Omnia MD Rod Humphris. Picture: MARTIN RHODES
Omnia MD Rod Humphris. Picture: MARTIN RHODES

Omnia is buying 90% of Umongo Petroleum for R780m, adding new product lines and geographies to expand the diversified chemicals group.

The deal, which still has to be given the green light by SA’s competition authorities, will add 6% to Omnia’s overall annual turnover of about R16bn. It is effective from March.

"We don’t expect any issues [around the transaction. Umongo] covers a gap in our range of products," Omnia CEO Rod Humphris said on Thursday.

Umongo, based in KwaZulu-Natal, distributes additives, base oils and related petroleum, oil and lubricant products to multinational oil majors, including Chevron and independent producers in SA and sub-Saharan Africa.

Umongo’s most recent annual turnover of R1bn was about 25% of Omnia’s chemicals business turnover, Humphris said. It is a growing business and has a net margin of about 8%.

"We think the acquisition is a reasonably good deal. It expands Omnia’s current product offering in a market with attractive growth fundamentals [and] gives the combined group additional scale in the local and [sub-Saharan African] markets," Aslam Dalvi, associate portfolio manager at Kagiso Asset Management, said.

"Omnia is paying a reasonable price in our view and we expect the deal to benefit earnings in the short term," he said. It had the potential to "deliver cost and substantial revenue synergies over time".

Omnia group financial director Wayne Koonin said acquiring Umongo was a logical step which strengthened the chemicals cluster within the group. "Umongo is a market-leading, complementary asset to our existing Protea Chemicals business which will broaden our current product offering and strengthen our sub-Saharan Africa strategy," he said.

Electus Fund Managers equity analyst Mish-al Emeran said Umongo’s profit after tax was R77m in financial 2016. "One of the conditions precedent is Competition Commission approval, which will take three months at least. Given other conditions precedent, it is likely to be six to seven months before benefits begin to flow."

The acquisition includes an upfront cash payment of R618.5m; an earn-out cash payment of up to a maximum aggregate amount of R121.5m and a retention amount of R40m. The maximum aggregate earn-out cash payment is linked to achieving performance milestones over the three-year period to end-February 2020.

The remaining 10% of Umongo will continue to be held by Autumn Storm, an entity in which Umongo CEO Boston Moonsamy is a shareholder.

He will remain as CEO for five years while founder and chairman Mahmoud Homayoun will remain involved in Umongo for four years as a board member and specialist adviser. Other key members of the management team would continue to be employed, Omnia said.

Umongo operates a fully outsourced supply chain and logistics business model, using accredited storage facilities, transport companies and related service providers to import, store, process and deliver raw materials to customers.

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