Concurrent Technologies (LON:CNC), a world leading specialist in the design and manufacture of high-end embedded computer solutions for critical applications, is pleased to announce that it has entered into a conditional agreement to acquire the entire issued share capital of Phillips Machine & Welding Company, Inc (“Stryker“) for an aggregate consideration of US$3.375 million (approximately £2.64 million). Prior to Completion of the Acquisition, the machine shop division of Phillips Machine & Welding Company, Inc will be transferred out of the business and, as a result, Concurrent Technologies will own the Aerospace and Military division.
The Concurrent Technologies directors believe that the Acquisition will progress the Company’s strategic ambitions in the Systems market, a market comprising of computer systems designed to operate in harsh and demanding environments typically including military, aerospace and industrial uses, and anticipated to be valued at c.US$6.9 billion by 2033. The nature of the Systems market provides a significant opportunity for future growth for Concurrent Technologies, and Stryker holds aerospace industry standard accreditation which is crucial in order to successfully capture the identified opportunities.
Concurrent Technologies is also pleased to announce that, primarily to finance the Acquisition, the Company has conditionally raised total gross proceeds of £6.5 million by way of a conditional placing of a total of 10,000,000 new ordinary shares of 1p each in the Company at an issue price of 65 pence per share with new and existing institutional investors.
In addition to the Placing, it is proposed that there will be a separate conditional retail offer to existing investors via the Bookbuild platform to raise up to £0.3 million (before expenses) at the Issue Price. A separate announcement will be made in due course by the Company regarding the Retail Offer and its terms. Those investors who subscribe for new Ordinary Shares pursuant to the Retail Offer, will do so pursuant to the terms and conditions of the Retail Offer contained in that announcement. For the avoidance of doubt, the Retail Offer is not part of the Placing.
The Fundraising is conditional on, inter alia, shareholder approval of certain resolutions to be proposed at a general meeting of the Company to be held at 11.00 a.m. BST on 4 September 2023. Cenkos Securities plc (“Cenkos“) is acting as nominated adviser and sole broker in connection with the Placing and as retail offer coordinator in relation to the Retail Offer.
Pursuant to the Acquisition, the sellers, Randy Dunn (selling through his trust nominee company Rose and Crane LLC), Donald McKenna and Teri McKenna, will receive initial cash consideration of approximately US$1.875 million (approx. £1.47 million) and US$1.5 million (approx. £1.17 million) by the issue of 1,807,686 new Ordinary Shares at the Issue Price on Completion. In addition, certain individuals in the existing Stryker business will be awarded Concurrent Technologies share options under the existing Company LTIP.
The Company will today be posting a circular to Shareholders detailing the Fundraising and Acquisition and convening the General Meeting at which the Resolutions will be proposed. The Circular will be available to view on the Company’s website shortly at https://www.gocct.com/investors/.
Any term capitalised in this Announcement which is not also defined shall have the same meaning as in the Circular.
Fundraising Highlights
The net proceeds of the Fundraising will be used primarily to fund the Acquisition and the Company’s strategic ambitions in the Systems market. The proposed acquisition of Stryker is the first acquisition since the new leadership team at Concurrent Technologies has been in place and will materially advance a number of the key strategic goals of the Company. The balance of the net proceeds will provide additional liquidity to enable the Company to be agile in capturing additional growth opportunities as they arise.
Specifically, the Company intends to use the net proceeds of the Fundraising as outlined below:
· Stryker
o Settlement of the cash consideration for the Acquisition; and
o Future investment to enhance the facilities capabilities and production capacity of the US facility of Stryker.
· Investment in Concurrent Technologies’ broader Systems capability
o Continued investment in the Company’s Systems capabilities with a view to increasing the technical support infrastructure, sales infrastructure, and supporting research and development expertise to enable scaling up of the Systems operations.
· Working Capital
o Supporting the working capital requirements of the Company moving forward.
Stryker Acquisition
Stryker has a track record as a supplier to major defence companies in the USA and including Boeing, Northrop Grumman and Raytheon. Stryker’s capabilities lie in the design and manufacture of rugged systems which are constructed using plug in cards (“PICs“) sourced from Concurrent Technologies and others and which have the following capabilities:
· Compute;
· Storage;
· Vision;
· Data processing; and
· I/O capability.
