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Acal agrees acquisition of Variohm to expand design and manufacturing business

Last updated: 15:28 20 Jan 2017 GMT, First published: 07:28 20 Jan 2017 GMT

deal agreed, handshake
Acal is to pay £12mln upfront, with a further £1.85mln due if Variohm meets growth targets

Customised electronics firm Acal Plc (LSE:ACL) has agreed to acquire  Variohm Holdings Limited for up to £13.85mln.

The company is to pay £12mln in cash upfront for Variohm, a UK based components manufacturer, which last year generated £19.4mln of revenue and reported a £1.6mln pre-tax proft.

A further £1.85mln is payable if Variohm achieves certain growth targets and conditions.

Acal says describes the acquisition of Variohm as ‘highly complementary’ and said it represents a step in its strategy to grow its design and manufacturing division with differentiated niche and customised electronic components.

To pay for the acquisition Acal is launching a share placing, to raise £14.1mln, selling 6.4mln new shares priced at 220p each. The new equity would equate to about 10% of the group’s existing share capital.

The funding is being arranged by Peel Hunt, which is acting as sole broker and has underwritten the placing.

Notwithstanding the dilution from the share placing the acquisition is expected to bring immediate benefits, and Acal says it will be earnings enhancing in the first full year following the deal’s completion (the twelve months ending March 2018).

"The acquisition of Variohm continues our strategy of building a differentiated group with higher operating margins through the acquisition of high quality, growing design and manufacturing businesses,” said Nick Jefferies, Acal chief executive.

“Variohm has a long established track record of supplying high quality sensors, switches, and motion measurement systems to industrial customers in the UK and internationally.

“As part of the Acal Group, Variohm will gain access to our base of over 25,000 customers and with it, new sales opportunities. We are delighted to welcome Variohm and all its employees into the group."

Northamptonshire headquartered Variohm designs, manufactures and distributes electronic sensors and switches. It has three main brands - Variohm, Herga and Heason – and its key markets are medical, transportation and industrial which together account for around 65% of sales.

About half of the group’s sales are to British customers, whereas its key export markets are Germany, France and the United States.

Acal also issued an update for the third quarter with the company saying that trading was in line with expectations.

Sales increased 21% during the period (5% at constant exchange rates), and as expected organic sales grew by 4%, compared to a 7% decline in the first half.

“The group remains on track to deliver positive organic growth in the final quarter,” the company said.

“Gross margins remain firm and ahead of last year, and operating costs continue to be tightly managed. We maintain our earnings forecast for the full year.”

Acal reported it had net debt of £41.1mln at the end of December.

“The group remains on track to deliver positive organic growth in the final quarter. GMs remain firm and ahead of last year, and operating costs continue to be tightly managed,” broker Peel Hunt said in a note.

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