Pacific Equity Partners set to bulk up Johns Lyng with more deals

Scott Didier, chief executive of building and construction firm Johns Lyng Group. Picture: Stuart McEvoy

Pacific Equity Partners’ $1.1bn offer for Johns Lyng has been given backing from its shareholders, who believe the offer for the business appears to be fair.

But its deal making in the sector may just be getting started.

The price of $4 per share that has been recommended by the Johns Lyng board equates to 10.3 times EBITDA to its value including debt and a 77 per cent premium to May 15 closing price.

Shareholders get cash but the management will roll into the offer, including chief executive Scott Didier, who holds 17.6 per cent of the business and will vote in favour of the offer.

The price of the proposal took about a month to surface after it first became known that PEP was carrying out exclusive due diligence on the target that lasted to July 11.

The view around the market is that the acquisition activity by PEP won’t stop with Johns Lyng.

There are a number of smaller players, and the cashed-up PEP will likely make Johns Lyng the consolidator.

Johns Lyng operates in the area of company insurance, building and restoration and repair work needed usually after catastrophic weather events.

Based on the data-driven approach taken by private equity, PEP’s interest in the business centres on the bet more building repairs from weather events like storms and floods will be needed due to climate change impacts.

But some shareholders say that has not proved to be the case in the past year, which has weighed on the Johns Lyng performance and share price.

Also appealing would be that Johns Lyng operates in the US, where there are limited groups carrying out the same services.

Private equity likes the opportunity for global expansion to drive earnings growth.

It was also no doubt part of the appeal to PEP when it bought fleet leasing business SG Fleet for $1.2bn in recent months, as it operates in the United Kingdom.

Working on the proposal for PEP were Goldman Sachs and Moelis, while Johns Lyng was advised by JPMorgan and Nomura.

Before the offer, the Johns Lyng share price had fallen at least 50 per cent in the past year.

For the six months to December, it reported a 6.1 per cent fall in revenue to $573.1m and a 38.1 per cent decline in net profit to $14.5m.

The company said it was a challenging operating environment during the period, with benign weather conditions across Australia resulting in a reduced volume of insurance claims and catastrophe and repair-related work.

As a result, it updated its guidance for the 2025 financial year to total EBITDA to be $126.5m, down 4.5 per cent from the guidance of $132.5m, and total revenue of almost $1.17bn, down 5 per cent from the guided $1.23bn.

A deal for PEP would come just months after its purchase of Australian-listed fleet leasing company SG Fleet Group.