REG - MTI Wireless Edge - Acquisition of 51% of P.S.K. WIND Technologies Ltd

MTI Wireless EdgeAnnouncement

04/01/2022 07:00

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RNS Number : 2493X  MTI Wireless Edge Limited  04 January 2022

Dissemination of a Regulatory Announcement that contains inside information
according to Regulation 11 of the Market Abuse (Amendment) (EU Exit)
Regulations 2019/310.

 

4 January 2022

 

MTI Wireless Edge Ltd

("MTI" or the "Company")

 

Acquisition of 51% of P.S.K. WIND Technologies Ltd. ("PSK")

 

MTI Wireless Edge Ltd (AIM: MWE), the technology group focused on
comprehensive communication and radio frequency solutions across multiple
sectors, announces that its wholly-owned subsidiary, MTI Summit Electronics
Ltd. ("MTI Summit"), has entered into a share purchase agreement, which
includes both a purchase of existing shares in and the making of a new equity
investment into PSK, after which MTI Summit will own 51% of PSK (the
"Acquisition"). The initial consideration for the Acquisition is approximately
US$1.2 million, with an earn out payment subject to performance of up to
approximately US$2.56 million. In addition, MTI Summit will make a loan to PSK
of US$0.8 million and is party to an option agreement in relation to the
acquisition of the remaining 49% of PSK.

PSK is an Israeli company which is well known to MTI having collaborated
together on numerous projects over the past 10 years. PSK specialises in the
development, manufacture and integration of communication systems and advanced
monitoring and control systems for the Government and defence industry
market.

 

Highlights

•      PSK has over 20 employees in Israel with high security
classifications, qualifying it to serve Government and defence industry
customers on strategic long-term projects

•      In 2020 and over the first six months of 2021, PSK suffered from
the effects of COVID-19 and a lack of Government budget in Israel, which
translated into lower military and corporate spending

•      Since July 2021, PSK has received an increasing level of orders
and has quoted on a number of significant potential projects, which are
expected to be delivered from 2022 onwards

•      The Board of MTI believes that PSK has both revenue and profit
growth potential

•      PSK is a platform for MTI to increase its recurring revenue from
service and maintenance contracts in the defence sector and expand its
business strategy in its Antenna and Distribution & Professional
Consulting Services divisions

•      PSK's audited revenue for the year ended 31 December 2020 was
NIS 10.4m (US$3.4m) (2019: NIS 11.4m or US$3.6m)

•      PSK's audited operating loss for the year ended 31 December 2020
was NIS 1.5m (US$0.5m) (2019: profit of NIS 0.6m or US$0.2m).  The Board
considers that PSK was break even for the year ended 31 December 2020 on an
adjusted unaudited operating profit basis, after adjusting for one-off write
offs as part of the process of becoming part of a public company and for
conversion to International Financial Reporting Standards

•      PSK's unaudited balance sheet (as of 30 November 2021) includes
NIS 4.6m (US$1.5m) of gross assets and net liabilities of NIS 2.3m (US$0.75m).
PSK is currently funded by bank loans which will be repaid out of MTI's
investment and loan

•      The consideration for the Acquisition is to be funded out of
MTI's existing cash resources

 

 

Moni Borovitz, CEO of MTI, commented: "We are delighted with this Acquisition,
which the Board expects to be earnings enhancing and will contribute to our
future profits. The Acquisition will enable MTI Summit to step up the
value-chain in the Israeli defence market by offering not only components, but
also turn-key solutions. We have been in discussions with PSK for nearly a
year and waited to see the recovery in its order book and project quotation
activity prior to executing the Acquisition.

 

Over the past 18 months PSK was effected by COVID-19 and a lack of Government
budget in Israel, which led to reduced spending and delays in projects and
commitments from PSK's existing and potential customers. In recent months this
has improved, with an increase in orders and opportunities, which has given us
confidence in PSK's immediate growth potential. The synergies between PSK and
MTI's Antenna division and Distribution & Professional Consulting Services
division are significant. We expect that MTI's strength and size will assist
PSK in increasing its customer base and involvement in the market, while
enabling MTI to offer a wider range of higher value products to customers."

 

Consideration and terms of the Acquisition

 

The initial consideration payable by MTI, to acquire 51% of the equity in PSK,
comprises: a) the purchase of existing shares in PSK for NIS 700,000
(approximately US$225,000); and b) a subscription of NIS 3,000,000
(approximately US$0.95m) for new shares in PSK.  In addition, there is an
earn out mechanism under which further consideration may be payable, as
described below (the "Earn Out").  MTI Summit will also lend PSK NIS
2,500,000 (approximately US$800,000) through a term loan which is to be repaid
on 1 January 2024. The loan is not convertible and bears interest of 3.26% per
annum.

