THIS ANNOUNCEMENT, INCLUDING THE APPENDIX HERETO (TOGETHER, THE “ANNOUNCEMENT”) AND THE INFORMATION CONTAINED HEREIN IS RESTRICTED AND IS NOT FOR PUBLICATION, DISTRIBUTION OR RELEASE, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN OR INTO THE UNITED STATES (INCLUDING ITS TERRITORIES AND POSSESSIONS, ANY STATES OF THE UNITED STATES AND THE DISTRICT OF COLUMBIA), CANADA, AUSTRALIA, JAPAN OR THE REPUBLIC OF SOUTH AFRICA OR IN OR INTO ANY OTHER JURISDICTION IN WHICH SUCH PUBLICATION, DISTRIBUTION OR RELEASE WOULD BE PROHIBITED BY ANY APPLICABLE LAW ("RESTRICTED JURISDICTIONS").
THIS ANNOUNCEMENT IS FOR INFORMATION PURPOSES ONLY AND DOES NOT CONSTITUTE OR FORM PART OF AN OFFER TO SELL OR ISSUE OR A SOLICITATION TO BUY, SUBSCRIBE FOR OR OTHERWISE ACQUIRE, ANY SECURITIES IN ANY JURISDICTION IN WHICH ANY SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL, INCLUDING THE RESTRICTED JURISDICTIONS AND NEITHER THIS ANNOUNCEMENT NOR ANYTHING CONTAINED HEREIN SHALL FORM THE BASIS OF, OR BE RELIED UPON IN CONNECTION WITH, ANY SUCH OFFER OR SOLICITATION WHATSOEVER IN ANY OF THOSE JURISDICTIONS.
Proposed placing to raise approximately £29m
discoverIE, a leading international designer, manufacturer and supplier of customised electronics to industry, today announces the acquisitions of Coil-Tran Corporation which trades as Hobart Electronics (“Hobart”) and of Positek Limited (“Positek”, collectively the “Acquisitions”) together with a proposed placing to raise gross proceeds of approximately £29m (the “Placing”).
Highlights of the Acquisitions
- Hobart is a US-based designer and manufacturer of custom transformers, inductors and magnetic components, which reported revenues of $13.0m (£10.0m) for its year ended 31 December 2018, generating reported EBITDA of $2.1m (£1.6m).
- The consideration for Hobart comprises an initial cash consideration of $15.2m (£11.7m, the "Initial Hobart Consideration") and a further contingent cash consideration of up to $4.0m (£3.1m) which is subject to customary adjustments, payable subject to the achievement of certain growth targets over the next three years.
- Positek is a UK-based designer and manufacturer of rugged, high accuracy linear, rotary, tilt and submersible sensors, supplying international markets, which reported revenues of £1.5m for its year ended 31 August 2018, generating underlying EBITDA of £0.6m.
- The consideration for Positek comprises an initial cash consideration of £4.2m (the "Initial Positek Consideration") with further contingent cash consideration of up to £0.4m, payable subject to the achievement of certain integration and profit targets in the next 18 months.
- The Acquisitions represent a further step in the Group's stated strategy:
- Expand the Group’s international footprint, with over 80 per cent. of acquired revenues generated in North America, increasing overall D&M revenues from outside Europe by 2ppts to 29% on a pro forma first half-year basis;
- Create further organic growth opportunities in target markets of renewable energy, transportation, medical and industrial connectivity;
- Expand regional manufacturing with production in Mexico and create opportunities for efficiencies;
- Create cross-selling and synergy opportunities with the wider Group; and
- Enhance underlying operating margins for both the D&M division and the Group as a whole with Hobart and Positek generating underlying operating margins ahead of those in D&M.
- The Acquisitions and the Placing (as described below), taken together, are expected to have a neutral effect on underlying EPS in the current year. On a standalone and 100% equity funded basis, the Acquisitions would have been enhancing to underlying EPS.
Placing highlights
- Proposed placing of 7,309,867 new ordinary shares of 5 pence each in the Company (the "Placing Shares"), at a price of 400 pence per Placing Share, to raise gross proceeds of approximately £29m. The Placing Shares represent approximately 9.96 per cent. of the Company’s existing issued share capital.
