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Judges ScientificPLC (JDG)

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Monday 23 May, 2022

Judges ScientificPLC

Acquisition of Geotek and new banking facilities

RNS Number : 3454M
Judges Scientific PLC
23 May 2022
 

Press Release

23 May 2022

Judges Scientific plc

("Judges Scientific", "Judges", the "Company" or the "Group")

Acquisition of Geotek Holding Limited and Geotek Coring Limited

New £100 million banking facilities

and Related Party Transaction

Judges Scientific,  the group focused on acquiring and developing companies  in the scientific instrument sector, announces that it has today acquired the entire issued share capital of Geotek Holding Limited and Geotek Coring Limited (together "Geotek" or the "Acquisition"), a world leading developer and manufacturer of instruments used to measure and log various characteristics of geological cores and a supplier of related services. The Board expects the Acquisition to be materially earnings enhancing in the current financial year. 

 

The total consideration for Geotek is up to a maximum of £80 million plus excess cash, consisting of an initial cash consideration of £45 million, paid on completion and further contingent consideration of up to £35 million to be satisfied through a mixture of cash and new ordinary shares in the Company. The cash consideration for the Acquisition is being financed from a new £100 million club facility led by Lloyds Banking Group plc alongside Santander UK plc and Bank of Ireland. 

 

Geotek specialises in high resolution, non-destructive analysis of geological cores to enable university researchers, mining companies and oil and gas operators to analyse, record and digitise information about cores they have extracted, through its proprietary range of Multi Sensor Core Logger ("MSCL") instruments. Geotek comprises three divisions of broadly similar sizes consisting of:

· an instrument development and manufacturing business ("Instruments");

· a core logging service business ("MSCL services"); and

· a gas hydrate business ("Coring").

 

Geotek's scientific environment is contiguous to GDS Instruments, another Judges subsidiary, and it is hoped that this will lead to positive interactions between the two companies.

 

Historical Financial Performance

Geotek's average annual operating profit for the 3-year period ended 30 April 2020, adjusted to eliminate non-recurring items and to reflect Geotek's ongoing cost base within Judges, amounted to 6.3 million.

 

Geotek's combined accounts for the financial year to 30 April 2021 show revenue of 7.3 million and profit before interest and taxation of 1.5 million. Net assets amounted to 19.5 million, including cash of 11.6 million.  Trading during the period was severely affected by the Covid-19 pandemic and management consider the 3-year average to be more representative of Geotek's historic profitability.

 

This is the first acquisition by the Group that derives a substantial proportion of revenues from services. It will provide the Group with greater medium-term visibility but also reliance on a small number of large contracts.

Principal Terms of the Acquisition

The purchase price of Geotek consists of the following:

 

· The initial price, paid in cash at completion, amounts to 45 million ("Initial Consideration");

· Potential further contingent consideration of up to a maximum 35 million ("Earn-out") to be satisfied half in cash and half in new ordinary shares in Judges to be issued at a price of £76.80 per new ordinary share, Judges' prevailing share price at the time of signing heads of terms with Geotek's vendors.

· The Earn-out starts to become payable on achievement of a minimum adjusted EBIT of £6.4 million for the calendar year 2022 increasing pro rata on a 7:1 ratio until it reaches a cap when an adjusted EBIT of £11.4 million is achieved.

· An additional payment will also be due if there is an excess cash balance at the completion date over and above the ongoing requirements of the business.  The Board expects any such payment to be covered by the cash inherited at the completion date. 

 

Information on Geotek

Instruments

The instrument development and manufacturing business, based in Daventry, Northamptonshire, combines in-house developments with known technologies into automated MSCL instruments. Integrating a wide range of high-resolution sensors with original software enables geological cores fed into the instruments to be analysed and recorded quickly and efficiently. Analysing a large number of cores is useful for the advancement of geology, understanding important aspects of climate change and helps mining, oil and gas companies to determine the abundance, and optimise extraction, of a large range of important minerals as well as characterise oil and gas reserves.

 

MSCL Services

MSCL Services comprises core-logging and digitisation services either in-house or in the field (globally) where Geotek provides a fully equipped lab positioned next to the customers operation together with qualified personnel and optimised work flow to analyse and record large quantities of core. This is a relatively recent and growing business based on medium-term contracts with a small but growing number of customers. MSCL Services also includes an instrument rental business particularly focused on the mining industry .

 

Coring

The Coring business is largely managed from Salt Lake City, Utah. It derives from proprietary technology that enables gas hydrate cores to be extracted and brought to the surface without change of pressure or temperature. At conditions of high pressure and low temperature, water and methane form a gas hydrate structure, which is solid; the use of the technology enables the core containing gas hydrates to be brought to the surface, stored and analysed without significantly altering its properties. Mapping and understanding gas hydrates is of interest to governments for geologic and scientific purposes. Gas hydrates could provide a vast potential natural gas energy source. Although non-carbon energy is greatly favoured in the long term, and gas hydrate production is still in an R&D stage, energy independence is a concern to many countries. Other topics of interest are the use of methane to produce hydrogen and understanding the potential seepage of methane from hydrate deposits. Revenues tend to be lumpy, consisting of a small number of large contracts, predominantly with government funded institutions.

