Service Stream, an Australian infrastructure services contractor, agreed to buy facility manager Programmed from Japan's Persol group for A$975 million and lined up a A$475 million share sale to help pay for it, the biggest acquisition in the Melbourne company's history.

The deal, announced to the Australian Securities Exchange on Monday, Nov. 9, takes Programmed out of Japanese ownership and more than doubles the buyer's revenue. It also sets up a test at the Australian Competition and Consumer Commission, whose approval is a condition of the sale.

By Tuesday, Service Stream said the institutional part of the share sale had raised about A$404 million. The retail part opens on Monday, Nov. 16.

What Service Stream is paying Persol

Service Stream said a wholly owned subsidiary signed a binding agreement with Persol Asia Pacific Pte. Ltd. to buy all the shares of two holding companies that together make up Programmed. The A$975 million price implies an enterprise value of A$1,092 million once Programmed's A$117 million of lease liabilities are included.

That is 7.4 times Programmed's earnings before interest, tax, depreciation and amortization of about A$148 million for the 12 months to June 30, or 6.1 times after counting A$30 million of annual cost savings the buyer expects, according to the announcement.

The price can move. It is subject to working capital adjustments and to agreed debt and debt-like items, which Service Stream estimated at A$65 million. It can also fall by as much as A$25 million after completion if Programmed misses a set earnings hurdle for its financial year ending March 31, 2027.

Programmed was founded in 1951 and was once listed on the ASX, according to a statement from Mallesons, the law firm that advised Service Stream. Mallesons said the sale followed a competitive process.

The business has four segments: facility management, property services, industrial maintenance and staffing. Service Stream said it serves about 5,000 active customers from about 200 locations in Australia and New Zealand, with about 6,600 employees and a pool of about 8,000 specialist contractors. Its clients include government agencies and owners of transport, water, education, health and resources assets.

Programmed's revenue was about A$3.68 billion in the 12 months to June, the investor presentation showed, against about A$2.48 billion for Service Stream. Combined pro forma revenue for Service Stream's 2026 financial year was about A$6,155 million, with EBITDA of about A$312 million before cost savings.

The facility management division had work in hand of about A$3.8 billion as of May, plus about A$2.7 billion of extension options, the company said.

How the A$475 million raising is built

The purchase and about A$40 million of transaction costs are being funded four ways: a A$219 million placement to institutions, a A$256 million entitlement offer of one new share for every 4.9 held, A$490 million of new borrowing and A$50 million of cash on hand. Service Stream's debt facilities were increased to A$895 million from A$395 million.

All new shares are priced at A$2.03, a 7.7% discount to the A$2.20 close on Nov. 6 and 5.7% below the theoretical ex-rights price of A$2.15. About 234 million shares will be issued, equal to about 37.8% of those already on issue. UBS Securities Australia is underwriting the full amount.

The institutional entitlement offer and the placement together will add about 199 million shares, Service Stream said on Tuesday. Existing institutional holders took up about 92.5% of their entitlements. Small Caps, an Australian markets publication, also reported the terms of the raising on the day of the announcement.

Will Heath, a Mallesons partner, called the sale “one of the largest secondary equity raisings on ASX this year” in the firm's statement.

Net debt is expected to be 2.2 times pro forma EBITDA at completion and to fall to about 1.5 times within 24 months, the company said. To help pay down borrowings, it intends to hold its dividend per share in line with the 2026 financial year for up to 24 months, depending on performance and capital needs.

Service Stream forecast that the deal would lift adjusted earnings per share by more than 20% on a pro forma basis for its 2027 financial year, including the cost savings. Before those savings, the gain would be in the mid-single digits. Half the A$30 million is expected within 18 months of completion and all of it within 36 months, at a one-off integration cost of about A$35 million.

Managing Director Leigh Mackender said in the announcement that the two businesses have complementary capabilities. The company said the purchase would reduce its exposure to any single market, client or contract. Mackender pointed to the integration of Lendlease Services, which Service Stream bought in 2021 according to Mallesons, as the model.

ACCC approval and the retail offer

The acquisition needs ACCC approval and other customary closing conditions. In the risk section of its presentation, Service Stream said that, while unlikely, it could be required to sell or license assets as a condition of that approval. If the deal does not complete, it would keep the money raised for general corporate purposes. Capital Times has covered Australia's merger regime and the ACCC separately.

The company also said its own first quarter was solid and repeated that it expects a step change in revenue and earnings in the 2027 financial year from existing operations.

The retail entitlement offer, open to shareholders with registered addresses in Australia or New Zealand, runs from Nov. 16 to 5 p.m. Sydney time on Nov. 27. Institutional shares settle on Nov. 18 and begin trading on Nov. 19, and retail results are due on Dec. 2, under a timetable the company said is indicative. Completion of the purchase is expected on or around March 1, 2027.