Cashed-up Codan puts aside more than $100 million for a tactical US acquisition

Australian tech company Codan will pay more than $100 million to buy US-based Domo Tactical Communications from a private equity firm.

The South Australian technology company with business pillars in communications, mining automation and metal detector manufacture has been on a steep trajectory in the past 12 months, reporting a record profit of $64 million in August for the 2020 financial year.

The result included record sales in its communications and metal detection divisions, totalling $348 million, and established the Adelaide-based company as one of the South Australia’s fastest-growing companies.

Headquartered in Adelaide, South Australia, Codan has offices in North America, Europe, Asia, Africa, Australia and the Middle East and manufacturing operations in South Australia, Canada, the United States and Malaysia.

The DTC acquisition will strengthen the company’s position in North America and is in line with Codan’s strategic growth plan for its Tactical Communications business.

Under the deal, Codan will make an upfront payment of about $113 million ($US88 million) with the possibility of an additional payment of up to $21 million ($US16 million) if certain earn-out targets are achieved in calendar year 2021.

The acquisition is on a cash-free, debt-free basis and is expected to complete by 30 April 2021, subject to US and UK regulatory conditions.

In the first full year of Codan’s ownership, DTC is expected to contribute approximately $90 million in sales and $9 million in profit before tax.

Codan will acquire total assets approximately equal to the purchase price with no change to its shareholder equity.

The acquisition will be fully funded from existing cash reserves.

DTC is an established technology provider for high bandwidth wireless communications with specialist capabilities to provide wireless transmission of video and other data applications to predominantly first world customers, including military and special forces, intelligence agencies, border control, first responders and broadcasters.

DTC is headquartered in the United States, with locations in the United Kingdom and Denmark, and it has about 140 employees.

Codan chief executive Donald McGurk said the acquisition will allow Codan to provide total communications solutions with the addition of video and data to traditional voice-only platforms.

“This acquisition fills a technology gap and will be able to leverage Codan’s global distribution channels into the developing world,” he said.

Codan has been successfully doing business in North America for over 20 years and this acquisition represents a continuation of our growth in this strategically important region.

“DTC’s products are complementary to Codan’s tactical communications solutions and serve similar markets and customers. A number of key members of our tactical communications sales team have previously worked in the MIMO Mesh and surveillance markets, and therefore have significant experience in this industry segment,” he said.

Its share price soared almost 10% to $13.57 within a few hours of the announcement yesterday.

Codan’s share price was $8.15 a year ago and slumped to $3.97 in March when the coronavirus pandemic hit.

The company will release its results for the six months ending December 31 this week.

South Australia is becoming a hub for the Australian hi-tech industries, with three state-of-the-art collaboration centres — Lot Fourteen, Tonsley Innovation District and BioMed City — as well as $90 billion worth of defence projects in the pipeline.

This article was first published by The Lead.