Our Client – The Vendor
SRO Group provides turnkey engineering solutions for the design, manufacture and integration of electrical infrastructure for heavy industrial projects. As a genuine OEM manufacturer, it had owned and operated manufacturing facilities in both Australia and mainland China for over a decade. Since inception, the Business had invested heavily in the development of a complete product portfolio – designed in-house by its experienced Engineering, Design & Compliance team. This was supported by a staff of 60 using the latest technology and software to ensure efficient manufacturing techniques, product quality, repeatability and document control. The Business holds a strong market position and deals with a diversified range of industrial customers across various industries including mining, materials handling, energy, rail, etc.
Having previously sold SRO Group’s Mechanical Division in 2013, Johnsons Corporate was approached by SRO’s director to assist with finalising negotiations for the sale of the remainder of SRO Group. The Business was already in advanced discussions with an ASX-listed public company, which would offer SRO’s shareholders a larger partner, with deeper financial resources, to help take the Business through its next growth phase. The engagement was estimated to take approximately 3 months for the completion of negotiations.
The Sales Strategy
Johnsons’ first recommendation to SRO was to avoid dealing exclusively with just a single buyer. In our experience, these situations – in which there is no 3rd party competitive tension – place major constraints on the vendor, limiting their influence on the terms and timing of negotiations. Instead Johnsons advised SRO to concurrently approach a number of additional prospective buyers while negotiations with the ASX-listed buyer continued. This would reduce reliance in dealing with a single party as well as introduce competitive tension.
Johnsons’ custom research identified a selective shortlist of prospective trade & financial buyers in the Australian marketplace. To these potential purchasers, SRO presented a range of opportunities including: acquiring electrical engineering capabilities supported by an experienced management team; expanding geographic scale; diversifying into new product lines, opening new customer and market sectors; &/or gaining access to established manufacturing facilities in China. Johnsons undertook a proactive direct marketing campaign, which resulted in 17 expressions of interest.
In the meantime, after 10 months of complicated negotiations, the primary ASX-listed buyer finally put forward a non-binding offer. However, two weeks later, the company itself became the takeover target of a larger publicly listed company, and all offers & negotiations went out the window. Fortunately, having a number of other interested parties on hand, a back-up buyer was quickly identified in the form of a well established trade operator. Within two weeks of the primary buyer dropping out, Johnsons securing Offer & Acceptance with the eventual buyer – one of the shortlisted targets from Johnsons’ custom research.
A subsidiary of a much larger private enterprise, Murray Engineering is a Western Australian headquartered mining and industrial products & services provider. Its acquisition of Newcastle-headquartered electrical & mechanical engineering company, SRO Group, dramatically expanded Murray’s national service offering and created a powerful combined business, with estimated annual revenues of $75 million and more than 230 employees in strategic locations across Australia and in China.