Vysarn Expands Water Services with Strategic $7.5 Million Acquisition of Waste Water Services

About Vysarm Limited

Vysarn Limited (Vysarn, the Group, ASX: VYS) is focused on the integration and development of water specialised services and technologies by designing, manufacturing, installing and maintaining wastewater, sewage treatment, and potable water plants. These activities cover hydrogeological drilling, test pumping, reinjection water services and water consultancy services. The Group services blue chip clients across the mining, oil and gas and industrial sectors, as well as municipalities and the large scale domestic urban development sector.

Strategic rationale of Waste Water Services acquisition

Vysarn has officially completed the $7.5 million all cash acquisition of Waste Water Services Pty Ltd (WWS). As the name implies, WWS designs and delivers wastewater treatment services.

The relatively modest size of the acquisition suggests that it can be considered as more of a strategic decision rather than purely as an economic one. Responsible wastewater management is a critical and growing environmental issue for Vysarn’s existing and target clients. The majority of Vysarn’s existing and target clients require a solution for wastewater management, and this is the underlying strategic rationale for this well-timed acquisition.

WWS has 18 staff and has been providing wastewater solutions to tier-1 clients for 25 years. It has a manufacturing facility in Western Australia and manufactured products include specialised sewage transfer stations, industrial waste systems and sewage treatment plants. These products are consistent with Vysarn’s clearly defined strategy to diversify revenue streams, service capability and sector exposure within its vertically integrated suite of water service offerings.

Highly value-accretive Acquisition

The acquisition of WWS is immediately highly earnings per share accretive in that Vysarn is paying just 4.46 times earnings for the business. This compares to the more than 20 times earnings multiple applied by the market to Vysarn shares. This is a classic example of the public company merger arbitrage that arises when a publicly listed company like Vysarn uses its scrip as currency to buy a private company like WWS.

The second noteworthy point is that the typical private company capital constraints that have limited WWS’s ability to pursue growth opportunities will not impact Vysarn’s strategic growth pursuits.

Thirdly, since Vysarn has paid cash for the WWS business, there is no earnings per share dilution, and in fact, earnings per share is immediately enhanced by more than 20 percent.

Significant wastewater treatment growth opportunities

The WWS acquisition provides Vysarn with a platform for significant growth to broaden its service offering by sector and geographically into the East Coast market. New opportunities beyond West Australian mining clients include industrial and municipal clients requiring wastewater treatment solutions in regional towns with a population less than 5000 people.

WWS has installed 165 wastewater plants over the past 28 years and a growing number of these plants require replacement. Vysarn is now ideally placed to commission and install new plants and to service new industry sectors beyond mining villages that include caravan parks, camp sites, and ski villages. Given its recently acquired manufacturing plant, Vysarn can build, own, and operate these plants for no upfront cost to their client.

Looking ahead

In assessing the long-term earnings prospects of a growth-oriented business like Vysarn, the key focus is not so much the state of the business today, but how well positioned it is for the future. This explains the investment case for Vysarn in that its evolving business model, especially its planned low capex activity to deploy the build-to-rent strategy, has the potential to generate high-quality and long-term recurring revenue streams as an asset manager.

Vysarn intends to accelerate the deployment of WWS manufactured modular skid-mounted sewage treatment plants nationally by leasing modular units to clients that include mining villages, caravan parks and other full accommodation sites for up to 2,300 people. This growth strategy extends to regional wastewater treatment plants for regional towns. Australia is a vast country with 9.7 percent of the population living in 1,600 regional and remote towns, with populations below 5,000 people.

Now that Vysarn’s specialist capabilities extend to construction management of wastewater and sewage infrastructure assets, the Group is ideally positioned to establish a water infrastructure asset management business. This has the potential to add significant shareholder value to the Group by earning asset management fees payable from the tolling of water infrastructure assets.

The responsible management of wastewater and sewage treatment is an escalating environmental issue that presents significant shareholder value accretion opportunities for Vysarn.