In 2018 Insimbi acquired Group Wreck International for R120 million and in 2016 they acquired Amalgamated Metals Recycling (Pty) Ltd for R284 million.
JSE-listed Insimbi Industrial Holdings (ISB) has informed shareholders that in terms of Section 9 of the JSE Limited Listings Requirements, Insimbi has extended an offer to the shareholder of Treppo, being Texiflash Proprietary Limited (the Vendor), who has agreed to the key terms of the proposed transaction, which will see ISB acquiring control of Treppo which is made up of its MetalCorp and Treppo trading divisions, Bulk Ferrous Exports Proprietary Limited as well as interests in an unincorporated joint venture with CRMN Trading Proprietary Limited, Metfurco Trading Proprietary Limited, Steelco Broking Proprietary Limited and FragCorp Proprietary Limited. The transaction is subject to the fulfilment of all suspensive conditions relating to the proposed acquisition. This follows a cautionary announcement issued 20 March 2019, renewed on 18 April 2019 and 29 May 2019.
Effective date and conditions precedent
ISB says the transaction will become effective once all the suspensive conditions to the transaction agreement have been met. It is expected that a ruling by the Competition Commission may be required as a final condition to be met. All things being equal, it is expected that the effective date will be on or about 1 September 2019, assuming the timely submission of the necessary merger notification to the Competition Commission.
Key suspensive conditions to the proposed transaction include, amongst others, the finalisation of the relevant transaction agreements, funding arrangements, employment agreements with key executives, appropriate immovable property rental agreements, as well as the necessary regulatory approvals as may be required (e.g. Competition Commission).
An additional suspensive condition to the finalisation of the proposed transaction is that no material adverse change would have occurred regarding the business of Treppo as at the Effective Date.
The business of Treppo
Treppo is involved in the sourcing, trading and purchasing of recycled metals, mainly ferrous or steel metal in the greater Gauteng area, South Africa. The business has a 13-year track record in this niche sector of the market and has experienced significant growth during the recent past. The business operates from its Head Office in Marlborough Gate, Hyde Park and premises at 110 Kreupelhout Street, Wadeville, Unit 10A Unifront Industrial Park, Wadeville and 151 South Coast Rd, Rossburgh, Durban.
The business offers services in the field of metal trading, processing, recycling, logistics, procurement and supply of various grades of metals to the local metal melting industry. The business strives to supply local end users wherever possible and will occasionally export limited volumes. The business also has the rights to sell Belgian origin Lefort machinery equipment, a world leader in the supply of metal recycling equipment. It also has a joint venture in a chrome trading venture.
Transaction consideration and other terms
The transaction consideration is an initial amount of R109 million, (including loans), payable by Insimbi to Treppo and its subsidiaries. This is subject to certain warranties by the Vendor regarding the net asset value at Effective Date and future profits to be achieved by Treppo. A further amount limited to R8.5 million may also become payable based on the achievement of certain profit targets set over the initial 36-month period post acquisition. The breakdown of the transaction consideration is set out below:
Cash: Up to R102.5 million in tranches as follows (subject to the net asset value warranty described below) R74 million payable on Effective Date.
Vendor Loan: To the value of R20 million, repayable after a period of three years, bearing interest at a rate of prime less 2%. Repayment of the capital amount may be extended to a maximum of five years, at the option of Insimbi.
Additional payments: Should Treppo exceed the profit target of R90 million in a 36-month period post acquisition (i.e. an average of R30 million per annum), calculated on a pro rata basis an additional amount limited to R8.5 million will become payable by ISB to Texiflash in cash once certified by the auditors.
ISB shares: 11 538 462 shares to be issued at R1.30 per share equivalent, to the value of R15 million in aggregate, and
Profit warranty: The transaction consideration defined in terms of the offer is however subject to Treppo maintaining an average profit before tax of R30 million per annum for the next three financial years, or R90 million profit before tax in aggregate over 36-months post implementation of the acquisition.
Surety: The Vendor Loans, as well as the ISB Shares will secure the Vendor’s obligations in terms of the final transaction agreements.
As a result of these arrangements, a maximum purchase consideration of R117.5 million may be payable, at a then effective price earnings ratio of approximately 4.1 times earnings.
Net assets and attributable profits
It is agreed that Treppo will, on the Effective Date report Tangible Net Asset Value (“TNAV”) of at least R90 million. Should the TNAV of the business be less than the warranted amount, the acquisition price will be adjusted.
Rationale for the transaction
The rationale for the transaction is to expand Insimbi’s ferrous business, expand its client base, and enhance its access to raw material for purposes of beneficiation, as well as access to an experienced management team and its international trading network and further to exploit the synergies that exist between the two groups which may include cost savings, improved margins, increased global and regional footprint and most importantly, further diversification of Insimbi into a larger industrial conglomerate.
For more information contact Insimbi Group of Companies on TEL: 011 902 6930 or visit the website www.insimbi-iras.co.za