Vysarn Limited’s A$38m power move: Eyes dominance in Australia’s water industry boom

Vysarn Limited, a vertically integrated water services company, has announced a significant step in expanding its portfolio with the acquisition of CMP Consulting Group Pty Ltd, a Melbourne-based consulting engineering company specializing in water infrastructure services. The acquisition, valued at AUD 24 million in cash and 10 million Vysarn shares, forms part of a broader strategy to position Vysarn as a leader in the water industry amidst a wave of infrastructure investments across Australia.

Acquisition and Capital Raising to Fund Growth

Vysarn’s acquisition of CMP Consulting Group includes an upfront cash consideration of AUD 24 million, supplemented by 10 million ordinary shares of Vysarn, with further deferred considerations of up to 30 million shares based on CMP achieving specified earnings before interest, tax, and depreciation (EBITDA) targets over three years. These shares will remain in voluntary escrow for 12 months following issuance. The acquisition, expected to close on or around 31 October 2024, is anticipated to make CMP a wholly-owned subsidiary of Vysarn, provided it meets the pre-defined working capital and debt levels.

To finance the acquisition, Vysarn has successfully raised approximately AUD 38.2 million through a placement of 95.5 million new fully paid ordinary shares at AUD 0.40 per share. This fundraising effort received strong backing from institutional and professional investors, facilitated by Morgans Corporate Limited and Unified Capital Partners as joint lead managers. The raised capital will be directed towards funding the cash component of the CMP acquisition, adjusting for working capital and debt, and supporting Vysarn’s ongoing operational requirements, including the development of the Kariyarra water resource.

Strategic Expansion in the Water Infrastructure Market

James Clement, Managing Director and CEO of Vysarn, stated that the acquisition of CMP Consulting Group would be transformative, particularly when combined with Vysarn’s ongoing efforts to acquire Waste Water Services Pty Ltd. Clement emphasised that the consolidation would provide national scale, diversify clients, and position Vysarn to capitalize on a burgeoning water infrastructure market. The anticipated boom is backed by over AUD 50 billion earmarked for water projects across Victoria, New South Wales, and Queensland over the next decade.

CMP Consulting Group brings a wealth of expertise and long-term relationships with major metropolitan and regional Victorian water authorities, government departments, and interstate councils. Since its founding in 2008, CMP has offered end-to-end water engineering solutions, encompassing potable water treatment, wastewater transfer, and recycled water management. The acquisition is poised to leverage CMP’s existing client base and expand Vysarn’s footprint across Australia.

Expert Opinion: A Timely Move Amidst Industry Growth

Industry experts believe that Vysarn’s acquisition of CMP Consulting Group is strategically timed, coinciding with significant government and private sector investment in water infrastructure projects across Australia’s three most populous states. The acquisition aligns with Vysarn’s capital-light business model and aims for stable, long-term earnings growth.

Vysarn’s decision to maintain an EBITDA-based earn-out structure for the acquisition underlines its confidence in CMP’s ability to deliver robust financial performance. The potential for further share issuances upon meeting these targets indicates a flexible yet focused approach to integration, allowing CMP to grow while contributing to Vysarn’s bottom line.

As a result of this acquisition, Vysarn’s proforma net profit after tax (NPAT) is expected to increase by over 20%, with combined projections from CMP and Waste Water Services potentially pushing this accretion above 35%. This positions Vysarn to achieve significant financial growth while expanding its influence in the water services market.

Stock Performance and Sentiment Analysis

Vysarn Limited’s recent financial manoeuvres have had a positive impact on its stock price. As of September 13, 2024, Vysarn’s share price is trading at AUD 0.505, marking a 6.32% increase. Over the past year, the company’s stock has surged by 152.50%, reflecting strong market confidence in its strategic acquisitions and growth prospects. The company’s earnings have increased by an impressive 1983.9% over the past year, contributing to a robust investor sentiment.

Despite the stock dilution resulting from the capital raise, Vysarn’s stock maintains a Price-to-Earnings (P/E) ratio of 26.72, which suggests potential for further growth. Analysts see the company’s strategic positioning in the booming water infrastructure sector as a key driver for future performance. This optimism is further supported by the company’s growth in earnings and solid market fundamentals.

Future Outlook and Potential Impact on the Water Industry

Vysarn’s acquisition spree reflects a strategic response to an expected surge in water infrastructure development, spurred by both public and private investments. By bringing together CMP and Waste Water Services under its umbrella, Vysarn is set to benefit from a diversified portfolio, providing greater stability and growth prospects for its shareholders. The company’s expansion aligns with the need for sustainable water management solutions, which are increasingly in demand due to climate change and urban expansion.

The market will be closely watching how Vysarn manages the integration of CMP and the subsequent performance metrics that determine the deferred share consideration. If successful, this acquisition could serve as a template for similar future transactions in the water infrastructure sector, where strategic consolidation can lead to significant value creation.