In addition to the Acquisition, MTI Summit has an option to purchase and the
vendors of PSK have an option to sell to MTI Summit the remaining 49% of PSK
(the "Option") starting from 2027, subject to the terms described below.

 

The vendors of 51% of the equity in PSK are Mr. Siman Tov Karako and Mr. Meir
Silber (the "Vendors").

 

The Earn Out

Any further consideration to be paid to the Vendors pursuant to the Earn Out
is dependent on PSK's actual revenues in 2022 and 2024 versus certain agreed
targets in each of those years and is capped at a maximum of NIS 8,000,000
(approximately US$2.56m), to be paid in cash. In order for the Vendors to
receive any of the Earn Out, PSK would need to increase its revenues by more
than 40% from its current trading levels.

The Option

The consideration payable by MTI Summit under the Option (which will become
exercisable in January 2027) will be based on the value of PSK, calculated on
the basis of eight times the average EBITDA level of PSK in 2025 and 2026,
with MTI being required to pay 49% of this value upon exercise. If the Option
is to be exercised at any time after the preparation of PSK's financial
results for the first quarter of 2027, the calculation will be based on PSK's
average EBITDA for the last eight quarters.  The Option will remain in place
until exercised.

 

The Board of MTI expects to be able to increase the recurring revenues from
PSK's operations following completion of the Acquisition.

 

Further information about PSK

PSK operates in Israel, providing the following solutions and services:

·    Turn-Key implementation of fixed and mobile communication, telemetry
and signal intelligence systems.

·    Design, manufacture and implementation (including construction, where
applicable) of fixed and mobile platforms for military use.

·    Engineering consulting in the fields of civil engineering (mainly for
communication towers), mechanical engineering and RF engineering, primarily
for telemetry systems.

·    Professional support for testing programs, and field support for test
ranges.

·    Maintenance and Customer support services.

 

For further information please contact:

 MTI Wireless Edge Ltd                                          +972 3 900 8900
 Moni Borovitz, CEO                                            http://www.mtiwirelessedge.com (http://www.mtiwirelessedge.com)

 Allenby Capital Limited (Nomad and Joint Broker)              +44 20 3328 5656
 Nick Naylor/Alex Brearley/Piers Shimwell (Corporate Finance)
 Amrit Nahal/David Johnson (Sales and Corporate Broking)

 Peterhouse Capital Limited (Joint Broker)                     +44 20 7469 0930
 Lucy Williams/Eran Zucker

 Novella (Financial PR)
 Tim Robertson/Fergus Young                                    +44 20 3151 7008

 

 

About MTI Wireless Edge Ltd. ("MTI")

Headquartered in Israel, MTI is a technology group focused on comprehensive
communication and radio frequency solutions across multiple sectors through
three core divisions:

Antenna division

MTI is a world leader in the design, development and production of high
quality, state-of-the-art, and cost-effective antenna solutions including
Smart Antennas, MIMO Antennas and Dual Polarity Antennas for wireless
applications. MTI supplies antennas for both military and commercial markets
from 100 KHz to 90 GHz.

Internationally recognized as a producer of commercial off-the-shelf and
custom-developed antenna solutions in a broad frequency range, MTI addresses
both commercial and military applications.

MTI supplies directional and omnidirectional antennas for outdoor and indoor
deployments, including smart antennas for WiMAX, broadband access, public
safety, RFID, base stations and terminals for the utility market.

Military applications include a wide range of broadband, tactical and
specialized communication antennas, antenna systems and DF arrays installed on
numerous airborne, ground and naval, including submarine, platforms
worldwide.

Water Control & Management division

Via its subsidiary, Mottech Water Solutions Ltd ("Mottech"), MTI provides
high-end remote control solutions for water and irrigation applications based
on Motorola's IRRInet state-of-the-art control, monitoring and communication
technologies.

As Motorola's global prime-distributor Mottech serves its customers worldwide
through its international subsidiaries and a global network of local
distributors and representatives. With over 25 years of experience in
providing customers with irrigation remote control and management, Mottech's
solutions ensure constant, reliable and accurate water usage, while reducing
operational and maintenance costs. Mottech's activities are focused on the
market segments of agriculture, water distribution, municipal and commercial
landscape as well as wastewater and storm-water reuse.

Distribution & Professional Consulting Services division

Via its subsidiary, MTI Summit Electronics Ltd., MTI offers consulting,
representation and marketing services to foreign companies in the field of RF
and microwave solutions and applications including engineering services
(including design and integration) in the field of aerostat systems and the
ongoing operation of Platform subsystems, SIGINT, RADAR, communication and
observation systems which is performed by the Company.

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