Leading Australian defence and homeland security company XTEK (ASX: XTE) has entered a deal to acquire US body armour and personal protective equipment company HighCom Armor Solutions.
The move follows the successful completion of an oversubscribed $2.7 million placement for Canberra-headquartered XTEK, which has been exploring ways to develop manufacturing capacity in the US.
XTEK now intends to raise a further $1 million through a share purchase plan to support the acquisition and other growth opportunities for its patented high-performance ballistic protection products.
The Australian company sells its XTclave composite protection line as well XTatlas, a real-time contextual video software solution that was sold internationally for the first time in May.
In the first half of FY19, XTEK completed the development of its SUAS (small unmanned aerial systems) maintenance facility in Canberra. The last revenue forecast for FY19 was between $20-30 million.
In comparison, Ohio-based HighCom notched a revenue of $10.5 million in FY18 with an EBITDA of $1.4 million. All of its products are certified by the US Department of Justice's National Institute of Justice, signifying the highest compliance standard in the industry.
XTEK expects the acquisition will be immediately earnings accretive, providing access to HighCom's well established US distribution network and existing manufacturing capability necessary to address the US military market.
"This transformational transaction, which represents a key milestone in XTEK's evolution to becoming a leading ballistic armour player globally," says XTEK managing director Philippe Odouard.
"XTEK is now in a strong position to accelerate the commercialisation of its proprietary products by combining XTclave technology and existing manufacturing capabilities with an established and growing distribution network in the lucrative US market.
"We believe the acquisition of HighCom presents significant growth opportunities, with the potential to be the ballistic armour and personal protective equipment supplier of choice and to leverage this success and momentum into other key target markets globally."
The purchase price was not specifically revealed, but XTEK claimed it represented a transaction EV/EBITDA multiple of 2.6x CY2018 EBITDA.
"This transaction is highly strategic and allows the combined entity to grow its customer base, deliver high quality and proprietary products, expand geographic reach and accelerate entrance into new markets," says James Black, director of HighCom Global Security Inc (HighCom vendor).
"More importantly, the deal structure enables shareholders of both XTEK and HighCom the opportunity to participate in the upside of a leading ballistic armour manufacturer.
"We are confident that the complementary combination will result in significant benefits to all shareholders, with the opportunity for a potential re-rating for the expanded shareholder base from enhanced presence, earnings and capital markets profile."
Minister for Defence and Industry, Melissa Price, congratulates XTEK on its announcement as an opportunity for an Australian business to further expand.
"As the Prime Minister has said, if you have a go, you'll get a go and our success in Australia's defence industry is a result of companies like XTEK who are taking every opportunity to have a go," says Price.Never miss a news update, subscribe here. Follow us on Facebook, LinkedIn, Instagram and Twitter.
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