 

Ownership and Management

Geotek Holding Limited and Geotek Coring Limited had largely the same shareholders but in slightly different proportions. Among the sellers, Geotek's founders (Peter Schultheiss, the Chairman and Quentin Huggett, the Service Director) will both enter into one-year service contracts; the Managing Director, Anthony Bosley, will remain in the same role.

 

Banking

In order to finance the Acquisition and to provide the Group with additional acquisition financing capacity for future opportunities to support the Group's enduring buy and build strategy, the Group has entered into a new multi-bank facility ("Facility") with Lloyds Banking Group plc, Santander and Bank of Ireland (the "Banks") which replaces its existing banking arrangements with Lloyds Bank, which were for an aggregate amount of £60.0 million.

 

The Facility is for an aggregate 100.0 million consisting of a 25.0 million term loan ("Term Loan"), a committed 55.0 million revolving credit facility ("RCF") plus a 20.0 million uncommitted accordion facility, which can be drawn with the agreement of the Banks. The Facility replaces the Group's previous facilities of which 15.2 million was outstanding at the time of the Acquisition. The life of this new Facility is co-terminous with the previous facility and hence has a term of 4 years until 25 May 2026 ("Borrowing Term").

 

The Term Loan amortises on a straight line basis over the Borrowing Term by quarterly instalments.  The RCF is repayable in a bullet at the end of the Borrowing Term.

 

The banking covenants have been adjusted from the previous banking arrangements, namely:

· Gearing no greater than 3.0 times Adjusted* EBITDA (an increase from 2.5 times in the previous arrangement);

· Interest Cover no less than 3 times; and

· Minimum EBITDA covenant within the previous facilities is no longer required.

 

Interest rates are consistent with the previous facilities, save for an additional rate between 2.5 and 3.0 times gearing.

 

The existing lending facilities via Bordeaux Acquisition Limited ("Bordeaux"), the Group's 88% owned subsidiary, remain unchanged. Bordeaux owns the trading companies of Deben UK Limited and Oxford Cryosystems Limited.

 

* Adjusted EBITDA excludes adjusting items relating to acquisition-related costs, share based payments and hedging of risks materialising after the end of the year.

 

Deal Origination - Related Party Transaction

The transaction was originated by Charles Holroyd, a non-executive director of Judges. As with all Judges Scientific non-executive directors, and as disclosed in the Group's Annual Report and Accounts, he is incentivised to originate acquisitions on behalf of the Group. Accordingly, at the time of his appointment to the Board of Judges Scientific in 2018, he entered into an introduction agreement entitling him to the payment of a fee amounting to 1% of the enterprise value of any business that he introduced to the Group and was subsequently acquired by the Group ("Introduction Fee"). Based on the experience of the Group, the level of the Introduction Fee is materially lower than the fees charged by independent brokers. Mr Holroyd has not been involved in any part of the decision-making process in relation to the Acquisition. The Introduction Fee in relation to Geotek will be payable at the same time and in the same proportion as the payments of the Initial Consideration and the Earn-out to the sellers; £450,000 at Completion and up to £350,000 on settlement of the Earn-out in 2023. Mr Holroyd has elected to receive one half of his entire fee in new ordinary shares, valued at £76.80 per ordinary share, the same level as the share component of the Earn-out, and the other half in cash to enable him to pay the relevant taxation. The Company will apply for admission of the new ordinary shares in due course.

This is a related party transaction pursuant to Rule 13 of the AIM Rules for Companies. The directors of the Group (excluding Charles Holroyd) consider, having consulted with Shore Capital, Judges Scientific's nominated adviser, that the terms of the transaction are fair and reasonable insofar as its shareholders are concerned.

Alex Hambro, Chairman of Judges, said:

"This is the Group's twentieth, and largest, acquisition. Geotek is a world leading business in a focused global niche, providing top-quality products and services which are essential for the improvement of geophysical knowledge. This cash generative and earnings enhancing acquisition fits within Judges' disciplined acquisition strategy and we are delighted to welcome Peter, Quentin and Tony and all their colleagues to the Judges family."

 

For further information please contact:

Judges Scientific



David Cicurel, CEO

Brad Ormsby, Group FD

Tel: +44 (0) 20 3829 6970


 

Shore Capital (Nominated Adviser & Broker)


Stephane Auton

Iain Sexton

Tel: +44 (0) 20 7408 4090

 

Liberum (Joint Broker)

Edward Mansfield

William Hall

 

Media enquiries:

Alma PR (Financial Public Relations)

 

Tel : +44 (0) 20 3100 2222

 

Sam Modlin

Rebecca Sanders-Hewett

Justine James

Joe Pederzolli

 

Tel: +44 (0) 20 3405 0205

[email protected]

Notes to editors:

Judges Scientific plc (AIM: JDG), is a group focused on acquiring and developing companies in the scientific instrument sector.  The Group now consists of 20 businesses acquired since 2005.

The acquired companies are primarily UK-based with products sold worldwide to a diverse range of markets including: higher education institutions, scientific research facilities, manufacturers and regulatory authorities.  The UK is a recognised centre of excellence for scientific instruments.  The Group has received five Queen's Awards for innovation and export. 

The Group's companies predominantly operate in global niche markets, with long term growth fundamentals and resilient margins.

Judges Scientific maintains a policy of selectively acquiring businesses that generate sustainable profits and cash.  Shareholder returns are created through the reduction of debt, organic growth and dividends. 

For further information, please visit  www.judges.uk.com

 

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