TIDMJDG
RNS Number : 3454M
Judges Scientific PLC
23 May 2022
Press Release 23 May 2022
Judges Scientific plc
("Judges Scientific", "Judges", the "Company" or the
"Group")
Acquisition of Geotek Holding Limited and Geotek Coring
Limited
New GBP100 million banking facilities
and Related Party Transaction
Judges Scientific, the group focused on acquiring and developing
companies in the scientific instrument sector, announces that it
has today acquired the entire issued share capital of Geotek
Holding Limited and Geotek Coring Limited (together "Geotek" or the
"Acquisition"), a world leading developer and manufacturer of
instruments used to measure and log various characteristics of
geological cores and a supplier of related services. The Board
expects the Acquisition to be materially earnings enhancing in the
current financial year.
The total consideration for Geotek is up to a maximum of GBP80
million plus excess cash, consisting of an initial cash
consideration of GBP45 million, paid on completion and further
contingent consideration of up to GBP35 million to be satisfied
through a mixture of cash and new ordinary shares in the Company.
The cash consideration for the Acquisition is being financed from a
new GBP100 million club facility led by Lloyds Banking Group plc
alongside Santander UK plc and Bank of Ireland.
Geotek specialises in high resolution, non-destructive analysis
of geological cores to enable university researchers, mining
companies and oil and gas operators to analyse, record and digitise
information about cores they have extracted, through its
proprietary range of Multi Sensor Core Logger ("MSCL") instruments.
Geotek comprises three divisions of broadly similar sizes
consisting of:
-- an instrument development and manufacturing business ("Instruments");
-- a core logging service business ("MSCL services"); and
-- a gas hydrate business ("Coring").
Geotek's scientific environment is contiguous to GDS
Instruments, another Judges subsidiary, and it is hoped that this
will lead to positive interactions between the two companies.
Historical Financial Performance
Geotek's average annual operating profit for the 3-year period
ended 30 April 2020, adjusted to eliminate non-recurring items and
to reflect Geotek's ongoing cost base within Judges, amounted to
GBP6.3 million.
Geotek's combined accounts for the financial year to 30 April
2021 show revenue of GBP7.3 million and profit before interest and
taxation of GBP1.5 million. Net assets amounted to GBP19.5 million,
including cash of GBP11.6 million. Trading during the period was
severely affected by the Covid-19 pandemic and management consider
the 3-year average to be more representative of Geotek's historic
profitability.
This is the first acquisition by the Group that derives a
substantial proportion of revenues from services. It will provide
the Group with greater medium-term visibility but also reliance on
a small number of large contracts.
Principal Terms of the Acquisition
The purchase price of Geotek consists of the following:
-- The initial price, paid in cash at completion, amounts to
GBP45 million ("Initial Consideration");
-- Potential further contingent consideration of up to a maximum
GBP35 million ("Earn-out") to be satisfied half in cash and half in
new ordinary shares in Judges to be issued at a price of GBP76.80
per new ordinary share, Judges' prevailing share price at the time
of signing heads of terms with Geotek's vendors.
-- The Earn-out starts to become payable on achievement of a
minimum adjusted EBIT of GBP6.4 million for the calendar year 2022
increasing pro rata on a 7:1 ratio until it reaches a cap when an
adjusted EBIT of GBP11.4 million is achieved.
-- An additional payment will also be due if there is an excess
cash balance at the completion date over and above the ongoing
requirements of the business. The Board expects any such payment to
be covered by the cash inherited at the completion date.
Information on Geotek
Instruments
The instrument development and manufacturing business, based in
Daventry, Northamptonshire, combines in-house developments with
known technologies into automated MSCL instruments. Integrating a
wide range of high-resolution sensors with original software
enables geological cores fed into the instruments to be analysed
and recorded quickly and efficiently. Analysing a large number of
cores is useful for the advancement of geology, understanding
important aspects of climate change and helps mining, oil and gas
companies to determine the abundance, and optimise extraction, of a
large range of important minerals as well as characterise oil and
gas reserves.
MSCL Services
MSCL Services comprises core-logging and digitisation services
either in-house or in the field (globally) where Geotek provides a
fully equipped lab positioned next to the customers operation
together with qualified personnel and optimised work flow to
analyse and record large quantities of core. This is a relatively
recent and growing business based on medium-term contracts with a
small but growing number of customers. MSCL Services also includes
an instrument rental business particularly focused on the mining
industry .
Coring
The Coring business is largely managed from Salt Lake City,
Utah. It derives from proprietary technology that enables gas
hydrate cores to be extracted and brought to the surface without
change of pressure or temperature. At conditions of high pressure
and low temperature, water and methane form a gas hydrate
structure, which is solid; the use of the technology enables the
core containing gas hydrates to be brought to the surface, stored
and analysed without significantly altering its properties. Mapping
and understanding gas hydrates is of interest to governments for
geologic and scientific purposes. Gas hydrates could provide a vast
potential natural gas energy source. Although non-carbon energy is
greatly favoured in the long term, and gas hydrate production is
still in an R&D stage, energy independence is a concern to many
countries. Other topics of interest are the use of methane to
produce hydrogen and understanding the potential seepage of methane
from hydrate deposits. Revenues tend to be lumpy, consisting of a
small number of large contracts, predominantly with government
funded institutions.
