LONDON (ShareCast) - (Sharecast News) - Power products and manufacturing services provider Volex has signed a share purchase agreement for the acquisition of Prodamex and Terminal & Cable (TC), it announced on Friday, for a total consideration of CAD 22.5m (£13.17m).
The AIM-traded firm said the consideration would be paid in cash from its existing debt facilities at completion, which was expected in the third quarter of the 2022 financial year subject to customary closing conditions, including regulatory approvals in Canada.

It said Prodamex and TC were "autonomous operating businesses" being acquired from an investment holding company based in Canada, explaining that they would expand Volex's capabilities in the key North American market in the domestic appliance, defence and off-highway industries.

The transaction would be earnings-enhancing from completion.

Looking at Prodamex, Volex said the company provides an advanced manufacturing facility serving customers in Mexico, the United States and Canada, which would deliver additional manufacturing capability in central Mexico, tailored to the delivery of higher-volume requirements.

That, it said, would complement Volex's manufacturing plants in Tijuana and Juarez, and would create additional flexibility for customers.

The business had "longstanding expertise" in wire harnesses for domestic appliances, which would provide cross-selling opportunities with Volex's existing investments in DE-KA and the recently-expanded facility in Batam, Indonesia, establishing a global low-cost presence to service the white goods and commercial markets.

Volex said Prodamex would also create opportunities for further cost synergies through leveraging its global supply chain.

TC, meanwhile, was described by the board as "one of the largest" wire harness manufacturers in Canada with more than 50 years of experience, as well as a leading defence supplier, which would establish a "strong" Canadian market presence for the company.

It would complement the recent Irvine acquisition, and broaden Volex's defence market capabilities into armoured vehicle solutions, offering opportunities to support long-term customer programmes.

The ruggedised wire harness capabilities would also allow expansion into the attractive 'off-highway' market sector, supporting industrial, agricultural and construction machinery manufacturers.

Looking at the financials of the acquisition, Volex said the consideration represented 7.7x EBITDA for the year ended 31 May.

For that period, combined revenues totalled CAD 31.4m, EBITDA came in at CAD 2.9m and profit before tax was CAD 2.4m.

Net assets at year-end totalled CAD 6.4m.

Volex said it was expecting to retain the operational management teams at each business following the completion of the acquisition, and on completion, it said it would still have the financial flexibility to progress opportunities in its exciting acquisition pipeline

"The acquisitions of Prodamex and TC further expand our geographic coverage and technical capabilities in North America," said executive chairman Nat Rothschild.

"Each of these businesses represent a compelling acquisition in markets that offer us growth opportunities.

"Prodamex complements the recent acquisition of DE-KA in the white goods market, expanding our capabilities into the North American market while TC builds on the recent acquisition of Irvine and our strategic intent to develop Volex's presence in the defence market, broadening our offering into military vehicle wiring harnesses."

Rothschild described the acquisitions as a "further indication" of the firm's ability to identify and acquire attractive businesses for compelling valuations.

"Our buy-and-build strategy, along with our pursuit of operational excellence and organic growth, are a key element of our strategy as we target $650m in revenues and $65m of underlying operating profit by 2024."

At 1053 BST, shares in Volex were up 1.51% at 436p.

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