11 Jan 2022 07:00
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11 January 2022
The Vitec Group plc
Acquisition and Full Year Trading Update
Audix accelerates Vitec's audio capture strategy
The Vitec Group plc ("Vitec" or "the Group"), the international provider of premium branded hardware products and software solutions to the growing content creation market, announces that it has agreed an acquisition for its Imaging Solutions Division and provides a trading update for the year ended 31 December 2021.
Key highlights
· | Agreed to acquire Audix LLC ("Audix") for up to $54.3 million (£39.9 million) in cash, including retention, transaction and financing costs. Completion is expected shortly. |
· | Audix designs, engineers and manufactures high performing, innovative microphones for the professional audio industry from its advanced manufacturing facility in Portland, Oregon, US. |
· | Acquisition accelerates and further strengthens Vitec's audio capture strategy by bringing additional specialist R&D capabilities to enable the Group to design and build microphones in-house. |
· | Audix also expands the Group's TAM¹ by bringing a premium microphone brand serving the music, professional vocal and enterprise market, complementing our growing JOBY and Rycote brands; Vitec is uniquely placed to help the Audix business grow and drive synergies. |
· | Acquisition enhances Group adjusted operating margin, is immediately accretive to adjusted earnings per share and its return on investment will exceed Vitec's cost of capital from FY 2023 onwards. |
· | For the existing Group, the Board expects to report adjusted profit before tax for the year ended 31 December 2021 in line with market consensus². |
Stephen Bird, Group Chief Executive, commented:
"Audix is a strategically significant addition to Vitec and a key element of our audio capture strategy. Audio capture is an essential part of video creation as it enhances the quality of the content. We know the audio capture market, the channel and the customers well, and Audix's specialist R&D capabilities will accelerate our product innovation, which is mainly focused on developing microphones under the growing JOBY brand. The acquisition also gives the Group a premium microphone brand which we will expand by selling the Audix products through our global distribution network and e-commerce channels. In addition, Audix brings state-of-the-art manufacturing facilities in the US which provides the opportunity for synergies.
"This is another highly complementary and financially attractive acquisition in a strategic growth market. It expands our TAM, strengthens our higher technology capabilities and accelerates the deployment of our audio capture strategy, which we see as a sizeable opportunity. I am delighted to welcome the Audix team to the Group and look forward to developing our audio business further.
"Vitec had a strong performance in 2021, as the Group continued to benefit from significant growth across multiple segments of the content creation market and a well-managed cost base. We have entered 2022 with a record order book and the outlook for the Group is very positive, despite some uncertainties, primarily around previously highlighted component shortages."
Strategic rationale for the acquisition
Vitec is focused on investing in businesses which are exposed to faster-growing areas of the content creation market, particularly in our Imaging Solutions Division, where growth is being driven by the need to photograph products to sell on the internet which, as a result, is increasing demand for professional studio photography. Market demand is also being driven by vloggers and influencers creating and sharing content on social media. Audio capture is an essential part of video creation as it enhances the quality of the content.
This is a strategically significant acquisition as Audix enables us to accelerate the pace of deployment of our audio capture strategy. It is attractive to Vitec because we know the market and the channel well, and our customers already buy microphones for their smartphones or cameras that we provide under our growing JOBY brand. Vitec has lacked a more specialist audio R&D capability to allow us to design and manufacture the microphones ourselves, which is what Audix brings. We intend to use their expertise to enhance the speed of new product development and expand our range of on-camera microphones further.
In addition, Audix expands the Group's TAM, bringing Vitec a premium microphone brand which is focused on the music, professional vocal and enterprise markets, and is complementary to our growing JOBY and Rycote brands. We estimate that 75% of Audix current revenue is in the US and they have no direct e-commerce capabilities. We expect to significantly grow the Audix brand by selling their products through our global distribution network and we will use our digital expertise to market and sell Audix products online. There are also opportunities to sell other Vitec brands to the Audix customer base.
