Australian explosives, chemicals and paints manufacturer Orica Ltd has bought US-based specialty bolt maker Excel Mining Systems LLC for a price of $670 million (A$775 million). The American company makes specialty bolts and accessories that provide strata support in underground mines by stabilising roofs and walls in the mines.

Orica makes many things. Among these are its Minova brand resins, used along with bolts in underground coalmines. The synergies are obvious. A number of Excel''s customers are also customers of Minova and Orica Mining Services.

Excel is the biggest producer of mining bolts, and caters entirely to the North American market, which is over $700 million. Orica''s Minova resins lead the field in the US market. The size of the global market for mining bolts is about $1.7 billion.

Orica MD and CEO Graeme Liebelt

The Melbourne-based Orica, the former Australian arm of the UK''s ICI group, is the biggest explosives producer in the world. It owns brands such as Dulux, the home decorative product. In April 2007, it had rejected a A$9.95-billion buyout bid by private equity groups Bain Capital and Blackstone.

Orica managing director and CEO Graeme Liebelt says the Excel deal "is consistent with our strategy of growing our business close to the core in markets that we believe have a long term growth outlook. Globally there is a trend toward underground mining and, importantly for Orica, an increasing focus on safety. These trends are very positive for the future growth of Minova and Excel."

He adds, "The combined leading positions of Minova with its chemical based strata products and Excel''s metal based specialty products, provides Orica with a springboard for new growth opportunities." Orica plans to expand Excel''s operations outside North America. Orica already has customers in several countries, and will expand Excel''s business to China, Russia and Australia, and possibly Latin America.

Orica had acquired the UK-based mining chemicals producer Minova for $857 million in January 2007. Minova, a former BP unit, makes mining products, including roof bolts, membranes and chemicals used to halt water seepage. One of the aims was to grab a share of the market in China, the biggest coal producer in the world.

Excel has estimated annual sales of over US240 million (A$277 million) and a 45 per cent share of the US market. The purchase price is a 9.9-times multiple of the past 12 months'' earnings before, interest, tax, depreciation and amortisation, or EBITDA. The acquisition would add to earnings per share immediately.

The company says that cost, revenue and other benefits are expected to reach approximately $50 million (A$58 million) per annum by the third year. "These include plant optimisation, elimination of duplicate administration, improved supply chain, tax benefits and leveraging the respective customer bases of Minova and Excel with combined and enhanced product offerings. Importantly Excel provides the technology and expertise to introduce metal-based strata products into existing geographic regions currently serviced by Minova."

To realise these synergy benefits, the Orica management calculates, it will have to incur an implementation cost of $55 million (A$64 million) including $25 million of capital expenditure.

The acquisition, subject to regulatory approval in the US, is expected to close in the fourth quarter of calendar 2007. The deal will be funded primarily from existing debt facilities, supplemented by an underwritten dividend reinvestment plan, and the funding package has been designed to support Orica''s BBB+ credit rating.

Orica will retain Excel''s key senior managers. The US company has 325 employees. Orica has 14,000 people working in 50 countries.