Why are Silk Logistics (ASX:SLH) shares on investors' radar?

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Why are Silk Logistics (ASX:SLH) shares on investors' radar?

Silk Logistics Holdings Limited, ASX:SLH, Logistics company, ASX
Image source: © Jirsak | Megapixl.com

Highlights

  • Silk Logistics announced acquiring 101 Warehousing for AU$10.5 million.
  • The company is a Victoria based contract logistics company with sound supply chain expertise..

ASX listed integrated logistics business operator Silk Logistics Holdings Limited's (ASX:SLH) closed more than 2% lower today (24 January). The dip was witnessed as SLH reported the acquisition of 101Warehousing Pty Ltd, a Victoria-based contract logistics company that is expected to augment its supply chain expertise.

101Warehousing Pty Ltd provides warehousing and distribution services and boasts of a B2C capability, essential amid a growing e-Commerce marketplace. 101Warehousing serves Fashion, Homewares and Toys sector.

The acquisition complements SLH’s strategy to focus on acquisition opportunities in the current year, as revealed in SLH's Annual General Meeting held in November 2021.

How much will SLH shell out for acquisition?

SLH is expected to pay a total of AU$10.5 million through a cash and stock transaction. The company will play an Upfront cash consideration of AU$1.3 million. In addition, on completion of the acquisition, SLH is also expected to give its shares worth AU$5.0 million to 101Warehousing.

SLH will pay a deferred earn-out payment valued at 4.2 times multiple of the post-completion twelve-month EBITDA, minus the up-front consideration.

The share consideration shall be priced at the 5-day VWAP (volume-weighted average price) before the signing and earn-out date, respectively.

SLH plans to pay the cash consideration and acquisition costs by using up a debt facility of AU$1.7 million. It is also expected to use an extended bank guarantee facility for 101Warehousing's property leases.

101Warehousing's founders, Adrian Kagan and Bradley Kagan, along with key executive Paul Dutton, will continue with merged entity post acquisition.

The acquisition is expected to close by 1 February 2022, though subjected to fulfilment of specific conditions and consents.

What’s the management saying?

Bottom line-

Often when a company goes for acquisition, its share price gets impacted. The impact is primarily because the company pays a premium pricing and funds the acquisition by diluting its equity or using up its debt financing facility. This affects the capital positioning of the company. However, though the acquiring company witnesses a short-term effect on its share price, the shares usually recover, led by synergistic benefits.

Hence, SLH shares performance may depend upon how the company performs post acquisition integration.

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