Neptune Marine Services has signed a Letter of Intent to acquired Allied Diving Services, an offshore Oil & Gas and Civil Marine diving contractor also based in Perth, Western Australia. The offer is subject to detailed due diligence and formal contract documentation.

The acquisition will be made by an upfront payment of $2.125 million, consisting of cash and the issue of Neptune share to Allied's directors, escrowed for 24 months. The final purchase price is to be subject to a 2-year earn-out period based on the business' ongoing performance and an agreed EBIT multiple. Allied's two principals will stay with the business and continue to drive its growth. The business currently has annual revenue of $3 million and is expected to make an immediate contribution to Neptune's earnings.

Allied Diving Services was established by Peter Sare and Colin Murphy, who bring to Neptune over 50 years of experience in civil marine construction and offshore oil and gas diving. Allied has an established blue chip customer base and a steady stream of work in oil & gas, civil marine and marine infrastructure sectors. Neptune's current diving operations will be combined with Allied's, giving it immediate growth and greater critical mass.

Neptune Marine Services' Managing Director Christian Lange said Allied Diving met the Company's acquisition criteria and recently announced Strategy for Growth. "We announced last month that acquisitions will form part of Neptune's future growth and this is our first step in enabling that strategy."

"We fully expect the combination of Allied an Neptune to accelerate our strategy to capture specific opportunities in the oil & gas, merchant marine and marine infrastructure sectors. Furthermore, Allied's skills in the areas of inspection, repair and maintenance (IRM), particularly in the oil & gas sector by strengthening key relationships with Allied's customer base. Importantly, these relationships will provide a channel to market for other services such as Neptune's dry welding technology, NEPSYS."

Principal of Allied Diving Services Colin Murphy said that as a result of the merger, Allied can take advantage of more significant opportunities in the oil & gas, defense and marine services market.

"We see significant growth potential for offshore inspections, maintenance and repair and customer support, in the oil & gas, civil marine and defense sectors. The combinations of Allied and Neptune provides scale that enables us to take on larger projects in these sectors, something we have previously been unable to do."

Mr. Lange said Neptune is on track to complete phase 1 of its two-phase growth program within 18 months. "In Australia, Neptune is establishing a fully integrated service model encompassing project management, underwater inspection and non-destructive testing, underwater construction, maintenance and repair, and corrosion management. Allied is the first step in bringing this service model together."

The transaction is targeted to be completed by July 30, 2006 and will contribute 11 months to FY2007 earnings.