Ricardo (RCDO) M&A Announcement summary

Deal rationale and strategic fit

• Acquisition and divestment simplify and focus the portfolio on long-term sustainable growth in environmental and energy transition solutions.

• E3 Advisory brings complementary advisory and technical solutions, enhancing clean energy and infrastructure capabilities, especially in Australia.

• Divestment of Defense business aligns with the shift to higher growth, higher margin, and lower capital intensity sectors, focusing resources on core consulting.

• The combined moves are expected to improve the quality of earnings and position the group as a leader in environmental and energy transition consulting.

• Consistent execution of strategy to reposition from established mobility to environmental and energy transition.

Financial terms and conditions

• Agreement to acquire 85% of E3 Advisory for AUD $101.4m (£51.0m), with the remaining 15% to be acquired by January 2028 at a 9x EBITDA multiple if put option is exercised.

• E3 Advisory valued at 8.6x EBITDA multiple for the 12 months to June 2024.

• Payment for E3 Advisory phased: AUD $69.0m in Jan 2025, AUD $22.6m in Jan 2026, AUD $9.8m in Jan 2027.

• Net proceeds from the Defense sale will fully fund the E3 Advisory acquisition.

• Sale of Defense business for US $85m (£67.5m), subject to customary adjustments, with completion expected December 2024.

Synergies and expected cost savings

• Acquisition creates scale in energy and transport infrastructure in Australia and enhances international strategic advisory capability.

• Enhanced services portfolio for common clients and expansion opportunities in APAC markets.

• Portfolio transformation aims to double operating profit on an organic basis, though timing may extend beyond 2027.

• E3 Advisory's high-margin, recurring revenue model expected to improve group profitability.

• Portfolio synergies expected to drive high growth and margin.