HMS Group to Acquire Apollo Goessnitz

The main products of Apollo Goessnitz (Apollo) are primarily used for specific applications in oil refining, offshore and onshore upstream, thermal power generation as well as chemical plants and water utilities, and include centrifugal pumps and related spare parts that comply with API (American Petroleum Institute) and DIN (German Industrial Standards), as well as integrated pump-based systems. The company has two business divisions “Pumps” and “Engineering systems”. The company’s sales are focused in Western Europe and EMEA region via a network of specialized local agents and contracts with global EPC-providers.

Apollo Goessnitz GmbH has recently completed several flagship projects of international exposure, including:

• Fuel oil pump skids for GS Engineering & Construction (South Korea) for Sohar 2/Barka 3 project in Oman
• Heavy-duty API process pumps for Siemens (Germany) for Suaibah III project in Saudi Arabia
• Wet gas scrubber recycle pump according to API610 for AIBEL/Statoil project

HMS Group is to pay total cash of EUR 25 million for 75% of share capital of Apollo Goessnitz. The transaction will be fully financed with debt capacity. The stake will be acquired from the management, which will remain the part of integrated team that will continue run the business after the deal. The Apollo’s management team to sell their stake proportionally with the rest 25% to remain under the management control. The value of the deal corresponds to the annualized 2012E EV/Sales multiple of 1.57x and EV/EBITDA multiple of 8.7x based on 2012 budgeted results. Net debt-to-EBITDA(LTM) ratio of 1.98 will remain within internal covenant of 2.5 after the completion of the deal.

Transactions rationale:

1. HMS will strengthen its product offering with hi-end API pumps for oil refineries, petrochemical and chemical plants on top of the current product offering mainly focused on replacement of existing installed base. This will lead to the market share growth in the hi-end segment of pump market for Russian and the CIS downstream that is currently dominated by several international players. According to Frost and Sullivan’s research, the Russian market of pumps for oil refining and petrochemicals was valued at USD 76.5 mn in 2010, while CAGR for 2010-2015E is expected at 20.3% level. A number of large-scale investment projects, aimed at increasing processing depth and government-backed switch to Euro 4 and Euro 5, will drive the demand for new equipment due to upgrade of technological processes. Total HMS share in the market, including Bobruisk Plant, Belorussian pump manufacturer, acquired in 2011, is projected to increase to 30-33% in 2015;
2. HMS Group’s sales network and strong relationships with clients will allow to increase sales of Apollo’s bespoke pumps made to European standards (DIN) and API to Russian and the CIS thermal power plants and EPC providers;
3. Production cooperation of Apollo’s R&D and “know-how” with Russian and CIS operating subsidiaries of HMS will allow to produce state-of-the-art skids based on Apollo’s API pumps with significant potential for localization and incremental EBITDA margin;
4. Joint participation in the international engineering projects and a global footprint of Apollo will allow HMS to increase the share of international sales in its revenue.

Artem Molchanov, Managing Director (CEO) of HMS Group, commented:

“Due to strong prospects for construction and modernization of oil refineries and petrochemical plants in Russia and the CIS, we set a goal to significantly enhance our current position in these attractive market segments. I’m pleased to say that Apollo Goessnitz GmbH is the well-established and rapidly growing international company with focus on manufacturing of API and DIN pumps for these particular industries. On top of this, Apollo’s business strategy of developing R&D and engineering expertise, particularly in offshore applications, is a great value for us as we’ve been always focusing on providing technically advanced integrated solutions for our customers. With this acquisition we will strategically expand our engineering and research & designs capabilities. By now this is the second acquisition we completed in 2012 and from now on we’ll be focusing on synergies extraction to maximize shareholder value”.

Lothar Wagner, Managing director of Apollo, commented:

“We have been looking for a partner that would be able to provide us with an opportunity to drive future growth with a leading platform in attractive and growing markets in Russia and the CIS. As the strategic partner, HMS has all the necessary resources to develop new products and solutions. We’ve analyzed the track record of HMS’ integration of the acquired companies and I’m convinced that the development as a part of HMS Group will prove to be successful. Our management team intends to remain with the business and looking forward to the opportunities arising from this deal”.