- The Placing Price represents a discount of 3.85 per cent. to the closing price of 416 pence per share on 15 April 2019.
- The Initial Hobart Consideration and Initial Positek Consideration, which together amount to £15.9m will be satisfied from discoverIE’s existing debt facilities.
- The net proceeds of the Placing, which are expected to be approximately £28m, will be used to reduce the Group’s net debt, to fund working capital and for general corporate purposes.
- Following the Acquisitions and the Placing, pro forma gearing, calculated as net debt to adjusted EBITDA (annualised for acquisitions), at 31 March 2019 would reduce to approximately 1.5x from 1.8x.
- The Placing is being conducted through an accelerated book building process (the “Bookbuild”) which will commence immediately following this Announcement in accordance with the terms and conditions set out in the Appendix.
- The Placing is being conducted by Peel Hunt LLP (“Peel Hunt”) and finnCap Ltd (“finnCap”) and is being fully underwritten by Peel Hunt, subject to certain conditions.
Nick Jefferies, Group Chief Executive of discoverIE, said:
"The acquisitions of Hobart and Positek continue our strategy of building a higher margin, international Group that designs and manufactures customised electronics. Both companies have long-established track records of supplying high quality products into their respective markets. As part of the Group, both companies will gain access to our wider base of customers and with it, new sales opportunities, whilst discoverIE will gain access to efficiencies from manufacturing in Mexico and new cross-selling opportunities. We are delighted to welcome Hobart, Positek and all their employees into the Group."
Market Abuse Regulation
The information contained within this Announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulation (“MAR”). Upon the publication of this Announcement via a regulatory information service, this inside information is now considered to be in the public domain.
In addition, market soundings (as defined in MAR) were taken in respect of the Placing and the Acquisitions with the result that certain persons became aware of inside information (as defined in MAR), as permitted by MAR. This inside information is set out in this announcement being made by the Company today. Therefore, those persons that received inside information in a market sounding are no longer in possession of such inside information relating to the Company and its securities.
The US dollar to sterling exchange rate used in relation to the consideration, fundraising amounts and the Acquisition is US$1.305:£1.
Conference call
discoverIE will hold a conference call for analysts and investors at 09:00 UK time on 16 April 2019.
Details for the call are as follows:
For further information please contact:
discoverIE
Nick Jefferies, Group Chief Executive
Simon Gibbins, Group Finance Director
01483 544 500
Peel Hunt (Broker and bookrunner)
Jock Maxwell Macdonald
Mike Bell
Ed Allsopp
020 7418 8900
finnCap (Lead manager)
Tim Redfern
Julian Blunt
Richard Chambers
020 7220 0500
Instinctif (Financial PR)
Mark Garraway
James Gray
020 7457 2020
This Announcement should be read in its entirety. In particular, you should read and understand the information provided in the "Important Notices" section below.
The Appendix to this Announcement (which forms part of this Announcement) sets out the terms and conditions of the Placing. Persons who have chosen to participate in the Placing, by making an oral or written offer to acquire Placing Shares, will be deemed to have read and understood this Announcement in its entirety (including the Appendix) and to be making such offer on the terms and subject to the conditions herein, and to be providing the representations, warranties, agreements, acknowledgements and undertakings contained in the Appendix.
About discoverIE
discoverIE Group plc is an international group of businesses that designs, manufactures and supplies innovative components for electronic applications.
The Group provides application-specific components to original equipment manufacturers (“OEMs”) internationally. With in-house engineering capability, the Group is able to design components to meet customer requirements, which are then manufactured and supplied, usually on a repeating basis, for their ongoing production needs. This generates a high level of repeating revenue and long term customer relationships.
By focusing on key markets which are driven by structural growth and increasing electronic content, namely renewable energy, transportation, medical and industrial connectivity, the Group aims to achieve organic growth that is well ahead of GDP and to supplement that with targeted complementary acquisitions.
The Group employs c.4,300 people and its principal operating units are located in Continental Europe, the UK, China, Sri Lanka, India and North America.
The Group is listed on the Main Market of the London Stock Exchange and is a member of the FTSE Small Cap Index, classified within the Electrical Components and Equipment subsector, and has revenues of over £400m. Over the last five years, revenue and underlying earnings per share has more than doubled.