Cashed-up ERoad would look at Australian, US acquisitions
By Suze Metherell
July 18 (BusinessDesk) - ERoad, which provides electronic fleet tracking and road user pays management services, would look at acquisitions in Australia and the US to boost its market share once it completes an initial public offer of up to $49.5 million next month.
The Auckland-based company wants to raise $40 million in new capital to spend on expanding its US operations and Australian base. Of that, $3 million will go to repay bank debt and the rest to drive ERoad's growth aspirations. That includes potential acquisitions to accelerate that expansion, chief executive Steven Newman told BusinessDesk.
"We have looked at a few businesses with the purpose of looking at those acquisitions is to increase market share in existing markets or in order to get more relevance in new markets," Newman said. "An additional way to grow faster is to look at stranded fleet tracking companies with legacy technology that have a high client base, which are heavy transport, our primary focus in terms of that space based on what we know is Australia and the north west (United) States."
The company launched commercial services in Oregon, US in April on the invitation of the state's transport office, and is the only provider of electronic weight mileage in North America, Newman said. The US state is looking to introduce light vehicle mileage tax in a shift away from fuel tax used to fund roads and highways, and was the first in the world to develop a road user charge tax, or vehicle miles traveled tax, which New Zealand has adopted for heavy vehicles.
"In terms of why Oregon, it's because they actually asked us," Newman said. "They said if we were prepared to make an investment then they would help us get the product approved so they could rely on it."
Founded in 2009, ERoad was the first company to provide a nationwide GPS-based road user charge system. The company has recorded rapid year-on-year sales growth, and first turned a profit of $2.9 million in the year ended March 31, 2014 on sales of $10 million. It forecasts revenue to rise to $19 million in the 2015 year and to $34 million the following year, according to the prospectus. Eroad expects to report a loss of $1 million in 2015 due to listing costs of $2 million, before returning to profit of $5.5 million in 2016. ERoad is also predicting a drop in its retention rate, from 99.3 percent to 96.5 percent over the next two years.
The company doesn't intend to pay dividends in the near term and will be reinvesting funds to fuel market growth.
"We would anticipate that we would continue to grow quickly past the projected information period of March 2016, as of course to the extent we run out of opportunities and things to invest in, then the only responsible thing is to start paying dividends, but I don't anticipate that based on our forward vision for the business," Newman said.
ERoad will sell between 13 million and 15.7 million shares at an indicative price range of $3 to $3.80 per share, with existing shareholders selling between 2.4 million and 2.5 million shares and keeping about three-quarters of the business, according to its prospectus documents. The indicative price range would value the company at between $180 million and $228 million.
The final price is expected to be announced on July 29, with a listing on Aug. 15. The offer opens on July 30 with a preference pool closing on Aug. 6 and the broker firm offer closing on Aug. 12. The IPO won't have a public pool.
First NZ Capital is the sold lead manager of the offer and Deutsche Craigs is the co-manager.