Johns Lyng Group Expands Market Reach with 87.5% Acquisition of Keystone Group

Johns Lyng Group (ASX:JLG) has strengthened its market position through the acquisition of a controlling stake in Keystone Group, a Queensland-based insurance repair company. This strategic move involves the acquisition of 87.5% of Keystone, which operates in insurance repairs, restoration, and hazardous material removal through its subsidiaries Rizon, Remeed, and Corvex. Keystone's commercial insurance arm complements Johns Lyng’s existing services, adding depth to the company's portfolio in the disaster response and restoration industry. 

The acquisition is set to enhance Johns Lyng's capabilities, particularly in handling large-scale catastrophic weather events. Keystone's expertise, particularly in hazmat remediation, offers significant synergy with Johns Lyng’s core operations. Johns Lyng anticipates that the integration of Keystone will not only expand its service offerings but also increase the company’s operational capacity in responding to disaster recovery needs across Australia and New Zealand. 

Keystone’s management team will retain a 12.5% stake in the business, ensuring continuity in leadership and a vested interest in the company’s future performance. Additionally, Johns Lyng plans to sell a further 7.5% stake to the management post-completion, aligning long-term interests between the two entities. 

Financial details of the transaction reveal Johns Lyng will pay an upfront sum of $44.1 million in cash, along with $3.6 million in JLG shares. Furthermore, an additional earn-out of up to $21.4 million will be contingent on Keystone achieving specific EBITDA targets for FY25 and FY26. The acquisition is expected to contribute more than $100 million in revenue and around $9 million in EBITDA by FY25, making the deal immediately accretive to earnings. 

This acquisition follows the company's recent decision to increase the cash component in its prior acquisition of SSKB Strata and Chillrite HVAC. Originally, the transaction was structured with an equal cash and shares component of $28.8 million each. However, in response to a decline in its share price, Johns Lyng opted to increase the cash consideration to $54.9 million, while reducing the equity portion to $2.7 million. This move reflects a strategic adjustment to stabilize share performance while still pushing forward with its expansion plans. 

Johns Lyng has also secured additional financing by expanding its revolving credit facility with ANZ. This facility will support the company’s acquisition efforts, ensuring that the financial flexibility needed for these transactions is maintained. With the Keystone acquisition expected to close in the first half of this financial year, and further strategic investments underway, Johns Ly is positioned to continue its growth trajectory in the insurance repair and restoration market. 

The acquisition of Keystone is regarded as a significant milestone in Johns Lyng's expansion strategy, as it builds on the company's already robust position in the sector. The inclusion of Keystone’s team brings additional expertise, which is anticipated to further enhance client service delivery and stakeholder value. 

Johns Lyng’s ongoing acquisition strategy demonstrates its commitment to scaling operations and expanding its footprint across Australia and New Zealand, leveraging the increased demand for insurance building and restoration services amid rising instances of catastrophic weather events. Through a combination of strategic acquisitions, strong financial management, and operational synergies, Johns Ly is poised to solidify its leadership in the market. 

Key Takeaways: 

• Acquisition of Keystone Group: Johns Lyng (ASX:JLG) acquires 87.5% of Keystone, enhancing capabilities in insurance repairs, restoration, and hazardous material removal. 

• Transaction Value: $44.1 million in cash and $3.6 million in JLG shares, with an additional earn-out of up to $21.4 million based on future EBITDA performance. 

• Expected Contribution: Keystone expected to add more than $100 million in revenue and $9 million in EBITDA by FY25. 

• Strategic Expansion: The acquisition strengthens JLG’s position as a leader in disaster recovery services, with Keystone’s operations aligning well with Johns Lyng’s core business. 

• Increased Cash Component: JLG revises cash components in its previous acquisition of SSKB Strata and Chillrite HVAC, raising the cash portion to $54.9 million. 

• Financial Flexibility: The company expands its revolving credit facility with ANZ to fund these acquisitions. 

These strategic moves signal continued growth in the insurance and restoration market, where Johns Lyng remains well-positioned for future expansion and value creation.