Ann: GCS and SRG Merger of Equals - Presentation, page-5

It's a merger of equals, meaning the merger ratios for the two companies is determined by last close price. Therefore, the deal would be prima facie fair if you believed that the market price of both companies was a fair valuation for each company.

GCS was forecast to do about $24m EBITDA in FY18 (excl. discontinued operation sale and pro forma for the additional 50% of Facades), had a pre announcement market cap of $168m, and about $60m of net cash and tax loss carry-forwards, implying an EV of about $110m. That means it was trading on about a 4.5x EV/EBITDA.

SRG was forecast to do about $25m EBITDA in FY18, had a pre announcement market cap of $154m and net debt of $6m meaning a $160m EV, implying it was trading on a 6.3x EV/EBITDA.

So, if you assume the two businesses were perfect substitutes for one another, you'd obviously want to own GCS as it's cheaper. But i don't think they are perfect substitutes - i think GCS is a slightly better business as it's more cash generative and takes less long-duration contract risk than SRG does, plus i also liked the idea of owning a WA-heavy business at the bottom of its earnings cycle versus SRG which is more east coast heavy.

So, from my perspective, i've traded a 4.5x EV/EBITDA business that might be a 5/10 quality business, for a 4/10 business trading at >6x EV/EBITDA. Doesn't make sense to me, even if you include the value of the purported synergies.

It's not a disastrous deal - it has strategic merit - but i think SRG holders are getting the better economic deal.