TIDMCHRT
RNS Number : 2231K
Cohort PLC
12 December 2018
12 December 2018
Cohort plc
("Cohort" or "the Group")
Cohort acquires Chess Technologies
"A significant expansion, adding a profitable and growing fifth
standalone business to Cohort's portfolio"
Cohort plc, the independent technology group, is pleased to
announce that it has acquired a majority stake in Chess
Technologies Limited ("Chess"), a UK-based world leader in
integrated fire control and tracking systems for military vehicles
and naval ships, for an initial cash consideration of GBP20.1
million.
Highlights:
-- Acquisition of Chess Technologies, a world leader in
integrated fire control and tracking systems for military vehicles
and naval ships, as Cohort's fifth standalone subsidiary
-- Total cash consideration of up to GBP41.9m comprising
-- Initial consideration of GBP20.1m for 81.84% of Chess, payable on completion
-- Further earn out consideration of up to GBP12.7m payable in
2021 dependent on performance in the three years to 30 April
2021
-- Acquisition of the remaining shares of Chess following the
three years to 30 April 2021 for up to GBP9.1m depending on
performance during this period
-- Acquisition funded by existing cash resources and recently agreed new debt facility
-- Chess shares complementary customers with SEA, EID and MCL.
The acquisition also represents Cohort's first foothold in US
defence and provides opportunities to leverage complementary
expertise and capabilities
-- Chess management retained and fully aligned with Cohort's
growth strategy through retention of significant 18.16% stake in
the business
-- Acquisition expected to be immediately earnings enhancing
Andrew Thomis, Chief Executive Officer of Cohort, said:
"The acquisition of Chess represents a significant expansion for
Cohort, adding a profitable and growing fifth standalone business
to our portfolio. It is highly complementary to our core
capabilities in defence and security, underpinned by long term
contracts with quality global customers and a strong order
pipeline, including on long term programmes. We believe Chess has
great potential and a clear and sustainable competitive advantage,
and we are excited about the opportunities that the business can
generate as part of the Cohort Group.
"Overall, the acquisition strengthens and broadens the Group's
portfolio and is expected to be immediately earnings enhancing. We
are looking forward to working with the Chess team to realise the
exciting growth opportunities that this transaction will
create."
Overview of Chess
Founded in 1993, Chess is a world leader in advanced integrated
systems and technologies for detecting, tracking, classifying and
disrupting a wide range of potential naval, land and air threats.
Through its two operating businesses, Chess Dynamics Ltd and
Vision4ce Ltd, it provides a unique suite of innovative
surveillance and fire control system capabilities that are
fundamental to critical defence programmes and vital commercial
infrastructure projects. One example is its highly capable military
counter-UAV system, AUDS, that provides an effective defence
against this growing threat.
Headquartered in Horsham, with additional facilities in Plymouth
and Wokingham, Chess also has a US office in Denver, Colorado. In
total the business employs over 140 people. Chess's well-regarded
management team will remain in place following the transaction, led
by its founder and CEO Graham Beall.
Chess has a strong global customer base, primarily armed forces
and defence prime contractors, and its products are critical to
major defence programmes worldwide. UK customers have provided just
over one third of Chess's revenue during the 2018 financial year, a
proportion of which has been for non-UK end users. The balance has
been generated in Europe (its second largest market), North
America, the Middle East, Asia-Pacific and South America. The
customer base is well diversified with almost 100 active customers
and no single one accounting for more than 15% of revenues.
Customers included BAE Systems, QinetiQ, Thales, Lockheed Martin
and the UK MOD.
Chess provides complete design, development, and manufacturing
services for both standard products and bespoke engineered
solutions. As well as its military sales, Chess also works with
commercial customers to help protect civil and commercial
infrastructure.
Chess's integrated systems are built from a suite of core
technical capabilities centred on electro-optics, stabilised
platforms, digital video tracking and analytics and fire control
system (FCS) software.
Several partners rely exclusively on Chess to deliver these
comprehensive system capabilities and Chess is involved in their
programmes from a very early stage. Multiple prime contractors
partner with Chess when exploring new programme opportunities,
relying on its distinct capability set, expertise and
imagination.
Financial information on Chess
Chess has grown rapidly in recent years, with strong growth in
its order book, revenues and profits.
