De.mem (ASX:DEM) to boost Victorian presence with ‘milestone’ acquisition

• De.mem (DEM) signs a binding agreement to wholly acquire Stevco Seals & Pumps Victoria in an effort to bolster its presence in the state
• The company values Stevco at approximately 4.5 times the normalised EBITDA, and will pay $1.25 million in cash plus $250,000 in DEM shares upfront as the base consideration
• The acquisition offers De.mem a earnings position as Stevco has been operating at around a 40 per cent gross margin and has consistently been generating positive EBITDA of around $330,000 per annum
• Based on the new company structure, De.mem expects to achieve EBITDA break even at around $26 million in annual revenue
• MEM shares are up 2.38 per cent, trading at 21.5 cents

De.mem (DEM) has signed a binding agreement to wholly acquire Stevco Seals & Pumps Victoria in an effort to bolster its presence in the state.

The company values Stevco at approximately 4.5 times the normalised earnings before interest, taxes, depreciation and amortisation (EBITDA), and will pay $1.25 million in cash plus $250,000 in DEM shares upfront as the base consideration.

Additionally, De.mem will pay $180,000 in cash plus $30,000 in DEM shares up front for inventory costs.

Under the agreement, De.mem will pay $50,000 in cash plus $50,000 in DEM shares if Stevco achieves at least $3 million in revenues in the first year and $4 million in revenues from the second year after the completion of the transaction.

The acquisition offers De.mem a strong earnings position as Stevco has been operating at around a 40 per cent gross margin and has consistently been generating positive EBITDA of around $330,000 per annum, which comes to around $2.3 million in the last three business years.

The largely recurring revenue will accelerate De.mem’s move towards sustainable, positive EBITDA which opens up additional growth potential for the company.

“The acquisition of Stevco Seals & Pumps Victoria Pty Ltd is another important milestone and completes our nationwide coverage of Australia through strategic locations … as well as our nationwide service support capability,” De.mem CEO Andreas Kroell said.

“With the enlarged group, our focus will now shift towards near-term, sustainable EBITDA break even.”

Based on the new company structure, De.mem expects to achieve EBITDA break even at around $26 million in annual revenue.

MEM shares were up 2.38 per cent, trading at 21.5 cents at 11:25 am AEDT.