Acquisition of DAM Structures Limited

26 February 2021

Severfield plc

('Severfield' or the 'Group')

Acquisition of DAM Structures Limited, an innovative steel fabrication company offering a comprehensive design, manufacturing and construction service

Severfield plc, the market leading structural steel group, announces that it has entered into an agreement to acquire 100% of the share capital of DAM Structures Limited ('DAM Structures'), an innovative steel fabrication company for a net initial consideration of £12.0m payable in cash on completion (the 'Acquisition'). A further maximum deferred consideration of £7.0m is payable in 2022, together with a performance-based contingent consideration of up to £8.0m, which would be payable over a five-year period.

Highlights:

• The Acquisition will give Severfield immediate access to attractive, complementary market sectors with strong growth potential including the propping, railway and steel piling markets. Combining the businesses will enhance Severfield's position as the UK's broadest structural steel services group.

• The Acquisition will provide the Group with new clients from which to grow its existing services and gives Severfield a platform to widen its supply chain into its existing client base.

• For the twelve months to 31 October 2019, DAM Structures recorded audited revenues of £22.3m and a profit before tax of £1.9m. The value of the gross assets as at 31 October 2019 was £14.2m.

• The Acquisition consideration will be funded by a combination of cash reserves and a term loan.

• The Acquisition is anticipated to be earnings enhancing in its first full year of operation.

Strategic rationale for the Acquisition

The Board of Severfield believes that DAM Structures is an attractive acquisition opportunity. It is profitable, cash generative, operates in complementary market sectors with strong growth potential (including propping, railway and steel piling) and offers the opportunity to broaden and deepen existing and new customer relationships in the construction and railway sectors. DAM Structures is highly regarded by its clients and presents a number of opportunities for further profitable growth.

The core business of DAM Structures involves on-site work with main contractors and ground and demolition contractors, often prior to the stage of project construction at which Severfield would typically become involved. The Acquisition will allow Severfield to establish relationships and contracts at an earlier stage in site development with both existing and new customers.

Prior to the Acquisition, DAM Structures was approaching its maximum production capacity, which had the potential to constrain its future growth. With the scale and capabilities of the Group, the Acquisition will facilitate an immediate increase in the production capacity of DAM Structures, enabling the company to realise the growth opportunities which have been identified.

Entrance into high growth markets

In addition to its core steel fabrication markets, DAM Structures operates in the propping, railway and steel piling markets. Within the railway sector, there are significant opportunities for growth in the UK from Network Rail electrification programmes and elements of the HS2 project that are not currently addressed by Severfield, such as temporary and permanent tunnel work. All these opportunities will complement the Group's existing expertise in bridges and stations.
 

The Network Rail electrification programmes also offer opportunities in the steel piling market for immediate and significant growth over the next ten years in England, Scotland and Wales.

The propping business of DAM Structures provides bespoke fabricated propping systems to demolition and groundwork contractors, an area of the business which also represents a growth opportunity for Severfield.

Acquisition consideration

DAM Structures is being acquired for an initial net cash consideration of £12.0m on a cash free, debt free basis assuming a normalised level of working capital on completion. The total initial consideration will be £17.0m, including cash and cash equivalents of £5.0m, which is being funded by a combination of Group cash reserves and a new term loan.

In addition, a maximum deferred consideration is payable in cash in April 2022. This deferred consideration payment will amount to £7.0m unless certain performance criteria have not been achieved, in which case the deferred consideration payment shall be reduced to £5.0m. An additional performance-based contingent consideration is also in place which could further increase the purchase price by up to £8.0m, if certain work-winning targets in the railway and steel piling sectors are achieved over a five-year period, ending in April 2026.

Alan Dunsmore, Chief Executive Officer, Severfield commented:

'This is a very exciting, highly complementary acquisition which will help the Group continue to deliver on its strategic growth objectives. DAM Structures will provide us with access to existing and new customers earlier in the construction process as well as access to new market sectors with strong growth potential including the growing rail electrification sector. DAM Structures has an established client base and proven track record of delivering quality services and will fit in well with the Severfield culture and team.

We look forward to working with the DAM Structures management team on building new business opportunities together and driving future growth from within the combined Group.'

ENDS

Enquiries

Notes to editors on Severfield:

Severfield is the UK's market leader in the design, fabrication and construction of structural steel, with a total capacity of c.150,000 tonnes of steel per annum. The Group has five sites, c.1,400 employees and expertise in large, complex projects across a broad range of sectors. The Group also has an established presence in the expanding Indian market through its joint venture partnership with JSW Steel (India's largest steel producer).

Notes to editors on DAM Structures:

DAM Structures is a Yorkshire-based innovative steel fabrication company. The company's manufacturing capabilities as specialist steel fabricators of both temporary and permanent works range from plunge columns, plated beams, box sections, tower crane grillages, small and large diameter propping works, façade retention towers, portal framed structures, mezzanine floors, heavy duty stairs and minor bridges. The company operates from its bespoke premises in Carnaby and can currently process up to 300 tonnes of structural steelwork per week for distribution across the UK. DAM Structures currently has 76 employees.