Buy or Build? Organic versus acquisitive growth? Which is better for astutely run corporates executing durable shareholder ‘value creation’ plans? Well clearly there is no one size fits all - but if you excel at both, then why not do both?
This is the case for specialist engineer Avingtrans (AVG), which since 2010 has delivered around 20% CAGR stock returns using its dual-pronged ‘Pinpoint Invest Exit’ (PIE) strategy.
Today, the company said that following regulatory approval it had purchased the 82% stake in medical devices firm Adaptix Ltd it did not previously own for £2.7m, paid for in Avingtrans stock - 642,355 shares - at 426p each. Avingtrans has also been investing in the business over the past few months prior to this deal via a £1.1m working capital loan. It has also agreed to adopt Adaptix's £2.1m debt facilities, and repay £2.2m of renegotiated debt to creditors. That means, all told, I estimate the total enterprise value on a cash/debt free basis was probably in the region of £8.1m.
To me, the deal makes perfect sense for both parties. On the one hand, Avingtrans beefs up its high potential, yet early-stage healthcare division by adding a treasure trove of top notch IPR - more than 300 patents - in complementary therapeutic areas.
OIn the other, Adaptix gets access to vital growth capital amid today’s VC funding drought, as well as access to further industry expertise - such as through Avingtrans' subsidiary Magnetica Limited - to help commercialise its breakthrough, small-form 3D X-ray equipment for point of care, veterinary, and orthopaedic imaging applications.
Encouragingly, Adaptix’s technology can also be used outside of health/animalcare. In fact only last month, it signed a flagship deal with Dowty -part of a GE Aerospace - to develop automated defect detection systems for composite propeller blades. This 18-month project will be further supported by other tier-1 suppliers Spirit AeroSystems and GKN Aerospace.
Andy Barnes, AdaptixNDE - Aerospace Commercial Director, commented: “We’re translating a highly innovative hardware solution from healthcare into aerospace. This project will help automate the inspection for composite failure detection earlier in manufacture and through-life with significant economic and environmental impacts (eg reduce cost, time, material waste and machinery usage)."
House broker Singer Capital Markets has a BUY rating and a 510p price target on the stock. Preliminary results are scheduled for Wednesday 27th Sept’23.
Avingtrans continues buy-and-build strategy with full Adaptix takeover
Sep 18, 2023Disclaimer & Declaration of Interest
The information, investment views and recommendations in this article are provided for general information purposes only. Nothing in this article should be construed as a solicitation to buy or sell any financial product relating to any companies under discussion or to engage in or refrain from doing so or engaging in any other transaction. Any opinions or comments are made to the best of the knowledge and belief of the writer but no responsibility is accepted for actions based on such opinions or comments. Vox Markets may receive payment from companies mentioned for enhanced profiling or publication presence. The writer may or may not hold investments in the companies under discussion.