Protection, Perry Grating and Waikato Sand Blasting.
The Perry business has six sites across New Zealand and 113 staff.
Malpass said Perry had demonstrated steady performance, and Steel & Tube probably wouldn’t have been able to afford the acquisition in three to five years as the market improved.
Further merger and acquisition opportunities remained, he said.
