Both Sides Win, Obviously
The Australian cleantech company Parkway Corporate (ASX: PWN: FRA: 4IP) is acquiring the long-established private Tankweld Group based in Melbourne. Tankweld employs a total of around 40 staff in its two business units, Tankweld Engineering Service Pty Ltd and Tankweld Installations Pty Ltd, and generated revenue of 16.5 million AUD with an EBITDA of around 2 million AUD in the 2023 financial year.
The publicly listed Parkway brings about 30 employees and had revenue of around 5 million AUD in 2023. On a pro forma basis, the expanded Parkway Group expects consolidated annual revenue of more than 20 million AUD in the current year. Thanks to the synergies identified by both sides, Parkway is confident that the company will be profitable in the near future.
Tankweld’s corporate history dates back to 1940. As a “one-stop shop” for key markets such as water and wastewater, oil and gas, bulk goods, and chemicals, Tankweld offers complete solutions from the early concept and design phase through to workshop manufacturing, installation, commissioning, and maintenance. Tankweld’s customers include established industrial companies as well as regional water authorities and municipalities. On a 4,600 m² industrial site, Tankweld has a 3,000 m² workshop and manufacturing hall with extensive industrial capacities, including overhead cranes and specialized manufacturing facilities. Tankweld has grown significantly in recent years. The annual growth rate over the past three years (2020 to 2023) was 31% CAGR.
Through the acquisition of the Tankweld Group, Parkway gains entirely new capabilities in handling large-scale projects, which should facilitate the commercialization of its proprietary wastewater technology. Through operational synergies and the larger critical mass of the combined group, Parkway will be able to handle larger, more complex projects in the future, which typically have higher margins.
Tankweld Gains Access to Growth Technology
From Tankweld’s perspective, the acquisition is also economically attractive, as the traditional company gains access to Parkway technology, providing an additional lever for future growth. It speaks to the confidence in future growth opportunities that Tankweld owner Jeff Harley (51) agreed to structure the majority of the purchase price based on performance. Only a fraction consists of immediate cash payments. A cash payment of 0.65 million AUD has already been made. In addition, Parkway is taking over an existing Tankweld loan of 1.75 million AUD. The significant portion of payments is performance-based and lies in the future. Based on the 2023 financial year, revenue targets with +20% growth for Year 1 and 15% for subsequent years have been agreed upon over a period of four years. Tankweld is expected to achieve a target EBITDA margin of 12%. If the EBITDA margin falls below 8%, the special compensation agreed with the General Manager will not apply. Parkway can choose to pay 30% of the special compensation in shares.
More details on the Tankweld acquisition are available in a specially published presentation
According to Parkway, Tankweld has a significant order backlog with a volume of over 10 million CAD. Additionally, there is an extensive pipeline of short-term project opportunities estimated to be well over 20 million dollars.
Conclusion: In this acquisition, both sides clearly benefit: The cleantech company Parkway acquires the crucial competencies it would have needed anyway for the commercialization of its wastewater technology, which it would otherwise have had to purchase at a high price on the market, involving a series of execution risks. For Tankweld, a traditional company, the transaction opens up a completely new path for future growth, as Tankweld gains access to an important future technology in wastewater treatment. The acquisition is also advantageous for existing and future customers of the expanded Parkway group. They can expect reliable turnkey solutions from their business partner and will be dealing with a significantly larger and more established company. In the future, Parkway will now be able to operate on the basis of a substantially larger revenue base. As a company approaching profitability, we believe Parkway will also become increasingly attractive to cleantech and growth-oriented funds and could potentially experience a revaluation on its path to profitability. Moreover, Parkway still anticipates a potential hockey stick scenario if its technology is used for desalination of residues from gas production in Queensland. In any case, this acquisition is likely to ensure that new groups of investors take notice of Parkway.
