Australian-Singaporean water and wastewater treatment company De.mem (ASX: DEM) has made moves to acquire Perth-based chemicals company Capic in a $5.1 million deal which will allow it to diversify into the Western Australian market.
Capic is an established supplier of chemicals for water treatment applications, focusing on “high value add”, high-margin, specialty products including scale and corrosion inhibitors; process additives such as defoamers, viscosity modifiers and dewatering aids; and reverse osmosis membrane anti-scalants and cleaners.
The company currently services around 50 of WA’s blue-chip resources customers including BHP Group (ASX: BHP), Northern Star Resources (ASX: NST), Pilbara Minerals (ASX: PLS) and Iluka Resources (ASX: ILU).
A base acquisition consideration of $4.4 million will be payable upon completion of the transaction, comprising approximately $3.4 million in cash and $1 million in De.mem shares, which will remain under voluntary escrow for a period of 24 months.
In addition, the acquisition will feature future potential milestone payments of $750,000, split into three lots of $250,000 and payable 50% in cash and 50% in De.mem shares.
The payments will be made subject to the satisfaction of revenue milestones, starting with the achievement of 15% revenue growth by the end of 2021 through to 60% revenue growth by the end of 2023.
Finalisation of the acquisition is subject to the signing of definitive agreements currently being negotiated, as well as the completion of commercial and legal due diligence and final approval by De.mem’s board of directors.
On completion of the transaction, Capic’s founder and chief executive officer will be appointed to the role of managing director for the new De.mem-Capic subsidiary, which has been established to acquire Capic’s assets and will represent De.mem’s WA business going forward.
On Monday, De.mem said it would seek a cash injection to fund the Capic acquisition via a $7.3 million placement and share purchase plan.
New shares in the deal were being offered to potential investors at $0.28 each, representing a 12.9% discount to De.mem’s 30-day volume weighted average price.
Existing investors Perennial Value Management and Pathfinder Asset Management will cornerstone the placement with a minimum $3.5 million contribution.
Funds raised will be used for the Capic acquisition and transaction costs, as well as for general working capital and potential build-own-operate funding.
The placement closed on Tuesday morning.