Information on the Target

Ricardo has entered into an agreement to acquire an 85% stake in E3 Advisory for approximately AUD $101.4 million (£51.0 million). This transaction is subject to the completion of the sale of Ricardo Defense. Ricardo plans to acquire the remaining 15% of E3 Advisory by January 2028. The valuation of the acquisition presents an appealing adjusted EBITDA multiple of approximately 8.6x based on the financial year 2023/2024.

E3 Advisory is recognized for its highly skilled team and robust track record, as well as its substantial growth potential, which aligns well with Ricardo’s geographic focus and expertise in energy and transportation infrastructure. The firm provides consultancy services to both government and private clients throughout the lifecycle of infrastructure projects, specializing in sectors such as transport, clean energy, water, and mining.

Industry Overview in Australia

The infrastructure industry in Australia is experiencing significant growth, with public sector investment projected to reach around AUD 230 billion by 2027. This expansion is driven by the need for enhanced infrastructure to support a growing population and economy. At the same time, private sector investments in energy are expected to increase dramatically, aiming for 82% of electricity generation to come from renewable sources by 2030. This is a sizeable shift from the current scenario where 50% of electricity generation relies on coal.

In this context, E3 Advisory's positioning within the infrastructure and energy sectors is particularly strategic. The advisory firm serves clients in government, utilities, and mining while offering expanded market opportunities in the rail and road sectors—accounting for 25% and 13% of E3 Advisory's revenue respectively in FY 2024. This market landscape is conducive to the exploitation of E3 Advisory's existing capabilities in the face of rising demand for sustainable and innovative infrastructure solutions.

Furthermore, ongoing advances in digital technology are reshaping the services provided in the infrastructure sector. Companies that can blend traditional consulting with modern digital solutions will likely emerge as market leaders. E3 Advisory is positioned well to integrate these advancements with its existing service offerings, helping clients to navigate the complexities of modern infrastructure developments.

Lastly, the expertise of E3 Advisory aligns well with the Australian government's objectives of enhancing the country's infrastructure through sustainability and strategic investments. With a strong focus on providing solutions in clean energy and resource management, the firm is able to address critical national priorities and contribute positively to Australia's transition to a greener economy.

The Rationale Behind the Deal

The acquisition of E3 Advisory is a strategic move for Ricardo, in line with its goal of transforming into a leading consultancy in environmental and energy transition solutions. The deal will enable Ricardo to diversify its service offerings by increasing its scope of strategy consulting and advisory solutions tailored to the unique challenges in the Australian market.

This acquisition complements Ricardo's recent initiatives, which include three bolt-on acquisitions and the divestiture of its non-core software business, aiming to streamline operations and enhance organic growth. The firm has been actively seeking opportunities to enhance its capabilities in the Australian market, and E3 Advisory represents a fitting partner with complementary strengths and mutual benefits.

Information about the Investor

Ricardo is a recognized leader in engineering and consultancy services, particularly focused on the transportation and energy sectors. With a commitment to sustainability and innovation, the company is strategically transforming itself by investing in high-growth sectors that are critical to the transition to a low-carbon economy. The firm has a strong track record and has consistently demonstrated its ability to adapt to changing industries and market demands.

Ricardo's leadership is dedicated to enhancing the company’s capabilities through disciplined mergers and acquisitions that deliver value and growth. The agreement to acquire E3 Advisory is a prime example of this commitment, as it aligns with the company’s strategic vision while bolstering its operational footprint in Australia. As a result, Ricardo is poised to effectively serve both local and international clients while driving its sustainability agenda forward.

View of Dealert

The acquisition of E3 Advisory by Ricardo is viewed as a robust investment opportunity that could yield significant returns over the medium to long term. By enhancing Ricardo’s strategic consulting capabilities and expanding its market reach, the deal positions the company well in an evolving industry landscape. E3 Advisory's established reputation and skilled workforce further consolidate this position as a valuable asset for Ricardo.

Moreover, the integration of E3 Advisory provides Ricardo with critical resources to support its goals of high growth and higher margins, while also lowering capital intensity. This combination is important for the transformation of Ricardo’s portfolio, positioning it favorably amidst the competitive landscape of consultancy and engineering services.

The growing emphasis on environmental sustainability and the Australian government’s commitment to infrastructure investments align well with Ricardo’s long-term strategic framework. E3 Advisory is set to be a key player in the successful execution of infrastructure projects that meet these national objectives, providing Ricardo with advantageous exposure to these lucrative markets.

In conclusion, this acquisition is not only timely but also strategically sound. Combining E3 Advisory’s expertise with Ricardo’s established capabilities will likely enhance service offerings and competitiveness in a rapidly evolving market.

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