Onsite Rentals takes another shot at an IPO

Pre-marketing research for Onsite Rentals is expected to hit the desks of fund managers this week as its initial public offering plans gather steam.

But the challenge for the company is getting prospective investors to take a bet on the mining services industry at a time many have a mild appetite for businesses operating in the space at best.

Diamond drilling company DDH1, while recognised as a good performer, was not met with a great deal of enthusiasm when it recently did the rounds of investors for its float.

It is also expected that parties may stand on the sidelines when it comes to Onsite, given this is its second attempt.

Other companies in the space, like Emeco, are only trading at about four or five times their earnings before interest, tax, depreciation and amortisation.

The sector is also awash with companies for sale, including BGC Contracting, Fulton Hogan, Downer Mining and Ferrovial’s services operations which include Australia-based Broadspectrum, all of which are yet to find buyers.

CIMIC is also known to have been eager to find a buyer for its mining services and mining contractor Thiess for some time, and would have placed it on the market early this year if it believed a buyer existed, as tipped by this column in May.

But now it is believed that the Australian services and engineering firm is in talks with a prospective buyer that it is furiously trying to get over the line with assistance from investment bank JPMorgan.

The asking price for Thiess is likely to be more than $1.5bn. Some are perplexed over the identity of the suitor, given that few buyers exist in the space.

Some believe Blackstone, Oaktree and Mitsui are the only logical acquirers in the space.

The problem with the industry is that it carries a perception of having low margins, high costs and volatile earnings.

Some think that buyers paid too much for the businesses in the last resources boom, which means their prices now are expensive.

Onsite Rentals’ debt levels may also act as a deterrent.

Already, fund managers have sounded out the offering through a site tour held last month.

They have learned that the equipment rental company offers business-to-business equipment rental and generates about $235m of revenue annually.

Earnings before interest, tax, depreciation and amortisation for the 2019 financial year were just over $75m and some estimate say the business could be worth $700m when it floats.

A strong selling point for Onsite Rentals is that it also operates in the highly attractive infrastructure market, which will no doubt be talked up by advisers, along with the construction, resources industries and government and event organisations.

It also has a strong book of clients.