Transport software company ERoad is raising capital and selling shares to buy a rival business.
ERoad offers devices and software used by transport companies to track driving hours, maintenance and health and safety compliance. Photo: 123RF
The company is looking to buy the fleet management software company Coretex for $157.7 million, with the potential to pay an additional $30.6m in the future depending on the performance of the business.
Coretex produces software used in heavy vehicle sensors to manage fuel consumption, speed and monitor the driver's habits.
Its units are in 60,000 vehicles, with offices in North America, Australia and New Zealand.
ERoad are planning to tap large institutional investors for $64.4m and aim to raise the balance through a share offer to retail investors for $16.1m to help fund the purchase.
Shares are being offered at a $5.85, which is a 9.2 percent discount on the last traded price.
Up to $96m worth of shares would also be offered to Coretex's shareholders at a price of $6 per share.
"Combining ERoad's expertise in broadly adopted regulatory telematics solutions with Coretex's extensive vertical telematic expertise, products, and customer base is a great fit," ERoad chief executive Steven Newman said
He said the acquisition would bring forward two years worth of growth, as it would give the company access to Coretex's customers in North America and Australia.
Coretex's operations are expected to contribute between $7m and $9m per year to ERoad's underlying profit and would lift its FY21 revenue from $91.6m to $138.2m.
However, an independent report by Grant Samuel has found that the benefits of this merger cannot be quantified in financial terms.
It said success for ERoad will be predicated on its ability to leverage Coretex's technology and expand its in-house sales team.
The acquisition is subject to approval from shareholders and the Commerce Commission, in relation to Coretex's New Zealand business, and consent from the Overseas Investment Office.
A special shareholders meeting would be held later this month.
Q1 UPDATE
ERoad has seen 3.2 percent growth in the sales of its units to customers for the three months ended June, with 130,355 contracted.
Most of the growth has been seen in the New Zealand market.
Sales of its vehicle dashcam more than doubled over the period form 1,054 to 2,984.
The company said customer retention rate remains strong at 95.5 percent, however it had been given notice from one of it North American customers, which had about 1,700 units, to cancel their contract.