30/07/2010 - 09:35

XRF Scientific $7m Sigma acquisition

30/07/2010 - 09:35

Bookmark

Save articles for future reference.

Private Perth business Sigma Group has sold its specialist manufacturing business to listed company XRF Scientific for $7 million.

XRF Scientific $7m Sigma acquisition

Private Perth business Sigma Group has sold its specialist manufacturing business to listed company XRF Scientific for $7 million.

The cash and scrip acquisition comprises, $5 million cash on settlement and
$1 million deferred cash settlement - until 31 December 2010.

In a statement XRF said the Sigma businesses, which focus on fusion flux and platinum manufacturing, have consistently generated profits of $1.3 million per annum before tax.

XRF recently expanded its own flux manufacturing capacity in Perth in anticipation of a continuing sales uplift based on the strength of the minerals industry in general, and iron-ore in particular.

"It is well documented that XRF has been pursuing acquisition opportunities over the past two years," said XRF managing director Terry Sweet.

"These flux and platinum businesses are a natural fit with XRF and offer consistent repeat business," he said.

"We see tremendous opportunities flowing to XRF which couldn't have been realised if we'd continued on our separate ways, and so were keen to take up a large shareholding in XRF," said Sigma's owner Justin Evans.

"As a small public company we have recognised for some time the importance of growth, organically but particularly via acquisition," said XRF chairman Ken Baxter.

 

See full company statement below:

 

XRF Scientific Limited (XRF) has signed a binding agreement to acquire the fusion flux and platinum manufacturing businesses from the Sigma Group of companies. The $7 million consideration is in cash and scrip.

The Perth-based privately owned Sigma Group has been operating for 30 years. Both Sigma and XRF key customers include high end resources companies, commercial analytical groups and heavy industry.

In spite of the difficulties created by the GFC the Sigma businesses have consistently generated profits of $1.3 million per annum before tax. Consequently the XRF directors are confident that the acquisition will deliver a substantial lift to XRF's profitability. In concluding the acquisition in July XRF will have the benefit of almost a full year's profit contribution from the Sigma businesses for FY11.
The acquisition offers strong operational synergies and cost savings. XRF recently expanded its own flux manufacturing capacity in Perth in anticipation of a continuing sales uplift based on the strength of the minerals industry in general, and iron-ore in particular. The additional volumes demanded by the Sigma business will be readily absorbed within XRF's current capacity without any significant additional capital expenditure. The Sigma platinum business will complement XRF's larger platinum operations in Melbourne. Business relocation costs will be minimal.

XRF Managing Director Mr Terry Sweet said, "It is well documented that XRF has been pursuing acquisition opportunities over the past two years. These flux and platinum businesses are a natural fit with XRF and offer consistent repeat business."

"The Board of XRF anticipates continued growth in its markets and believes it is important to move now to capture more of that growth. The bullish guidance by Campbell Brothers Ltd (29/06/10) adds weight to our view of future prospects. (CPB operates ALS, one of the largest laboratory groups and a client of both Sigma and XRF). The expanded revenue base will allow XRF to provide better and more comprehensive services to all clients with more resources dedicated to research and production of value-added products."

XRF will acquire the flux and platinum businesses, including all brand names, trademarks, customer lists, plant equipment and essential raw material stocks. Several Sigma people will be offered new employment contracts with XRF but otherwise there will be no material additional staff costs.

The acquisition consideration of $7 million comprises:
$5 million cash on settlement (expected to be within 7 days)
$1 million deferred cash settlement - until 31 December 2010
6.67 million XRF shares at $0.15 per share (with a 1:2 option) in voluntary escrow for 15 months

Sigma's owner Mr Justin Evans said, "We see tremendous opportunities flowing to XRF which couldn't have been realised if we'd continued on our separate ways, and so were keen to take up a large shareholding in XRF. The shareholding in XRF gives us an ongoing interest and also the opportunity to increase our overall return from the sale of the business."

The acquisition will be substantially funded from existing cash reserves and ongoing cash flows from the businesses acquired. In addition the Company has placed $0.75 million of Convertible Notes to sophisticated investors. The Notes, which are unsecured, will carry a coupon of 12% pa and mature on 31 August 2012. They are convertible at any time into ordinary shares in XRF at $0.15 per share and also may be redeemed by XRF at any time after 1 July 2011. If redeemed early, holders of the Notes will be entitled to the face value of their Notes, any accrued interest and 3.5 options for every $1 redeemed (options on the same terms as those issued to the vendors).
The Sigma businesses are expected to be immediately profitable and cash flow positive. As a precaution the Company has put in place a $1 million overdraft facility to safeguard against any working capital contingencies.

Chairman of XRF Mr Ken Baxter said, "As a small public company we have recognised for some time the importance of growth, organically but particularly via acquisition. This will leverage our revenues and profits from our existing operational and administrative base. We are delighted to have consummated this acquisition. Having consolidated and strengthened our home base, expanding our off-shore markets becomes the priority."

 

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

Subscription Options