Strix Group seeks to enhance its position with conditional acquisition of LAICA (Interview)

Strix Group Plc (LON:KETL), the AIM quoted global leader in the design, manufacture and supply of kettle safety controls and other complementary water temperature management components, has announced that it has entered into a conditional agreement to acquire, through its newly incorporated indirect subsidiary, Strix Italy S.r.l., the entire share capital of LAICA S.p.A for an initial consideration of approximately €19.6 million, comprising approximately €11.6 million in cash and €8.0 million in Strix ordinary shares, with up to a further €12.0 million payable in cash subject to certain conditions being met, including threshold financial targets for the financial years ending 31 December 2021 and 2022.

DirectorsTalk caught up with CEO Mark Bartlett discuss the acquisition of LAICA in further detail.

Mark Bartlett discuss acquisition of LAICA

LAICA is an Italian company focussed on water purification and the sale of small household appliances for personal health and wellness.

In the 12 months ending 31 December 2019, LAICA generated revenue of €20.4m, Adjusted EBITDA of €2.9m and Adjusted Profit Before Tax of €2.6m. Similarly to Strix, LAICA has shown strong resilience against the adverse headwinds created by the global pandemic and has seen significant demand for its products given its focus on health and wellness markets. Strix expects that LAICA’s strong track record of organic growth and cash generation will continue.

Following completion, the Acquisition will expand Strix’s water category, enhance its presence in the health and wellness market and enable Strix to capitalise on the double-digit growth of global sales (in 2019) for both the small domestic appliance and water markets, driven by increased consumer demand. LAICA has a considerable global presence, an established product range and an advanced new product roadmap. The Acquisition will also provide some consolidation of the water treatment range, driving efficiencies and providing a comprehensive portfolio of products for the Group.

The Acquisition is expected to be up to mid-single digit earnings enhancing, in the first full year of ownership, before the benefit of any synergies.

The Acquisition is being funded through a combination of cash and shares, payable to Maurizio and Anna Maria Moretto (the “Vendors”), who are the current LAICA shareholders. Strix has extended its existing debt facilities in order to satisfy the initial cash consideration and improve the liquidity of the enlarged group. Net debt¹ to Adjusted EBITDA2 is expected to be c.1.4x on completion and is forecasted to reduce to approximately 1.2x by 31 December 2021.

1 Net debt includes the €7.1m earn-out which is subject to financial performance measures in FY21 and FY22

2 Adjusted EBITDA includes proforma LTM of Laica S.p.A.

Maurizio Moretto, LAICA’s CEO, will remain with the business until at least March 2023 to continue to execute LAICA’s current growth strategy and drive synergies between Strix and LAICA. Anna Maria Moretto will remain with the business in the short to medium term in order to assist with the orderly handover of day-to-day management.

The LAICA business

LAICA is based in Vicenza, Italy and has been operating for over 40 years. The business has developed from a small domestic appliances business (predominately kitchen scales in the earlier years) in Italy, into an internationally renowned water treatment and small appliances company.

Over the last ten years, LAICA has expanded in Europe and Asia and created an international sales network with products now being sold on five continents. LAICA has a manufacturing site at its base in northern Italy and additional manufacturing capabilities in China. It currently employs 50 staff. LAICA’s current product range comprises two main areas:

–     Water treatment: Water jug filters, filter replacements, water dispensers, bottle filters and filters for coffee machines; and

–     Health and wellness appliances: Personal care, vacuum sealers and kitchen appliances.

In 2018, LAICA signed a joint venture agreement with XINBAO as a partner for distribution of LAICA’s entire filter device range to the China domestic market.

Transaction Rationale

The Directors believe that the Acquisition will significantly expand Strix’s water category and bring a number of strategic benefits to the Group which are summarised below:

·    Considerably augment Strix’s position within the water market, providing a global platform to facilitate future organic and inorganic growth

·    Earning enhancing in the first full year of ownership, in advance of synergy benefits

·    Combining complementary product and geographic offerings, capitalising on Strix’s global footprint and LAICA’s in-depth product expertise, underpinned by an extensive patent portfolio

·    Multiyear organic growth opportunities from:

o  Bringing new products to market, including 2020 scheduled product launches delayed by Covid-19 restrictions

o  Internationalising LAICA’s revenue mix by utilising Strix’s existing global sales and marketing infrastructure

o  Cross-selling and up-selling opportunities from a deepening of relationships with large, global brands spanning multiple product categories

·    Acquisition of an experienced management team who will be incentivised through certain performance targets in the first two years following completion

·    Opportunity for cost synergies arising from optimising manufacturing facilities and utilising Strix’s R&D capabilities

·    Supports Strix’s medium term targets and enhances the Group’s long-term growth potential, aligned with the Group’s capital allocation framework and stated acquisition policy

·    The Acquisition is in line with Strix’s ESG strategy which is a core driver of the business

Terms of the Acquisition

The principal terms of the Acquisition are as follows:

·    Conditional acquisition of 100% of the share capital of LAICA S.p.A for a total consideration of up to €31.6 million.

·    Completion of the Acquisition is subject to approval from the Council of Ministers in Italy, which is expected to be received by December 2020. With respect to the period prior to Completion, the Vendors have given customary undertakings to operate the LAICA business in the ordinary course, save as otherwise agreed with Strix.

·    The initial consideration, payable to the Vendors at Completion, is approximately €19.6 million, with up to a further €12.0 million of additional cash consideration payable, as follows:

o  €4.9 million payable in two instalments on 31 December 2021 and 31 December 2022, contingent on Maurizio Moretto remaining with the LAICA business; and

o  up to €7.1 million payable to the Vendors contingent on LAICA meeting certain financial performance conditions in the financial years ending 31 December 2021 and 2022.

·    The initial consideration payable at Completion represents an EV / Adj. EBITDA multiple of 6.8x and if all performance conditions are met and the maximum consideration paid to the Vendors, the total consideration will represent an EV / Adj. EBITDA multiple of 10.9x.

·    The initial consideration payable at Completion is to be part satisfied by an issue of 3,192,236 new ordinary shares in the capital of the Company to the Vendors totalling €8.0 million (based on an exchange rate of £:€1.0896 and the closing share price on 21 September 2020). The initial cash consideration of approximately €11.6 million payable at Completion will be subject to a customary post-completion adjustment with respect to the net debt and working capital of LAICA.

·    At Completion, the Vendors will enter into a customary lock-up arrangement in relation to their consideration shares, which will restrict any disposal of those shares for a period of six months from the date of Completion.

·    A further announcement will be made by the Company in due course and in any event upon completion of the Acquisition.

Mark Bartlett, CEO of Strix Group Plc, commented: 

“We are very pleased to enter into this agreement to acquire LAICA, which will be our largest acquisition to date. LAICA continues our strategy of growing our small domestic appliance (SDA) and water categories which support Strix’s core competencies. We are acquiring LAICA, 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. We look forward to welcoming the business and all its employees to Strix.”

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