More targets on the radar for Orica after Axis Mining deal

Orica chief executive Sanjeev Gandhi. Picture: Supplied

Commercial explosives maker Orica is believed to be building a war chest for mergers and acquisitions after its move to raise $650m on Monday.

Market experts believe the amount secured from equity investors is more than it currently needs, which suggests that it is building fire power to buy more companies.

On Wednesday it announced it was acquiring Axis Mining Technology for up to $350m as it tapped the market through Citi and JPMorgan at $16 per share, a 7 per cent discount to its last traded price.

Analysts say it has been known that Orica has had higher trade working capital requirements coming as a result of global supply chain dislocations but at its recent investor day, more acquisitions were hinted at.

More deals involving companies like Orica’s blasting systems business GroundProbe could be on the cards and others where it can close any gap with digital solutions.

The group has indicated that it is looking at about 10 to 12 acquisition targets a year as it increasingly offers end-to-end solutions from ore body blasting to processing.

Of the $650m raised, 43 per cent relates to trade working capital funding and balance sheet capacity.

“This represents an over-raise similar to what we saw in February 2020 when Orica raised $500m for a $300m acquisition of Exsa,” Macquarie analysts said in a research note.

Orica’s debt level is now down to 27 per cent from 38 per cent following the raise but the group has been benefitting form the energy crisis.

The latest acquisition of Axis fits with Orica’s digital strategy, being a leader in the design, development and manufacture of specialised geospatial tools and instruments for the mining industry.

It’s a high growth, high-margin business with primary exposure to gold and copper.

Some believe that Orica should have purchased the Australian listed Imdex which is five times the size and works out to be cheaper.

The raise has occurred amid a period of share market volatility, but few groups tapping the market has played to its advantage.

It is understood that Orica’s three largest shareholders were wall crossed before the deal and had committed to take a minimum of their pro-rata allocation, amounting to 25 per cent of the placement amount.

According to Bloomberg data, the three largest investors in Orica are Cooper Investors with 19.3 per cent, AustralianSuper with 14.27 per cent and Schroders with 7.96 per cent.

The raise of up to $725m is by way of a fully underwritten $650m institutional share placement and a non-underwritten share purchase plan capped at $75m to eligible shareholders in Australia and New Zealand.

The acquisition includes an upfront cash consideration of $260m and a deferred earn-out payment up to a maximum of $90m contingent on financial performance and other conditions being met.

The price implies an acquisition multiple of 11.8 times earnings before interest, tax, depreciation and amortisation for the 2022 financial year.