Johns Lyng Group Limited (ASX: JLG, Johns Lyng or the Group) is an integrated building services business that delivers building and restoration services across Australia and the US. The Group’s core business is to rebuild and restore properties after damage by insured events including impact, weather, and fire events. Established in 1953, clients include insurance companies, local and state governments, commercial enterprises, and industrial customers. JLG shares were listed on the ASX at $1 a share in October 2017 and today the Group employs 2,300 people.
Expansion of core Insurance Building and Restoration Services Business
The strategic acquisition of an 87.5 percent stake in Keystone Group, a leading participant in the Australian Insurance Building & Restoration Services sector, is set to bolster Johns Lyng’s capacity for large-scale disaster response. The acquisition is expected to be immediately earnings accretive and is valued at $44.1 million in cash and $3.6 million in shares, plus $21.4 million in potential earn-out payments. Keystone Group is expected to contribute over $100 million to FY25 revenue and around $9 million in EBITDA. Consistent with JLG’s employee equity alignment approach to executive remuneration, Keystone’s management will retain a 12.5 percent equity stake in the newly acquired business. Completion of the acquisition is expected to occur in the first half of FY25.
The acquisition firmly stamps Johns Lyng Group as a leading provider of insurance building and restoration services, as well as hazardous material removal arising from catastrophe-related events in Australia and New Zealand.
SSKB Strata and Chill-rite acquisitions
As announced on 2 August, Johns Lyng will complete the $57.6 million acquisition of SSKB Strata and Chill-rite during the first quarter of FY25. The original purchase consideration for both businesses comprised $28.8 million in cash and $28.8 million in Johns Lyng Shares. In response to the 35 percent share price decline on 27 August, Johns Lyng will exercise its option to decrease the Share component of the purchase consideration and increase the cash component. Johns Lyng will now pay $54.9 million in cash and $2.7 million in shares for both businesses.
SSKB Strata provides strata-related services, including repairs and maintenance, to 44,000 individual lots across 790 body corporate schemes on the east coast of Australia. Chill-rite provides heating, ventilating, and air conditioning services to businesses and industrial clients in regional NSW.
The decision by Johns Lyng not to issue heavily discounted shares as purchase consideration for the two acquisitions highlights the disciplined capital management approach of the Group by avoiding unnecessary shareholder capital value dilution.
Looking Ahead
Johns Lyng displays defensive growth characteristics with a strong market presence underpinned by a deep relationship and trusted reputation with insurance intermediaries, as well as state and local governments. The Group’s Insurance Building and Restoration Services division is backed up by large-scale service capabilities, making it the preferred government disaster services provider in Australia and New Zealand.
The Strata-related services business incorporating long-term repairs and maintenance contracts to body corporate schemes is a highly cash-generative business with recurring revenues from ‘sticky’ clients.
Most of the Group’s work is non-discretionary spending sourced through long-term insurance panel partnerships and based on cost-plus and so is not impacted by building materials and building industry inflationary pressures.
This entrenched market position combined with increased intensity and gravity of weather events leading to rising incidences of property damage across the Group’s markets in Australia and the US implies consistent long-term earnings growth.