The acquisition also gives the Group state-of-the-art, vertically integrated, audio manufacturing facilities in the US, which provides the opportunity for a number of synergies. We plan to move Rycote's microphone manufacturing and engineering development to Audix's facilities. We will also bring the development of our JOBY microphones to the US. This will accelerate our new product innovation process and enable us to extend our microphone range, as well as further strengthening our competitive advantage in the largest content creator market.
Audix will become part of Vitec's Imaging Solutions Division and the Audix team and the facility in Oregon will become Vitec's Audio R&D Centre of Excellence. The business has 33 permanent employees. The CEO and co-founder, Fred Bigeh, and CFO, Cindy Bigeh will join Vitec.
Financial aspects of the acquisition³
Audix's pro forma unaudited results for the year to 31 December 2020 were $12.7 million (£9.3 million) revenue, $4.2 million (£3.1 million) EBITDA and $2.7 million (£2.0 million) profit before tax. The business grew revenue and EBITDA in 2021. We expect to accelerate growth in revenue and EBITDA under Vitec's ownership.
At 31 December 2020, the gross assets of Audix, subject to the transaction, were $8.1 million (£6.0 million). At 30 November 2021, the net operating assets to be acquired were c.$7.9 million (£5.8 million). Upon completion of the acquisition, Vitec will recognise around $5.9 million (£4.3 million) IFRS16 lease liabilities and right-of-use assets.
The cash consideration payable at completion is $46.9 million (£34.5 million) on a cash/debt free basis, including transaction and financing costs, and will be subject to customary working capital adjustments. Completion is expected shortly. Up to a further $7.4 million (£5.4 million) is potentially payable in 2023 of which $3.1 million (£2.3 million) is subject to forfeit should the CEO of Audix, Fred Bigeh, leave before 31 December 2022.
The financial impacts of the acquisition and the benefits to Vitec include:
i. | The acquisition will enhance the Group adjusted operating margin and contributes to our ambition to reach mid-teen operating margin; |
ii. | The acquisition is accretive to adjusted earnings per share; |
iii. | The return on investment of the acquisition will exceed the Group's weighted average cost of capital from FY 2023 onwards; |
iv. | The Group's return on capital employed (ROCE) at the end of FY 2022 will remain broadly unchanged following the acquisition and is in line with our goal to achieve at least 20% ROCE in the medium term; |
v. | Group covenant net debt to EBITDA (under IFRS16) is expected to increase by 0.3x to c. 2.3x at 30 June 2022 but is then expected to decline materially by the end of FY 2022. |
The acquisition will be funded by a new committed acquisition facility of $47.0 million (£34.6 million) from our existing banks. The total one-off financing costs will be $0.7 million (£0.5 million) and the annual interest expense of this facility will be $0.9 million (£0.7 million) both in 2022 and in 2023, at current interest rates. The term of the facility is three years, with the first repayment due on 30 June 2022.
Full Year 2021 Trading Update
FY 2021 saw a strong market recovery with order intake materially above FY 2019 and strong operating cash flow. For the existing Group, the Board expects to report revenue, adjusted profit before tax and net debt for the year ended 31 December 2021 in line with market consensus².
· | Imaging Solutions continued to perform well, JOBY was significantly up on 2019 and there was high growth in core professional studio photography equipment, as well as in B2B sales, for example, lighting supports. Audio remains a significant opportunity, building on a record year for our Rycote and JOBY brands. Demand remained subdued in the Travel segment. |
· | Production Solutions saw a very strong recovery with high demand, in part, driven by the growth in original content creation, as well as the successful delivery of the Tokyo Summer Olympic Games and the UEFA European Football Championships. Margins were also enhanced by record royalty payments in relation to Litepanels patents. |
· | Creative Solutions delivered a strong order intake, significantly above 2019, which included the successful rollout of our 4K/HDR wireless video eco-system dovetailing with the high demand for original content following the full reopening of our end markets. Revenue lagged order intake due to component shortages, which continue to affect the business.
