AJ Lucas Group annual report 2007-08

30. ACQUISITION OF SUBSIDIARY
2008
On 10 August 2007, the Company acquired 100% of the issued capital of each of Jaceco Drilling Pty Limited and Geosearch Drilling Service Pty Limited
trading as a partnership known as Capricorn Weston Drilling Group, a Queensland based drilling group, for a purchase consideration of $21.0 million
including assumption of existing debt of $4.6 million. The consideration is payable in instalments with $10.0 million paid at settlement and the
balance payable over three years in annual instalments. The initial consideration was paid entirely out of borrowings. Deferred consideration has been
discounted using a market rate of interest for similar securities.
In the period to 30 June 2008, Capricorn Weston Drilling Group contributed net profit before interest and tax of $6.2 million. If the acquisition had
occurred on 1 July 2007, management estimates that consolidated revenue would have been $426.0 million and net profit before interest and tax
would have been $26.6 million.
The acquisition had the following effect on the Group’s assets and liabilities on acquisition date:
Recognised values
on acquisition
$’000
Fair value
adjustments
$’000
Pre-acquisition
carrying amounts
$’000
Cash and cash equivalents 277 — 277
Trade and other receivables 1,516 — 1,516
Plant and equipment 11,221 1,567 9,654
Other assets 627 — 627
Intangibles 5,505 5,505 —
Trade and other payables (479) — (479)
Other financial liabilities (4,763) — (4,763)
Provisions (216) — (216)
Net identifiable assets and liabilities 13,688 7,072 6,616
Goodwill on acquisition 2,559
Consideration 16,247
Less deferred consideration payable (5,977)
Less debt funding (9,993)
Net cash inflow 277
The consideration above includes acquisition costs of $182,000.
The Company commissioned an independent expert to conduct an analysis of the fair value of the plant and equipment and identifiable intangible
assets of Capricorn Weston Drilling Group on its acquisition. Following this analysis, the Company has determined a carrying value of $5.5 million for
customer contracts and relationships.
The goodwill recognised on the acquisition is attributable mainly to the skills and technical talent of the workforce of the acquired business and the
synergies expected to be achieved from integrating the company into the Group’s existing drilling business.
2007
On 31 July 2006, the Company acquired McDermott Drilling Pty Limited, a New South Wales based drilling company, for a consideration of $8.0 million
of which $4.0 million was deferred and is payable in equal instalments on the first three anniversary dates after the date of acquisition. The initial
consideration was funded as to $1.0 million through the issue of 1,333,333 shares at an issue price of $0.75 cents per share, being a discount of 2.5%
to their market price at the date of purchase, with the balance by a combination of the Group’s resources and debt. The first two instalments of the
deferred consideration were paid on 31 July 2008. The final instalment is payable on 31 July 2009.
The acquisition had the following effect on the consolidated entity’s assets and liabilities on acquisition date:
Recognised values
on acquisition
$’000
Fair value
adjustments
$’000
Pre-acquisition
carrying amounts
$’000
Trade and other receivables 3,595 — 3,595
Plant and equipment 9,858 4,981 4,877
Other assets 1,628 — 1,628
Intangibles 4,757 4,757 —
Trade and other payables (1,063) — (1,063)
Other financial liabilities (4,989) — (4,989)
Deferred tax liability (1,167) (1,167) —
Provisions (1,041) — (1,041)
Net identifiable assets and liabilities 11,578 8,571 3,007
Discount on acquisition (2,723)
Consideration 8,855
Less deferred consideration payable (4,000)
Less consideration satisfied by the issue of shares (1,027)
Less debt funding and other finance (3,499)
Net cash inflow 329
The consideration above includes acquisition costs of $855,000.
The Company has determined a carrying value of $4,757,000 for customer contracts and relationships based on an independent expert’s report.
62 LUCAS group