Lendlease sells services arm to Service Stream for $310m

The building giant has shed another unwanted asset, selling its services business to ASX-listed engineering firm Service Stream.

New Lendlease CEO Tony Lombardo. Picture: RENDY ARYANTO

Building and development giant Lendlease is continuing to hive off unwanted business operations, selling its services arm to the listed engineering firm Service Stream for $310m.

The deal is part of a clean-up of the company’s balance sheet by new chief executive Tony Lombardo, who announced an earnings downgrade last month as the coronavirus pandemic ripped through the company’s British operations.

The deal completes an exit from the field for Lendlease, which earlier sold off its engineering unit to Spanish group Acciona after suffering hefty losses over the last decade.

The company is now facing fresh claims over historical projects in its engineering business that prompted it to take provisions of $90m to $175m last month.

Service Stream beat interest from CIMIC in the Lendlease business after Downer and Australian engineering group Monadelphous quit the race. Morgan Stanley and Gresham worked on the sale.

Advisory firm Rothschild advised Service Stream and Ord Minnett is underwriting a raising by the firm.

The services business deal is expected to complete prior to the end of calendar year 2021 and is subject to conditions including client and third party consents.

“The divestment of the services business, along with other recent divestments including the sale of the engineering business and the US telecommunications and energy businesses, aligns with the group strategy to be more focused on the areas where our competitive edge is the strongest,” Mr Lombardo said.

“The divestments, combined with recently announced changes to the organisational structure, better position the group to deliver on our $110 billion development pipeline, continue to deliver our construction backlog and grow our Investments platform in a more focused and efficient way,” he said.

Lendlease Services managing director Toby Matthews said Service Stream was a leader in the sector, and the company’s skilled workforce, customer relationships and extensive workbook would significantly expand its operations across Australia.

Service Stream managing director Leigh Mackender said the combination of the two businesses would “create a diverse, multi-network essential service provider, operating across the growing infrastructure services sector”.

The acquisition will be funded by a $123.1m one-for-three entitlement offer, a $61.9m placement and $123m from a drawdown of debt facilities and available cash.

The implied enterprise value multiple of the acquisition is 6.9 times but once the company gains synergies from the combining the businesses this will go to about five times.

Service Stream said the acquisition is expected to be highly accretive to shareholders, with earnings per share accretion of about 30 per cent on a pro forma basis.

Lendlease Services is a leading national business providing operations and maintenance and specialist design and construction services across the utilities, transportation and telecommunication sectors.

Clients include asset owners, operators, government and government related entities and the business has a national presence with an experienced management team and skilled workforce of more than staff.