The Mistral-class helicopter carrier Sevastopol, is seen at the STX Les Chantiers de l'Atlantique shipyard site in Saint-Nazaire, western France, May 15, 2014. The Sevastopol is one of two Mistral-class warships ordered by the Russian Navy. REUTERS/S
The Mistral-class helicopter carrier Sevastopol, is seen at the STX Les Chantiers de l'Atlantique shipyard site in Saint-Nazaire, western France, May 15, 2014. The Sevastopol is one of two Mistral-class warships ordered by the Russian Navy. Reuters/Stephane Mahe

Australian heavy engineering group Civmec Ltd will buy the shipbuilding assets of domestic competitor Forgacs Engineering. Singapore-listed Civmec is based in Henderson, Western Australia. The terms of the deal have not been disclosed by both the companies.

Reports say Civmec is aiming the takeover with an eye on the influx of shipbuilding defence contracts worth billions of dollars. The assets for acquisition include 17 hectares of purpose-built ship building site at Tomago, in the Hunter region of New South Wales where Aurora Australis, HMAS Tobruk and hull sections of Collins class submarines were built.

According to a Reuters report, the unit has been generating 60 percent of Forgacs' annual revenue of $120 million.

“This is a very exciting opportunity for our company to extend our multi-disciplinary operations to the east coast of Australia and gain a long established foothold in the defence shipbuilding industry," Civmec Chief Executive Officer Pat Tallon said in a statement.

Forgacs Chairman Peter Burgess said the deal would strengthen the company's balance sheet. Forgacs shareholders will get a stake in Civmec, under the deal, he added.

Long term benefit

Australia's naval shipbuilding industry is poised for $89 billion worth of defence contracts, already committed by the government for a period of 20 years. For the buyer, this will be a bonanza.

Analysts say the deal also represents the wave of consolidation sweeping through Australia's heavy engineering sector where companies are seeking out new ways to generate revenue after the two-decade long mining boom subsided.

Formac has already inked a preliminary sales agreement with Civmec, reports Herald Sun. For Civmec the deal is important as it wants to create a specialist engineering company that will manage building and maintainence of defence equipment. Civmec chief executive Pat Tallon sees big merit in the deal as it will be giving the company an opportunity to acquire in-house technical expertise on submarine building.

Exiting project delivery

Forgacs chairman Peter Burgess also gave a rationale for selling the unit. He said the shareholders wanted the company to focus more on the product division and exit the project delivery business. He noted the company has successfully delivered one of the most complex projects, namely the ship module construction program for the Air Warfare Destroyer.

“This proposed transaction represents very good news for the Newcastle and Hunter region as Civmec will be using the Tomago shipyard facility as its east coast headquarters and intends to replicate their Western Australian capabilities at Tomago,” Burgess explained.

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