The Concurrent Technologies management team has identified Stryker as an ideal acquisition target for this stage of the Company’s strategic development. Stryker was founded in 1973 and has a long track record of working with defence industry prime contractors. Stryker holds accreditation to aerospace industry standards, which is critical to fully access the Systems market, and complements the existing certification held by Concurrent Technologies. The Acquisition includes Stryker’s 14,000 sq/ft manufacturing and office facility in California, from which a team of 20 employees and contractors are engaged providing a permanent base in the US from which the Company can operate and manufacture. Accordingly, the Acquisition will significantly enhance the Board’s strategic goal of increasing the Company’s US presence with a view to enhancing both new and existing client relationships and US market access.
Concurrent Technologies’ management team believes that the acquisition of Stryker will further its strategic ambitions in the rugged systems market, which was valued at c.$2.3 billion in 2022 and is projected to grow at a compounded annual growth rate of 14.9 per cent to c.$6.9 billion by 2033. Systems generally is a new area of operations for Concurrent Technologies, with the first revenues realised in the current financial year (“FY23“). The Board believe there is a significant opportunity, with the total addressable market reaching c.$262.9 million in the defence sector alone for systems in 2020. Having recently announced a significant Systems contract win, the Board believes this is a key area for growth in the future and have identified Stryker as an important target in accelerating this growth.
The management team considers Stryker to be undercapitalised and has identified a number of areas for investment in the existing Stryker business which it believes will result in significant growth in revenue for the acquired business and the enlarged group as a whole. Concurrent Technologies will utilise its global sales channels to leverage the Stryker product offering and will also leverage Stryker’s capabilities to increase its Systems market presence in the short term.
The acquisition of Stryker will enable Concurrent Technologies, as enlarged by Stryker, to significantly expand its in-house capability, including the integration of components. Specifically, the Acquisition will allow Concurrent Technologies to deliver integrated Systems solutions, including the chassis and power supply, for which it was previously reliant on the supply chain to deliver. In addition, this will facilitate the increased utilisation of the Company’s existing PICs in the broader Systems package.
For the avoidance of doubt, Phillips Machine & Welding Company, Inc also has a machine shop business which is not subject to the Acquisition.
Current Trading and Outlook
Concurrent Technologies recently published a trading update for the six months to 30 June 2023 (“H1 FY23“). This update highlighted that order intake in H1 FY23 remained strong at £14.5 million, and that the Company had an order backlog of approximately £29 million as at 30 June 2023. This performance demonstrates the significant progress that management has made with strategic initiatives for growth including accelerated product development, Systems capability, partnering, and a focus on home markets.
The Company has seen the continued easing of the global supply chain shortages that had suppressed revenues in H1 FY23, albeit the supply chain remained below historical norms. Lead times for certain components had increased to c.40 weeks in 2022, and this is now anticipated to reduce to less than 25 weeks from Q4 2023 for certain components. This is a significant improvement; however, management is monitoring supply chains carefully and managing the Company’s inventory levels in a prudent manner to enable the delivery of the order backlog.
Accordingly, cash management continues to be an area of focus for the Company with the working capital employed in the business remaining higher than would be optimal for the Company’s stage of development but will normalise with the Company’s continued growth.
Management has identified a number of additional opportunities in the Systems marketplace that are expected to start being realised in H2 FY23. This will represent a new revenue stream for the Company and the addition of Stryker will further enable the Company’s expansion in this sector. Overall, the business has evolved over the past 18 months and the Company is now working on more than 20 design win opportunities, a marked change in the previously identified opportunity set.
Miles Adcock, CEO of Concurrent Technologies plc, commented:
“We are excited to announce the conditional acquisition of Stryker and the accompanying Fundraising. Over the course of the past 18 months the Board has taken the decision to invest in the existing Concurrent Technologies platform to provide the base for future growth and the Stryker acquisition continues this investment by materially enhancing our capabilities within the Systems market.
Whilst the supply chain issues still require careful management, the Company is extremely well placed for the future. Trading in the first half of FY23 delivered record revenues for equivalent periods, with expectations for the full year exceeding all historic results despite having to perform against the backdrop of shortages of specific microchip components that has been a headwind for the business for over 12 months. However, as recent component deliveries have demonstrated, through continued careful management we are successfully navigating these challenges.
The proceeds from the Fundraising will enable us to further develop and build on our existing position in the market whilst funding the Company in the delivery of our substantial order book. Exciting times are ahead with the conditional acquisition of Stryker bringing a depth of talent and capability into Concurrent Technologies.
We are delighted with the support of a number of our existing shareholders and are pleased to welcome new institutional investors onto the register.”
