Win-win transaction
Australian cleantech company Parkway Corporate (ASX: PWN: FRA: 4IP) has acquired privately owned Tankweld Group, which has been established for decades and is based in Melbourne. Tankweld employs a total of around 40 people in its two divisions Tankweld Engineering Service Pty Ltd and Tankweld Instalations Pty Ltd and generated revenue of AUD 16.5 million with EBITDA of around AUD 2 million in the 2023 financial year. Parkway, the listed company, has around 30 employees and generated revenue of approximately AUD 5 million in 2023. On a pro forma basis, the enlarged Parkway Group expects consolidated annual revenue of more than AUD 20 million. Thanks to the increasd revenue and operation synergies identified by both parties, 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 materials and chemicals, Tankweld offers complete solutions from the early concept and design phase through to workshop fabrication, 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 production hall with extensive industrial capacities, including overhead cranes and specialised production facilities. Tankweld has grown considerably in recent years. The annual growth rate over the past three years (2020 to 2023) was 31% CAGR.
Figure 1: Tankweld’s production hall is located in the south-east of Melbourne. Major customers, including large industrial companies, rely on Tankweld’s manufacturing capabilities to realise their large-scale projects. Source: Parkway Corporate
Figure 2: Tankweld played a key role in this flagship project for South East Water. Tankweld was responsible for the installation of a new clarifier including all mechanical components, access bridge, scraper and flume installation. This was in addition to the installation of pumps, pipework, boiler, UF plant, polymer mixing and the design, manufacture and installation of the pipework for the CHP plant. Source Parkway Corporate
Through the acquisition of Tankweld Group, Parkway gains new capabilities in the management of large-scale projects, which should facilitate the commercialisation of its proprietary wastewater technologies. Operational synergies and the greater critical mass of the combined group will enable Parkway to handle larger, more complex projects, which tend to be higher margin.
From Tankweld’s perspective, the acquisition is also commercially highly attractive, as access to Parkway’s technology will give the long-established company additional leverage for future growth. The fact that Tankweld owner Jeff Harley (51) agreed to make the majority of the purchase price contingent on success speaks in favour of the confidence in future growth opportunities. Only a fraction consists of immediate cash payments. A cash payment of AUD 0.65 million has already been made. In addition, Parkway is taking over an existing Tankweld loan totalling AUD 1.75 million. The majority of the payments are performance-related and are due in the future. Based on the 2023 financial year, revenue targets of +20% growth for year 1 and 15% for subsequent years were agreed over a period of four years. The targeted EBITDA margin for Tankweld is 12%. If the EBITDA margin is below 8%, the special remuneration agreed with the General Manager will be cancelled. Parkway may decide to pay 30 % of the special remuneration in shares.
For more details see the Transaction Presentation
According to Parkway, Tankweld has a significant order backlog in excess of AUD 10 million. In addition, there is an extensive pipeline of near-term project opportunities estimated at well over $20 million.
Conclusion: In this takeover, both sides obviously win: cleantech company Parkway gains the critical skills that it would have needed to commercialise its wastewater technology anyway and which it would otherwise have had to buy at a high price on the market with a range of execution related risks. For Tankweld, a traditional company with a strong heritage, the transaction opens up a completely new path for future growth as Tankweld gains access to an important future technologies 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 much larger and more established business. Going forward, Parkway will now be able to execute with a much larger revenue base. As a company approaching profitability, we think Parkway will be increasingly of interest to cleantech and emerging company funds and also might – as is often the case – experience a rerating along the way. In addition, Parkway still anticipates a potential hockey stick scenario if its technology is used in the desalination of residual brines from gas production in Queensland. Either way, this acquisition should ensure that new investor groups become aware of Parkway going forward.
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