In the year ended 30 April 2018 it generated revenues of
GBP18.2m (2017: GBP16.5m) and EBIT of GBP2.4m (2017: GBP1.6m). The
closing order book as at 30 April 2018 stood at GBP31.2m (2017:
GBP28.2m). Net assets as at 30 April were GBP8.3m (2017: GBP6.2m)
and gross assets were GBP17.0m (2017: GBP16.2m).
Based on the order book and prospects, continued growth is
expected for the year to 30 April 2019.
Background to and reasons for the acquisition:
The acquisition of Chess is in line with Cohort's stated
strategy to accelerate its growth by making targeted acquisitions,
complementing organic growth, whether as standalone members of the
Group or as "bolt-in" acquisitions to existing subsidiaries. The
Board believes that this strategy of investing the Group's cash
resources partly in acquisitions will provide enhanced returns to
shareholders.
Chess meets the Group's criteria for stand-alone acquisitions,
which are focused on agile, innovative businesses that have reached
a stage of development where there will be mutual benefit in
joining Cohort. Chess operates in a complementary market and
technology space, has clear and sustainable competitive advantage
and sees strong growth prospects.
The Board believes that the acquisition of Chess will provide a
number of benefits, including:
-- The addition of specialist products and technologies in the
areas of electro-optics, tracking and fire control, with market
leading positions in high growth markets
-- A first foothold for the Group in US defence - an important growth opportunity
-- A complementary and well diversified customer base including
strong export exposure with opportunities to introduce Cohort's
other subsidiaries to Chess's customers and vice versa
-- Complementary positions on significant defence programmes, including the Type 26 frigate
-- Access to a highly skilled and experienced defence engineering workforce.
Terms of the acquisition:
Chess is being acquired from management and funds managed by
Beringea LLP. Consideration for the acquisition will be satisfied
by the initial payment of GBP20.1 million in cash for 81.84% of
Chess's issued share capital on a cash free / debt free basis
funded from Cohort's existing cash resources and banking facility.
The shares not being acquired by Cohort will be retained by members
of Chess's management.
Further consideration of up to GBP12.7 million is payable in
2021 in cash dependent on the revenue performance of Chess in the
three years to 30 April 2021.
Cohort has also agreed to acquire the remaining Chess shares
following 30 April 2021. The price will be determined by Chess's
order book and EBIT performance for the three years ended on that
date and will not exceed GBP9.1m.
Jeff Perrin, a non-executive director of Cohort is also the
non-executive Chairman of Chess and, prior to the acquisition, held
approximately 4.5% of the issued share capital in Chess. In line
with good governance, he has not taken part in the Board's
consideration of the acquisition and will in future take no part in
Cohort discussions concerning the transaction or the ongoing
earn-out process. The terms on which Mr Perrin will sell his
shares, including his entitlement to receive any future
consideration, are the same as all other selling shareholders.
Ends
For further information, please contact:
Cohort plc 0118 909 0390
Andy Thomis, Chief Executive
Simon Walther, Finance Director
Investec Bank Plc 020 7597 5970
Keith Anderson / Daniel Adams
MHP Communications 020 3128 8771
Reg Hoare / Ollie Hoare / Luke
Briggs
NOTES TO EDITORS
Cohort plc (www.cohortplc.com) is the parent company of five
innovative, agile and responsive businesses based in the UK and
Portugal, providing a wide range of services and products for
domestic and export customers in defence and related markets.
Chess Technologies provides specialist products and technologies
in the areas of electro-optics, tracking and fire control to
customers world-wide. It was acquired by Cohort in December 2018.
www.chess-dynamics.com & www.vision4ce.com
MASS is a specialist defence and technology business, focused on
electronic warfare, information systems and cyber security.
Acquired by Cohort in August 2006. www.mass.co.uk
MCL - an expert in sourcing, design and integration of
communications and surveillance technology, as well as support and
training for UK end users including the MOD and other government
agencies. MCL has been part of the Group since July 2014.
www.marlboroughcomms.com
SEA is an advanced electronic systems and software house
operating in the defence, transport and offshore energy markets.
Acquired by Cohort in October 2007.
www.sea.co.uk
EID designs and manufactures advanced communications systems for
the defence and security markets. Cohort acquired a majority stake
in June 2016. www.eid.pt
Cohort (AIM: CHRT) was admitted to London's Alternative
Investment Market in March 2006. It has its headquarters in
Reading, Berkshire and employs in total around 950 core staff there
and at its other operating company sites across the UK and in
Portugal.
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END
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