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AWF shareholders approve $36 mln Madison acquisition, shares gain

Monday 18th November 2013

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AWF Group has been given the go-ahead by shareholders to spend up to $36 million buying white-collar recruitment agency Madison Group in a deal forecast to boost annual earnings by half.

The shares gained 5.6 percent to $2.85, adding to this year's 13 percent rally, after investors approved the Madison acquisition. Auckland-based AWF will spend $30 million on the acquisition, with a further $6 million in earn-outs if Madison meets expectations, funding the deal with debt, it said in a statement.

Madison is forecast to lift AWF's underlying earnings to $8 million in 2015 from $5.4 million in the year ended March 31, and earnings per share are expected to climb to 30 cents by 2015 from 20 cents in 2013, it said. Revenue is expected to grow to $200 million from $130.5 million in 2013.

"We are delighted shareholders have approved this acquisition," chairman Ross Keenan said. "It will provide AWF with a major strategic presence within the white collar recruitment and contracting sector."

The special meeting comes after AWF last week reported a 19 percent slide in first-half underlying profit after a predicted lift in Christchurch demand didn't eventuate.

"We are finding the New Zealand business environment at the moment both confusing and disappointing and undoubtedly somewhat different than the seemingly hyped up comments about the economy throughout the country being on a roll," Keenan told shareholders the company at today's meeting.

Chief executive Mike Huddleston said AWF had been looking to expand into white-collar recruitment for some time, with demand coming from existing clients, and was in negotiations with Madison for two years.

Because of the differences between blue-collar and white-collar recruitment, AWF won't merge the operations of the two entities, he said.

"The Madison business is to a degree counter-cyclical to AWF in that as the economy strengthens the temporary labour market becomes more challenging whilst permanent recruitments takes the fore," Huddleston said. "Madison spans white collar temp, contracting and permanent placement, and is therefore well-placed to benefit."

The board is comfortable with AWF's debt level growing to $30 million in the first year, and may take on a further $6 million if the earn-out targets are achieved, and will consider whether to repay the debt from its cash-flow or raise new equity to do so once the acquisition has been bedded in, Huddleston said.

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