TT Electronics plc (LON:TTG), a global provider of engineered electronics for performance critical applications, has announced that it has agreed to acquire Torotel.
Highlights of the Acquisition
· Torotel is a US-based designer and manufacturer of high-reliability power and electro-magnetic assemblies and components designed for harsh environments, primarily for defence markets, with a blue-chip US customer base
· Torotel reported net sales of $26.1 million for its year ended 30 April 2020, generating adjusted1 EBITDA of $3.0 million and reported profit before tax of $0.8 million. It reported gross assets of $13.4 million as at 30 April 2020
· The enterprise value of the Acquisition is $43.4 million (£33.92 million), representing 10.9x adjusted 2021 EBITDA3, and is expected to be part-funded by a separately announced equity placing, with the balance of the consideration being funded by existing debt facilities
· The Acquisition is expected to generate attractive financial returns, with pre-tax ROIC expected to exceed TT’s 11.5 per cent hurdle rate in the third full financial year of ownership. Taking account of the equity placing, the Acquisition is expected to be modestly accretive to underlying earnings per share from TT’s first full financial year of ownership
· TT’s leverage is expected to increase modestly to approximately 1.8x EBITDA on a pro-forma basis, taking account of the equity placing, preserving TT’s robust balance sheet position
· The Acquisition is a strong strategic fit for TT as it:
o Increases TT’s scale in the very large and attractive US defence market
o Represents an exciting opportunity to enhance TT’s US presence in power electronics
o Broadens TT’s power electronics capabilities in the US, and further increases scale following the recently acquired Covina business which has integrated well and already won new business
o Extends TT’s list of blue-chip US customers with cross-selling opportunities
o Adds recurring revenue streams from largely sole-source positions on multi-year growth programmes
o Brings complementary products and capabilities, in particular to TT’s Power and Connectivity division
o Provides future upside potential from commercial aerospace, energy, space and rail
The Acquisition is subject to customary closing conditions including regulatory conditions and approval by Torotel’s shareholders. Torotel shareholders representing approximately 62% of its common stock have signed agreements to vote in favour of the Acquisition and the Torotel stockholder vote (which requires a 66.67% majority) is expected to take place in November 2020. Completion is expected in Q4 2020.
· TT confirms that the market trends it is seeing remain broadly as described in its Interim Results announcement which was released on 6 August 2020
· There are still a number of possible outcomes for the rest of the year, but we continue to believe that we will see improvement in the second half
· As such, our outlook remains unchanged from our statement on 6 August 2020
· As announced on 9 September 2020, TT has been appointed as manufacturing partner to iAbra’s Virolens® device. Whilst there is a lot of commercial interest in Virolens®, as we also stated last week, there are a wide range of potential outcomes and achieving revenue is subject to regulatory approvals and customers converting expressions of interest into firm orders
Commenting on the Acquisition, Richard Tyson, Chief Executive Officer said:
“We are really excited about the acquisition of Torotel, a business we have been tracking for some time. It is an excellent fit and complementary to TT’s existing US power electronics business, strengthening our position in critical defence applications. We look forward to welcoming the Torotel team into the TT group.
The acquisition accelerates our strategy of focusing on attractive growth markets and increasing TT’s margins. We are confident that Torotel will create value for our shareholders.”