Elektron Technology Plc is pleased to announce that it has acquired Next Control Systems Limited, for a cash consideration of £10.5m, inclusive of £1.7m of cash in Next as at the date of completion. The price represents a multiple of 6.6X 2018 EBITDA and the deal is expected to be immediately earnings accretive for Elektron.
Next is an excellent strategic fit for Checkit, providing technology and software that enables management teams to monitor, control and optimise business processes. Next will be combined with Checkit to create a global leader in the field of real-time operations management.
This is a transformational deal for Checkit, immediately adding scale and one which the Board believes will significantly accelerate the path to profitability at Checkit.
Background on Next
Next, based in Fleet, Hampshire, UK, has been helping management teams to improve productivity and profitability for over 25 years.
Through its Tutela brand (www.tutelamedical.com) Next is a leader in high-end service based temperature monitoring for healthcare and life sciences within the UK. In addition, through its Next and Axon brands (www.nextcontrols.com; www.axon.eco) it provides data related Building Energy Management System (“BEMS”) services. Next has a major relationship with a leading UK retailer covering smart building and plant technologies.
Benefits of the Transaction
Checkit’s services transform the performance of common low and medium volume operational processes in global industries, moving them from form based systems, spreadsheets and even pen and paper to the Cloud, through a subscription based SaaS model.
The acquisition of Next, which is a compelling strategic fit, will add immediate scale to Checkit, increasing turnover eight-fold and providing significant opportunities for further sales growth and improvements to operational capabilities, including:
- Offering opportunities to cross sell Checkit’s Work Management product to Next’s customer base
- Diversifying that customer base and extend the offering across additional sectors alongside the food service sector (which was previously predominant in Checkit)
- Enhancing Checkit’s existing range of sensors
- Improving operational capability
- Bringing domain knowledge of the BEMS market
- Leveraging Next sales capabilities to improve Checkit organic growth in the UK and overseas
In the year ending 31 December 2018 Next’s audited operating profit was £1.2 million on turnover of £10.7 million (2017: £1.2 million on turnover of £9.8 million). Next’s 2018 audited accounts state that 57% of income (2017: 54%) was in the form of recurring revenue relating to software services provided. The remaining income related to one-off charges for consultancy and other IoT services and hardware.
The management accounts for the four months to 30 April 2019 show an operating profit of £0.5 million year to date on turnover of £3.7 million (2018 £0.4 million on turnover of £3.3 million). It is expected that the acquisition will be immediately earnings accretive for Elektron.
Audited net assets (excluding cash) were £1.7 million at 31 December 2018.
The acquisition of Next was funded from the Group’s existing cash reserves which as at 31 January 2019 stood at £10.1 million. The Group has taken the opportunity to put in a place a £3 million bank overdraft facility which combined with its existing invoice discount facilities of up to £3m will provide the Group with up to £6m of facilities for working capital purposes.
Commenting on the transaction, Keith Daley, Executive Chair of Elektron Technology said
“The acquisition of Next marks another milestone for Checkit. It further significantly enhances our value proposition in capabilities, services and demonstration of scale. We look forward to realising the many opportunities offered by the combination of Checkit and Next.”