Strix Group Plc (LON:KETL) has announced that permission for it to acquire certain assets of HaloSource Corporation was granted by the targets shareholders at a general meeting held in late February. Details of the offer were first announced on the 7th February indicating a total consideration of $1.3m (c. £1.0m), this has not changed. The assets being purchased relate to two advanced water filtration technologies, that complement Strix’s existing Aqua Optima division, and a reusable consumer product already available to consumers in the US. The deal also includes a high-quality R&D footprint in the US and Chinese production facilities. Revenue synergies will be derived from using Strix existing sales channels to further commercialise the two acquired technologies. Financially, the HaloSource assets will breakeven in FY20 and make a positive contribution to profitability in FY21. In FY19 revenue contribution is expected to be c. £2.0m with a £2.0m P&L investment reducing PBT to £29.7m (prev. £31.7m). Post changes to forecasts, the shares trade on 11.1x FY19 earnings falling to 10.3x in FY20 and yield c. 5%.
The acquired technologies offer the opportunity to broaden the current water filtration offering and improve its capability: The assets include two patented technologies, a bromine-based water treatment bead system proven to kill 99.99%+ of bacteria and viruses, and a composite filter material, certified to remove lead, to the NSF-53 standard important for the US market, and other heavy metals. The latter is utilised in the astreaTM reusable drinking bottle that is available in the US and is based on a subscription model, with the delivery of filter replacements. The Chinese operation is focused on the commercial delivery of technologies and products whilst the US consists of a high-quality R&D team. Revenue synergies will stem from broadening and improving the AO product offering, development of new products using the acquired technologies and using Strix current distribution channels to sell the acquired technologies as standalone products.
Updated forecasts: Revenue increases by £2.0m to £101.5m in FY19 and by £4.5m to £108.5m in FY20. Net investment in the income statement will be c. £2.0m In FY19 reducing PBT by 6.5% to £29.7m (prev. £31.7m). Profit estimates are left unchanged in FY20 based on the assumption that HaloSource will breakeven before becoming earnings enhancing in FY21 (ZC will introduce FY21 forecasts at the time of the FY18 results on the 21st March). Net debt increases by £4.0m to £19.3m, due to the income investment, acquisition cost of c. £1.0m, additional capex and exceptional costs relating to due diligence, before falling to £7.5m in FY20. On the higher level in FY19 the balance sheet remains conservatively geared at 0.5x EBITDA.
