Acquisition of TYKMA Inc and issue of loan notes

RNS Number : 9397E

600 Group PLC

16 February 2015

 

The 600 Group PLC

Acquisition of TYKMA, Inc and issue of loan notes

The 600 Group PLC ("600" or "the Group"), the machine tools and laser marking company, is pleased to announce that its wholly owned subsidiary 600 Group Inc. has completed the acquisition of 80% of the common stock of TYKMA, Inc ("TYKMA"), a US based laser marking business, for an initial consideration of US$4.68m (£3.04m). The acquisition will be financed by an issue of loan notes ("the Loan Note") which will also be used to repay existing debt and provide the Group with additional working capital. The first tranche of loan notes will raise an aggregate of £6.739m with up to an additional £1.761m to be raised in future Loan Note issues.

TYKMA is a privately owned company based in Chillicothe, Ohio, which specialises in the design, production and distribution of laser marking systems for a broad range of industry applications. These industrial laser marking systems are used for traceability, branding and component identification on metals, carbide, painted or anodized materials, most plastics and many other substrates and have been incorporated into the production processes of numerous US industrial companies in the electronics, medical, tooling and automotive sectors. During the year ended 31 December 2014, the Company reported net operating income of US$0.73m on revenues of US$8.40m. As at 31 December 2014, TYKMA had US$1.0m of net assets. The final conditions of the acquisition are expected to be completed by 18 February 2015.

The vendor management team will retain 20% of the common stock in TYKMA, and continue to be engaged in full time management positions. Under the terms of the acquisition there is a put option exercisable no earlier than 1 April 2017, and a call option exercisable no earlier than 1 April 2018, which provides for the remaining 20% equity to be acquired by 600 Group Inc. under a pre-determined formula.

The TYKMA business will be fully integrated with Electrox, the Group's existing laser business, which will be hived down into a new UK subsidiary, Electrox Laser Limited.  Upon integration, the management of the combined business will be led by David Grimes, the principal shareholder in TYKMA, who will report to the Group Chief Executive.

The Directors believe that the combined business will realise significant benefits from its additional scale and market penetration, together with enhanced operational and engineering capabilities.

The acquisition of TYKMA will be financed by an issue of Loan Notes. The first tranche will raise £6.739m and there is potential for up to a further £1.761m to be raised in further tranches up to a maximum of £8.5m. The Loan Notes have a 5 year maturity and carry a coupon of 8% payable quarterly in arrears. The Loan Notes are redeemable at any time after 18 February 2016 without any penalty. Of the £6.739m raised, £1.549m comprises existing shareholder loans which are being repaid and reinvested in the Loan Note issue. The remaining £0.951m of the existing loans will be repaid upon the issue of Loan Notes. It is intended that the Loan Notes will be listed on the Bermuda Stock Exchange.

Subscribers for the Loan Notes are also entitled to receive warrants, with an expiry date of 18 February 2020, to subscribe for 35.145m ordinary shares of 1 pence each in the Company ("Ordinary Shares") at a price of 20 pence per Ordinary Share. These warrants include 9.195m warrants that will be issued to replace the same number of warrants entered into as part of the existing shareholder loan arrangement, which will be cancelled. Up to a further 8.805m warrants may also be granted in the event of further Loan Note issues up to £1.761m. The grant of all of the warrants will be subject to shareholder approval at a General Meeting of the Company ("GM"). A circular convening the GM will be posted to shareholders as soon as practicable.

In the event that shareholders do not approve the resolutions required to approve the grant of warrants to the Loan Note holders within 3 months of the issuance of the Loan Notes, the Company would have to pay a redemption premium to the Loan Note holders on maturity of the Loan Notes as compensation for not being granted the warrants. The redemption premium would be calculated as being an amount equal to 20% per annum of the principal amount outstanding under the Loan Note less any interest already paid by the Company on the Loan Note principal. The redemption premium would accrue annually until such time as the Loan Notes are repaid in full.

In the event that the warrants in connection with the Loan Notes are issued, following the issue, there will be 37.545m warrants in issue with the potential for a further 8.805m to be issued in the event that further Loan Notes are issued. 2.4m of these warrants expire on 27 August 2015 with the remaining 35.145m warrants expiring on 18 February 2020. All of the warrants have an exercise price of 20p.

Haddeo Partners LLP ("Haddeo"), of which Paul Dupee, the Chairman of 600, is the managing partner, is a holder of £810,000 of the existing shareholder loan and 5,050,000 of the existing warrants. All of the Haddeo shareholder loan will be refinanced by the new Loan Note issue on the same terms as all other Loan Notes and it is intended, subject to shareholder approval, to issue 5,050,000 new warrants to Haddeo (and upon this occurrence the 5,050,000 existing Haddeo warrants will be cancelled). Because of Paul Dupee's relationship with Haddeo and because Haddeo is a 25.44% shareholder in 600, the refinancing of the shareholder loan is deemed to be a related party transaction under the AIM Rules for Companies.

Furthermore, Mrs M Carrick, wife of Neil Carrick, Group Finance Director has subscribed for £50,000 of Loan Notes and will therefore be entitled, subject to shareholder approval, to receive 250,000 warrants. This is also deemed to be a related party transaction under the AIM Rules for Companies.  

The Independent Directors of 600 being, Nigel Rogers, Derek Zissman and Stephen Rutherford having consulted with Spark Advisory Partners Limited, as Nominated Adviser to the Company, consider the refinancing of the Haddeo shareholder loan (and the issue of new warrants to Haddeo) and the Loan Note subscription by Mrs M Carrick to be fair and reasonable insofar as the shareholders are concerned. In providing advice to the Independent Directors, Spark Advisory Partners Limited has taken into account the Independent Directors' commercial assessments of these related party transactions.

Proceeds from the Loan Note issue will be used to fund payment of approximately £4.0m for the initial consideration for the acquisition and related expenses, and to repay existing shareholder loans of approximately £0.951m, with the balance being applied to reduce bank borrowings in the UK. The Group retains the option to issue up to a further £1.761m of Loan Notes. If it were to do so, the Directors intend that the funds raised would be used to finance further increases in working capital and/or additional investment in Group businesses.

Current trading and prospects for Group businesses continue to be in line with the board's expectations.  The board is satisfied that the acquisition of TYKMA, together with the substantial benefits that can be achieved by the combination of the two laser marking businesses, will be earnings enhancing in the first full year of trading. Over the longer term, the Directors of 600 believe that this acquisition will enable the Group to grow materially its laser marking business and consequently the profits and revenues of the Group.

Commenting on the acquisition and the significant financing, Nigel Rogers, CEO said:

 "We are delighted to announce this strategic investment in the product identification industry segment.  We share a common vision with the TYKMA management that the combination of Electrox and TYKMA will enable us to build a leading position in this fast developing marketplace, based on shared values of outstanding customer service, excellent product technology, unrivalled professionalism in sales and distribution, and depth of engineering expertise".

More information on the Group can be viewed at: www.600group.com

Enquiries:
The 600 Group PLC	Tel: [phone]
Nigel Rogers, Chief Executive
Neil Carrick, Finance Director
Spark Advisory Partners Limited (NOMAD)	Tel: [phone]
Sean Wyndham-Quin/ Miriam Greenwood
Cadogan PR Limited (Financial PR)	Tel: [phone]
Alex Walters
FinnCap (Broker)	Tel: [phone]
Tony Quirke/Mia Gardiner (Sales/Broking)

 

END

 

 

ACQUSVWRVBAUAAR