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The pandemic has accelerated the democratisation and digitalisation of media, driving a permanent structural change to the content creation market, which is now larger and growing faster. We estimate that c. 75% of the Group's business is exposed to four different segments of the content creation market which are all experiencing at least double-digit growth⁵. This is driving a sustained demand for new and replacement products:
1. | Growth in retail e-commerce is driving increased demand for digital visual content as new products need to be photographed and filmed frequently to be published online, benefitting our professional equipment; |
2. | Growth in vloggers and influencers creating and sharing video and audio content on social media platforms like TikTok and YouTube is benefitting our JOBY accessories; |
3. | Increasing spend on original content creation for subscription TV channels like Netflix, Amazon Prime and Disney is driving demand for our video transmission and monitoring systems as well as our LED lighting equipment, mobile power and supports; |
4. | Live streaming of video is growing strongly across multiple verticals, such as enterprise, medical and gaming, driving demand for our streaming solutions. |
Our resources and investment are focused on developing or acquiring new products, mainly in our Imaging and Creative Solutions Divisions, for these faster growing segments.
We have entered 2022 with a record opening order book and the outlook for the Group is very positive, enhanced by the recent acquisitions, and despite some uncertainties, primarily around component shortages.
Full Year Results
Vitec is scheduled to release its full year results announcement on Tuesday 1 March 2022.
For further information please contact: |
|
The Vitec Group plc | Telephone: 020 8332 4602 |
Stephen Bird, Group Chief Executive | |
Martin Green, Group Finance Director Jennifer Shaw, Group Communications Director |
Notes to Editors:
About The Vitec Group plc
Vitec is a leading global provider of premium branded hardware products and software solutions to the growing content creation market.
Vitec's customers include broadcasters, film studios, production and rental companies, photographers, independent content creators, gamers and enterprises. Our product portfolio includes camera supports, video transmission systems and monitors, live streaming solutions, smartphone accessories, robotic camera systems, prompters, LED lighting, mobile power, bags, backgrounds and motion control, audio capture and noise reduction equipment.
We employ around 2,000 people across the world in 11 different countries and are organised in three Divisions: Imaging Solutions, Production Solutions and Creative Solutions.
The Vitec Group plc is listed on the London Stock Exchange.
More information can be found at: www.vitecgroup.com
LEI number: 2138007H5DQ4X8YOCF14
About Audix
Audix Corporation is a leading manufacturer of professional microphones and headphones, addressing the Professional Audio and Installed Sound / Commercial markets. Audix microphones are known for excellent sound and build quality, versatility and serving a breadth of applications around the world in studios and performance venues and across a range of businesses and institutions.
Founded in 1984, Audix is one of the few microphone companies worldwide that produces a comprehensive range of wired and wireless microphones. These include vocal and instrumental microphones for recording and sound reinforcement as well as a range of microphone solutions for business, educational, government and telemedicine users. Audix products have been endorsed by leading artists, have received numerous industry awards and are the go-to solution for many leading systems integrators, consultants and contractors.
Audix products are designed and manufactured in the Company's facility in Wilsonville, Oregon. Audix is passionate about innovation through advanced design and manufacturing techniques and processes which are key to the Company's ability to produce competitive, premium products. Having R&D and manufacturing under one roof enables Audix to develop and streamline new products from idea to prototype to production, both rapidly and efficiently. Audix has a substantial Intellectual Property portfolio including patents, trademarks and trade secrets.
More information can be found at: www.audixusa.com
Notes
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1 | Vitec's JOBY brand already serves the on-camera microphone market which we estimate to be worth c. £300 million. Audix serves the overall microphone market which we estimate to be worth c. £800 million, therefore expanding the Group's TAM by c. £500 million. |
2 | Current Company compiled consensus for FY 2021: Revenue £390.2 million, adjusted profit before tax £42.0 million, and net debt £145.8 million. |
3 | Figures shown for Audix are stated at local GAAP and before the effect of IFRS16 Leases. Pro forma results for Audix have been normalised for the annual effect of the current cost base. |
4 | Pound sterling figures relating to the acquisition of Audix have been translated from US dollars at the current exchange rate of: £1 = $1.36. |
5 | Management estimates. |