Singapore Technologies Engineering is marking its largest acquisition to date with the US$2.68 billion ($3.64 billion) all-cash offer for a group of entities now owned by US-listed Roper Technologies focused on transport management systems.
The target entities, TransCore Partners and TLP Holdings (collectively TransCore) is described by ST Engineering as a market leader in electronic toll road systems. The acquisition will help speed up ST Engineering’s ambition to be a so-called smart mobility market leader.
Roper, the seller, wants to focus on its software business.
At this price, the target group is valued at EV / EBITDA multiple of 16.2 times after accounting for tax benefits.
For the six months ended June 30, TransCore reported earnings (including discontinued operations that have not been disposed and before income tax and non-controlling interests) of approximately US$54 million ($72 million).
The transaction is expected to close by the end of the first quarter of 2022, subject to approvals from both regulators and ST Engineering shareholders at an EGM to be held.
Temasek Holdings, ST Engineering’s controlling shareholder, has indicated its support for the deal.
ST Engineering expects the acquisition to be cash flow positive from the first year and earnings accretive from the second year post-acquisition.
It believes its dividend payout capacity to "remain strong" as TransCore’s operations are expected to generate healthy cash flow.
See: US awards contract for new B-52 engines to Rolls Royce, ST Engineering's nacelle bid remains
The acquisition will be funded by borrowings as the company takes advantage of the current low interest rate environment.
"The Smart City space has been an important strategic focus area for ST Engineering," says ST Engineering's group president and CEO Vincent Chong.
He calls TransCore "a strong strategic fit" for the company’s road transportation solutions and will complement its Smart Mobility rail and road solutions.
"With this acquisition, we will be uniquely positioned as a Smart Mobility market leader, underpinned by our strengths in technology and innovation. This acquisition demonstrates our continued commitment to create long-term value for our shareholders through sustainable global growth,” adds Chong.
String of acquisitions
Under Chong, ST Engineering has been in an acquisitive mood.
In March, the company offered US$2.4 billion for Cubic Corporation, a New York-listed provider of intelligent transportation solutions and payment systems. It also provides military communication systems.
The offer was eventually spurned.
As such, the US$506 million bid for engine narcelle maker MRAS back in April 2019 remains as the company’s largest acquisition to date.
Another significant deal in recent years was €250 million ($383 million) paid for satellite company Newtec Group NV. The acquisition was completed in October 2019.
Biden's infrastructure plan
These acquisitions are all geared towards growth areas aspired by ST Engineering such as urban solutions and aerospace engineering, which are either new ones it wants to capture or existing ones it wants to enhance, beyond its original defence engineering businesses.
TransCore, a leading electronic toll collecting systems provider in the US, has the full suite of products and is used by 11 out of the 15 largest toll collecting agencies in the US.
It is moving into new, albeit similar areas too.
For example, one of its more notable projects on hand is to build a traffic congestion pricing system for New York City. The system, costing US$500 million, is the first such system in the US and ST Engineering is aiming to win contracts to build more of such systems in other US cities.
Cities that have announced similar plans include Chicago, Los Angeles, San Franciso, Portland and Seattle.
TransCore, as of July 31, has an overall backlog of US$1.2 billion.
Cedric Foo, ST Engineering's chief financial officer, reiterates the company's bid to grow its smart cities business.
"If you want to be successful in growing this, you need the customer channels to reach out to and where better it is than the US, where it is a large, developed market, where opportunities are large and market transparent?"
He also notes that President Joe Biden’s push to spend more on infrastructure in the US underscores how under-invested this sector has been. "If the plan can get pass the US congress, there will be upside which we have not fully quantified,” says Foo.
Chew Men Leong, president of urban solutions, notes that the acquisition of TransCore will bring about a broader suite of capabilities ST Engineering can offer markets outside US, such as southeast Asia. "It is an opportunity we really want to maximise. Of course, the market is competitive, but we are confident," he adds.
ST Engineering shares closed last Friday, Oct 1, at $3.78, down 0.79% for the day and down 1.31% year to date.
Photo caption: Video screen grab of TransCore's Albuquerque test track / Credit: TransCore
