SBO acquires DSI
– Increased target price: Driven by yesterday’s acquisition
of DSI, we have increased our EPS estimates for 2011 by
12.4% and for 2012 by 9.9%. We have raised our 12-month
target price to EUR 47.0 and confirm our Hold
recommendation.
– Purchase price: We estimate that DSI generates EBIT of
EUR 5.8mn (EBIT margin of 25%) on annual sales of
around EUR 23.3mn. Based on an EV/EBIT multiple of 10,
this boils down to a purchase price of around EUR 60mn,
based on our estimates.
– Business model: DSI is a leading global provider of
specialized equipment for downhole circulation technology
for oil and gas wells. The DSI tools deliver value to
customers through considerable time and cost savings, as
the system is highly reliable and easy to operate. DSI's
technology makes the company the uncontested global
market leader (60-80% market share) in this niche.
– Synergies: SBO expects to see significant synergies
arising between DSI and BICO (BICO has a strong foothold
in the US, where DSI currently has no market exposure), its
drilling motor subsidiary, notably for the distribution
networks.
– Perfect strategic fit: Based on our assessment, DSI is a
perfect strategic fit for SBO. Due to the fact that SBO was
almost debt-free as of June 30, 2010, we believe that this
acquisition is a good decision to improve SBO’s capital
structure.
