Custom electronics maker discoverIE Group PLC (LON:DSCV) has acquired Xi-Tech, a maker of specialist sensing and data acquisition modules for x-ray and optical detection applications.
The company is paying £58mln to acquire the UK company and its Sens-Tech subsidiary on a debt-free, cash-free basis, with a further cash consideration of up to £12mln due to be paid if Xi-Tech hits certain profit targets over a three-year period.
To reduce gearing following the acquisition, discoverIE is proposing to raise roughly £33mln by placing shares at 415p per share – a discount of 3.9% to last night’s closing price of 432p.
Following the acquisition and the placing, gearing, calculated as net debt to adjusted underlying earnings (annualised for acquisitions), at 30 September 2019 would have increased from 1.4x to 1.7x on a pro forma basis, which is still within the company's target range of 1.5x to 2.0x.
Sens-Tech is based in the UK and serves the transport security, medical, food processing and industrial markets.
In the year to the end of March, it reported revenue of £15mln, profit before tax of £4.4mln and underlying earnings before interest and tax (EBIT) of £5.3mln.
DiscoverIE said the acquisition would create further organic growth opportunities in its target markets, particularly medical, transportation and industrial & connectivity.
The acquisition would also increase the group’s international footprint as Sens-Tech makes roughly 70% of its revenues in North America and Asia.
Underlying operating margins for the Design & Manufacturing division should go up by around 1.2 percentage points as a result of bringing Sens-Tech on board, which in turn would improve operating margins for the group as a whole.
"Sens-Tech continues our strategy of building a higher margin, international group that designs and manufactures customised electronics and is one of our largest acquisitions to date,” said Nick Jefferies, the chief executive of discoverIE.
“We are acquiring Sens-Tech, which has a long-established track record of supplying high-quality products, at a time when it is well-positioned to exploit a range of growth opportunities,” he added.