Ownership and Management
Geotek Holding Limited and Geotek Coring Limited had largely the
same shareholders but in slightly different proportions. Among the
sellers, Geotek's founders (Peter Schultheiss, the Chairman and
Quentin Huggett, the Service Director) will both enter into
one-year service contracts; the Managing Director, Anthony Bosley,
will remain in the same role.
Banking
In order to finance the Acquisition and to provide the Group
with additional acquisition financing capacity for future
opportunities to support the Group's enduring buy and build
strategy, the Group has entered into a new multi-bank facility
("Facility") with Lloyds Banking Group plc, Santander and Bank of
Ireland (the "Banks") which replaces its existing banking
arrangements with Lloyds Bank, which were for an aggregate amount
of GBP60.0 million.
The Facility is for an aggregate GBP100.0 million consisting of
a GBP25.0 million term loan ("Term Loan"), a committed GBP55.0
million revolving credit facility ("RCF") plus a GBP20.0 million
uncommitted accordion facility, which can be drawn with the
agreement of the Banks. The Facility replaces the Group's previous
facilities of which GBP15.2 million was outstanding at the time of
the Acquisition. The life of this new Facility is co-terminous with
the previous facility and hence has a term of 4 years until 25 May
2026 ("Borrowing Term").
The Term Loan amortises on a straight line basis over the
Borrowing Term by quarterly instalments. The RCF is repayable in a
bullet at the end of the Borrowing Term.
The banking covenants have been adjusted from the previous
banking arrangements, namely:
-- Gearing no greater than 3.0 times Adjusted* EBITDA (an
increase from 2.5 times in the previous arrangement);
-- Interest Cover no less than 3 times; and
-- Minimum EBITDA covenant within the previous facilities is no longer required.
Interest rates are consistent with the previous facilities, save
for an additional rate between 2.5 and 3.0 times gearing.
The existing lending facilities via Bordeaux Acquisition Limited
("Bordeaux"), the Group's 88% owned subsidiary, remain unchanged.
Bordeaux owns the trading companies of Deben UK Limited and Oxford
Cryosystems Limited.
* Adjusted EBITDA excludes adjusting items relating to
acquisition-related costs, share based payments and hedging of
risks materialising after the end of the year.
Deal Origination - Related Party Transaction
The transaction was originated by Charles Holroyd, a
non-executive director of Judges. As with all Judges Scientific
non-executive directors, and as disclosed in the Group's Annual
Report and Accounts, he is incentivised to originate acquisitions
on behalf of the Group. Accordingly, at the time of his appointment
to the Board of Judges Scientific in 2018, he entered into an
introduction agreement entitling him to the payment of a fee
amounting to 1% of the enterprise value of any business that he
introduced to the Group and was subsequently acquired by the Group
("Introduction Fee"). Based on the experience of the Group, the
level of the Introduction Fee is materially lower than the fees
charged by independent brokers. Mr Holroyd has not been involved in
any part of the decision-making process in relation to the
Acquisition. The Introduction Fee in relation to Geotek will be
payable at the same time and in the same proportion as the payments
of the Initial Consideration and the Earn-out to the sellers;
GBP450,000 at Completion and up to GBP350,000 on settlement of the
Earn-out in 2023. Mr Holroyd has elected to receive one half of his
entire fee in new ordinary shares, valued at GBP76.80 per ordinary
share, the same level as the share component
of the Earn-out, and the other half in cash to enable him to pay
the relevant taxation. The Company will apply for admission of the
new ordinary shares in due course.
This is a related party transaction pursuant to Rule 13 of the
AIM Rules for Companies. The directors of the Group (excluding
Charles Holroyd) consider, having consulted with Shore Capital,
Judges Scientific's nominated adviser, that the terms of the
transaction are fair and reasonable insofar as its shareholders are
concerned.
Alex Hambro, Chairman of Judges, said:
"This is the Group's twentieth, and largest, acquisition. Geotek
is a world leading business in a focused global niche, providing
top-quality products and services which are essential for the
improvement of geophysical knowledge. This cash generative and
earnings enhancing acquisition fits within Judges' disciplined
acquisition strategy and we are delighted to welcome Peter, Quentin
and Tony and all their colleagues to the Judges family."
For further information please contact:
Judges Scientific
David Cicurel, CEO Tel: +44 (0) 20 3829
Brad Ormsby, Group FD 6970
Shore Capital (Nominated Adviser
& Broker)
Stephane Auton Tel: +44 (0) 20 7408 4090
Iain Sexton
Liberum (Joint Broker) Tel : +44 (0) 20 3100 2222
Edward Mansfield
William Hall
Media enquiries:
Alma PR (Financial Public Relations)
Sam Modlin Tel: +44 (0) 20 3405 0205
Rebecca Sanders-Hewett judges@almapr.co.uk
Justine James
Joe Pederzolli
Notes to editors:
Judges Scientific plc (AIM: JDG), is a group focused on
acquiring and developing companies in the scientific instrument
sector. The Group now consists of 20 businesses acquired since
2005.
The acquired companies are primarily UK-based with products sold
worldwide to a diverse range of markets including: higher education
institutions, scientific research facilities, manufacturers and
regulatory authorities. The UK is a recognised centre of excellence
for scientific instruments. The Group has received five Queen's
Awards for innovation and export.
The Group's companies predominantly operate in global niche
markets, with long term growth fundamentals and resilient
margins.
Judges Scientific maintains a policy of selectively acquiring
businesses that generate sustainable profits and cash. Shareholder
returns are created through the reduction of debt, organic growth
and dividends.
For further information, please visit www.judges.uk.com
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