Johns Lyng (ASX:JLG) share price in limbo amid capital raise and major US acquisition

Man in yellow hard hat looks through binoculars as man in white hard hat stands behind him and points.

The Johns Lyng Group Ltd (ASX: JLG) share price is still in the freezer as the company undergoes a $230 million equity raising ahead of what could end up being a US$202 million acquisition.  

The company will be acquiring Reconstruction Holdings Inc, a United States (US) insurance provider focused on repairs to occupied properties.

At the time of writing, the Johns Lyng share price is halted at $7.14. It’s not expected to trade until the market opens on Monday.

Let’s take a look at the latest news from the building services group.

Johns Lyng’s latest acquisition

The Johns Lyng share price entered a trading halt on Tuesday ahead of the company buying into what’s estimated to be a US$100 billion market.

The acquisition is set to cost US$144 million, plus a potential earn-out of up to US$58 million.

According to the company, the purchase provides an established, profitable, and growing platform to leverage its insurance services in the US.

The acquisition is also expected to leverage and enhance Johns Lyng’s US footprint with its Steamatic business.

Reconstruction Holdings ‘ subsidiary, Reconstruction Experts has a developed model in 4 US states, with authorisations to work in 13 others. Its primary customer base is homeowner associations.

It brought in around US$127.4 million of revenue and US$18.5 million of earnings before interest, tax, depreciation, and amortisation (EBITDA) in the financial year 2021.

Around 80% of its revenue came from defect and damage insurance-related work, with the rest coming from repairs and maintenance work.

What did management say?

The purchase of Reconstruction Holdings follows an 18-month long search for a platform to expand Johns Lyng’s reach in the US. The company’s CEO, Scott Didier commented:

We were attracted to Reconstruction Experts as a platform for our US growth strategy, given the strong culture of its key management team members with whom we have built close relationships over the last few months while reviewing this transaction.

The management team has built an impressive business which has reached an inflection point in its scale and growth.

Johns Lyng share price frozen amid $230 million capital raise

To fund the acquisition, its costs, and to ensure financial flexibility following it, Johns Lyng is undergoing a capital raise.

It involves a $187.5 million institutional placement and a $42.5 million entitlement offer.

The entitlement offer will see new shares going for $6.80 apiece. The placement will be undertaken at a variable bookbuild price, with the floor price being $6.80.

That represents a 4.8% discount on the company’s current share price and a 7.2% discount on its 5-day volume weighted average price.

The entitlement offer will see existing shareholders able to buy 1 new share for every 35.91 shares they hold.

Trading update and management changes

The market also might be eying the Johns Lyng share price following a trading update from the company.

Within the update, Johns Lyng upgraded its guidance for the financial year 2022.

The company expects its acquisition will contribute $96.9 million of revenue and $13 million of EBITDA over the 6 months ending 30 June 2022.

Thus, the company expects to achieve revenue of $732.3 million and EBITDA of $73.1 million in financial year 2022.

The new guidance includes existing known run-off work from recent CAT events. Though, is not a forecast for future potential CAT events.

Additionally, the company has decided to implement a management restructure.

From 1 January, Didier will take up the role of global CEO. He will co-reside between Melbourne and Reconstruction Expert’s headquarters in Denver.

The current chief operating officer (COO), Lindsay Barber, will also pick up a new hat, assuming the role of global COO.

Finally, current executive general manager Nick Carnell will step up to be the company’s Australian CEO.

Right now, the Johns Lyng share price is 121% higher than it was at the start of 2021.

The post Johns Lyng (ASX:JLG) share price in limbo amid capital raise and major US acquisition appeared first on The Motley Fool Australia.

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Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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