· Martract's vertical integration with Roota is expected to reduce lead-times and minimise supply chain risk
· The Acquisition will enable the expansion of relationships with existing PMC customers and reduce competition
· Approximately 60% of Martract's revenue is generated outside of the oil and gas market
· Martract is a cash generative and profitable business with good near term order book visibility
· The Board is confident of realising further potential for the business through the expansion into international markets, as the current sales focus is primarily the UK
· The Board expects that the Acquisition will be immediately earnings enhancing
Terms of the Acquisition
The maximum total consideration for the Acquisition is £4.3 million on a cash free, debt free basis, comprising an initial cash consideration of £3.7 million plus cash balances (“Initial Consideration”) and a conditional deferred payment of up to £0.6 million (“Additional Consideration”). The Additional consideration payable in respect of the 12 month period following the Acquisition (the “Earn-out Period”) is dependent on the future EBITDA performance of Martract. The Initial Consideration will be met from the Group's existing bank facilities and cash.
Key directors of the business will remain as consultants during the Earn-out Period.
Information on Martract and background to and reasons for the Acquisition
Established in 1978, Martract is a profitable, cash generative business that benefits from good near term order book visibility and strong customer loyalty. The Board expects that the Acquisition will be immediately earnings enhancing. For the year ended 31 August 2016 Martract had unaudited revenues of £1.2 million and adjusted proforma EBITDA of £0.45 million.
Martract has significant technical capability and intellectual property. It employs IP that achieves tight tolerances of sphericalness in the case of ball valves and flatness in the case of gate valves. This guarantees sealing of valves at very high pressures and Martract's IP has been proven to extend the operational life of products many times over; in this area the Board believes it has very few, if any, competitors. All existing operational management and employees will be retained in the business. The work that Martract currently undertakes for its customers is highly complementary to the PMC Division and will further embed our niche capability for valve components in demanding applications as well as extending the division's market reach.
Martract's revenue in 2016 was derived 40% from the oil and gas market and 60% from other diverse sectors. The Board believes that Martract has further potential that can be realised as part of the Group.
The Acquisition of Martract is a strategic move, which the Board believes has three main benefits.
Firstly, within PMC's oil and gas customers there will be an opportunity to expand existing relationships as well as develop new ones; as Martract will be vertically integrated within Roota offering a manufactured and ground product solution the quality of which is unmatched by any known competitor. In addition, the acquisition will shorten the supply chain, substantially increasing the division's competitive advantage as well as reducing product lead-times.
Secondly, Martract has traditionally focused on the UK market and the Board sees considerable potential to further develop international markets as part of the Group.
Thirdly, Martract's business is not wholly reliant on the oil and gas market and currently has customers across a number of other sectors including nuclear and wide-reaching industrial sectors. It is anticipated that the division's businesses will be able to capitalise on Martract's position in these markets.