Scidev Ltd - SciDev accelerates its penetration of the US$2.5bn U.S. oil & gas market via strategic acquisition
Scidev Ltd (ASX:SDV)

SciDev accelerates its penetration of the US$2.5bn U.S. oil & gas market via strategic acquisition

Highlights

What's happened

SciDev Limited (ASX:SDV; SciDev) has entered into a binding Heads of Agreement to acquire Highland Fluid Technology Inc (Highland), a US private company supplying bespoke chemistry and services for fluid recycling and water reuse in the US$2.5B onshore oil and gas sector.

Why is this significant?

SciDev have supplied products to Highland for commercial evaluations with end users in 2019. SciDev’s chemistries have passed both technical and commercial milestones with both Highland and their clients and are now ready for commercial roll out.

What are the key highlights?

  • Highland delivered revenue of c.US$~7.8m in CY2019. A milestone payment of US$1m (inclusive in the US$6m total acquisition price) is payable upon the Highland business delivering US$20m in revenue at a target EBITDA margin in CY2020.
  • Highland’s management team, including existing director Kevin Smith, and oilfield experts Chad Abbott and Tom Lingle will remain within the organisation, expanding the SciDev North American footprint in support of continuing business development opportunities
  • The acquisition of Highland is expected to contribute positive cashflow and profitability to SciDev from the date of acquisition. The transaction is expected to be EPS accretive in FY2021, the first full year integration.

What does this announcement mean?

Erik Bergseng CFA® from Mawson Graham provides perspective on this recent announcement.
Erik Bergseng CFA®
Written by Erik Bergseng CFA®
Published Jan 02, 2020

The new SciDev and Highland team will be working together to execute on an aggressive growth strategy within the US$2.5bn U.S. oil & gas market. SciDev will provide its chemistry solutions to the customer base of Highland by leveraging its relationship with Nuoer Group. This acquisition and growth strategy has been significantly de-risked due to the completion of earlier technical and commercial tests in 2019. Highland have accepted scrip payment at A$0.60/share for the majority of its payment and consequently are invested heavily in SciDev's success as a listed vehicle. Overall, the Highland acquisition is highly complementary and it will allow SciDev to establish a significant foothold in this lucrative international market.

The acquisition also appears to be on attractive terms being ~0.76x revenue. This is especially true considering the Highland business is cash-flow positive and also has a milestone payment including an aggressive US$20m revenue KPI. Similar to the ProSol Australia acquisition, SciDev have again strengthened their team with U.S. staff who have intimate knowledge of the U.S. market which will further increase the likelihood of greater market penetration.

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Managing Director's Summary

Lewis Utting

“Highland offered an attractive investment opportunity for SciDev given the calibre of their people, strong customer focus, innovative technology and the company’s existing footprint in the attractive US oil & gas sector. The acquisition provides Highland with access to SciDev’s supply chain through our strategic supply partner, the Nuoer Group, delivering margin upside on the existing Highland business. This access now provides Highland with the surety of quality chemical supply required by the largest oilfield service providers, allowing SciDev and Highland to realise our growth potential in this market. We welcome Kevin, Chad and Tom and the remainder of the Highland team to SciDev and we look forward to what is an exciting start to 2020.”

Lewis Utting
Managing Director, Scidev Ltd

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