Ricardo enters into an agreement to acquire E3 Advisory

Highlights

• Ricardo has entered into an agreement to acquire 85 per cent. of E3 Advisory for an aggregate consideration of approximately AUD $101.4million (£51.0 million*), with completion of the transaction conditional upon the disposal of Ricardo Defense.
• Ricardo expects to purchase the remaining 15% of E3 Advisory by January 2028.
• The terms of the acquisition offer an attractive valuation for Ricardo at an adjusted c.8.6x EBITDA multiple based on FY23/24**.
• E3 Advisory’s skilled team, strong track record and substantial growth potential are highly complementary to Ricardo’s geographic focus and capability in energy and transport infrastructure.
• E3 Advisory advises both governments and private clients through the infrastructure project lifecycle, with particular expertise in transport, infrastructure, clean energy, water, and mining and resources.
• The acquisition is consistent with Ricardo’s stated strategy to become a world-leading strategic and engineering consultancy in environmental and energy transition solutions.
• The Company has separately announced the conditional disposal of the Group's interests in Ricardo Defense today (the "Disposal Announcement"). Details of the Disposal are contained in the Disposal Announcement, which should be read in conjunction with this Announcement.
• Net disposal proceeds from Ricardo Defense, will fund all the cash consideration for the purchase of the initial 85 per cent holding and other associated acquisition costs.

Graham Ritchie, Chief Executive Officer of Ricardo, commented:

"E3 Advisory provides Ricardo with a compelling strategic opportunity for the Group, offering further scope to increase our mix of strategy consulting and advisory services. We are very much looking forward to working with the talented team at E3 Advisory and combining our capabilities to offer differentiated advisory and technical consulting solutions to our clients in the Australian market, and also internationally.

The acquisition of E3 Advisory, together with the sale of Ricardo Defense, will allow for Ricardo to materially accelerate its portfolio transformation, improving the quality of earnings to deliver a high-growth, high-margin and less capital-intensive business in the medium to long term."

Acquisition of E3 Advisory

Ricardo Australia has entered into a share purchase deed to acquire an initial 85% interest in E3 Advisory from the current shareholders of E3 Advisory (the "Sellers") for a consideration of approximately AUD $101.4 million (£51.0 million*), subject to net debt, working capital and other transaction related adjustments the "Acquisition"). The initial consideration will be paid in three instalments, with the first payment made in January 2025 and subsequent payments made on the first and second anniversaries of completion.

The remaining 15% shareholding will be held by key personnel of E3 Advisory and will be subject to a put option exercisable by management after a three-year period. If exercised on the third anniversary of completion of the Acquisition, the put option will require Ricardo Australia to acquire those shares at an acquisition price valuing the shares at a 9x EBITDA multiple for the 12-month period prior to the option exercise date (the "Option Price"). In the event that management have not exercised their options on the third anniversary of completion of the Acquisition, the Option Price will decrease over time. Ricardo Australia may also elect to mandatorily acquire these shares in certain other circumstances.

The Board believes that this deal structure creates a strong foundation to incentivise and retain key E3 Advisory personnel as they are integrated into the wider Group. E3 Advisory's skilled team, strong financial track record and substantial growth potential are highly complementary to the Group's geographic focus and capability in energy and transport infrastructure.

Strategic rationale

The Group's priority is to accelerate its organic growth plans, complemented by disciplined M&A that is focused on selectively investing in attractive environmental and technically led capabilities, which will help accelerate its portfolio transformation to a high-growth, high-margin business with lower capital intensity.

Since announcing its strategy in May 2022, the Group has successfully made three bolt-on acquisitions, divested its non-core adjacent software business and has today announced the sale of Ricardo Defense. The bolt-on acquisitions have enhanced the Group's service portfolio, increased its digital capabilities, created more scalable offerings with recurring revenue; and together they have strengthened the Group’s geographic foothold in attractive markets and delivered profitable growth with increased synergies.

Through its two previous acquisitions in Australia, Ricardo has expanded and strengthened its Environmental and Energy Transition portfolio, specifically in water advisory and water infrastructure.  With the aim of enhancing its operational and commercial scale in this growing market, Ricardo has invested significant time in seeking a company that can support its Australian expansion and has been in discussions with E3 Advisory for some time. Both companies have been engaged in ensuring that any potential transaction is of mutual benefit in respect to its cultural, commercial and financial alignment.

The Acquisition is expected to deliver a number of key benefits to Ricardo, including:

• Portfolio offering: E3 Advisory will increase the mix of strategy consulting and advisory services across the Group, whilst also increasing its capabilities for energy transition.
• Market expansion: E3 Advisory targets a similar client base to the Group for its government, utility, mining, and water sectors, whilst also offering an expanded end-use market in Australia, within the rail and road sectors, which represents 25% and 13% of E3 Advisory’s FY 2024 revenue respectively. E3 Advisory's top twenty customers represented an aggregate of 73% of revenue in 2024, with the largest customer individually representing 13%.
• Footprint in Australia: E3 Advisory creates additional operational capabilities and scale in Australia. Public sector Infrastructure investment in Australia will be circa AUD 230 billion to 2027 whilst private sector energy investments will increase four-fold in the next five years to meet the target of 82% electricity generation from renewable energy by 2030 (currently 50% of electricity is generated from coal). The Group will be well placed to support the country with its renewable energy transition.
• Strong financial track record: E3 Advisory is a high growth, high margin business offering growth potential. E3 Advisory has been consistently profitable and generating strong operating cashflows.
• Culture and expertise: E3 Advisory provides a good cultural fit for Ricardo, with comparable values and a purpose-led approach. With the Acquisition of E3 Advisory, Ricardo will have close to 300 employees offering technical and strategic expertise across its key Australian locations.

The Acquisition of E3 Advisory is in line with the Group's shift to its core consulting capabilities in environmental and energy transition solutions and allows Ricardo to take a leading position within the Australian market and its chosen industries, specifically transport, energy, water, mining and technology.

~ENDS~

Enquiries