Judges Scientific Acquires Scientifica Limited
Judges Scientific, the parent company of a group engaged in the design, manufacture and sale of scientific instruments, announces that on 26 June 2013 it acquired 100% of the issued share capital of Scientifica Limited ("Scientifica"), specialist manufacturers of electrophysiology equipment, for a cash consideration of £12.0 million and an earn-out capped at £1.0 million (the "Acquisition").
An additional payment will be made to reflect any excess working capital over and above the ongoing requirements of the business. Judges expects such payment to be covered by the cash inherited as at the completion date.
Information on Scientifica
Scientifica designs, manufactures and sells complete instrument rigs used in electrophysiology, comprised of micromanipulators, optical microscopes and associated mounting solutions. The company also distributes a range of complementary products including imaging systems, multi-electrode arrays, amplifiers, perfusion equipment and light sources. The products are sold worldwide to academic institutions, research centres and pharmaceutical companies for the purpose of conducting electrophysiology research with a particular emphasis on neuroscience.
Scientifica was founded in 1996 by Mark Johnson and David Rogerson, who developed it as joint Managing Directors and who each owned a 50% interest in the company's share capital. During recent months, Matt Kemp joined the senior management team as Sales Director. Shortly before completion, Mr Kemp exercised options to acquire 5% of the enlarged equity, thereby reducing the respective holdings of Mr Johnson and Mr Rogerson to 47.5% each. Following the Acquisition, Mr Rogerson will not stay with the company, which will be run by Mr Johnson and Mr Kemp who will remain in their respective positions.
The company has concentrated its operations on the supply of systems, which are configured to meet the specific requirements of individual customers. This customer focus has enabled Scientifica to achieve a compound annual growth rate of 31% over the past five years. Exports represent two-thirds of total revenues and Scientifica's performance in overseas markets was recognised in 2012 when the company received a Queen's Award for Enterprise - International Trade.
Scientifica's unaudited accounts for the financial year to 31 March 2013 show revenues of £9.2 million and pre-tax profits of £2.2 million. Operating profit adjusted to eliminate non-recurring items and to reflect Judges' practices would have totalled £2.1 million. The accounts show net tangible assets of £3.65 million, including cash of £1.25 million.
The earn-out will amount to £1.0 million if Scientifica generates operating profits of £2.167 million or more in respect of the twelve month period to 31 March 2014, reducing by six times any shortfall below £2.167 million. Half of the earn-out will be paid in cash and half through the issue of new Ordinary shares ("Ordinary Shares") in Judges at a price of 1180p per Ordinary Share, based on the prevailing price of Judges' Ordinary Shares on the day the Acquisition was agreed in principle. For accounting purposes, fluctuations in the share price will have a commensurate impact on the book value of the earn-out cap.
The Acquisition is expected to be earnings enhancing with immediate effect. The Board believes that Scientifica is an excellent business operating in an expanding niche with considerable worldwide growth potential.
Financing of the Acquisition
As at 31 December 2012, the date of the last published balance sheet, the Group's adjusted net debt amounted to £1.7 million supported by borrowing facilities of £10.7 million. The Acquisition and associated transaction costs are being financed from existing cash resources and an additional £9.0 million term loan ("Loan") provided by Lloyds Bank Corporate Markets. The Loan is repayable over a five year period.
Judges' Trading Performance
The Group's trading performance since the beginning of the current financial year has remained satisfactory. Order intake was strong in the first quarter and more subdued since, resulting in 4.7% organic growth in order intake compared to the first 25 weeks of 2012. This is consistent with market expectations for the year as a whole.
Alex Hambro, Chairman of Judges, commented:
"The purchase of Scientifica represents the largest acquisition made by Judges Scientific and its impact on the Group's financial performance should be significant. We are delighted that Mark Johnson and Matt Kemp will continue to manage the company and we welcome them to Judges' expanding team."