The Vitec Group, which owns more than a dozen brands in the broadcast industry, announced that it has acquired the business of SmallHD for up to $30m.
Based in North Carolina, SmallHD provides high-definition on-camera field monitors used by broadcasters and independent content creators, so its products are complementary with Vitec wide range of camera support and accessory brands, including Vinten, Vinten Radamec, Sachler, OConnor, Andon/Bauer, Autoscript, Camera Corps, Teradek, The Camera Store, Haigh-Farr, Litepanels, and Petrol Bags.
Typical of a Vitec M&A transaction, the deal includes an up-front cash payment and a large potential earn-out for SmallHD managers if the company meets certain performance targets after being acquired.
Specifically, Vitec will pay an initial cash consideration of $4.6m on a debt/cash free basis, and up to a further $25.4m, payable in cash, dependent on SmallHD’s performance over a two and a half year period to 30 June 2017. To achieve the maximum payment, SmallHD must deliver an annualized EBITDA run-rate of $9m in 2017.
For the financial year-ended 31 December 2013, SmallHD had sales of $8.1m, and generated an unaudited adjusted profit before tax of $300,000. At the end of 2013 SmallHD had gross assets of $2.5 million.
Vitec says that SmallHD has grown during 2014 and is investing in new product platforms, and that the company anticipates “both healthy sales and profit growth going forward.”
According to Vitec, the SmallHD deal is in line with its “strategy of offering a growing range of high technology solutions to the Group’s established global customer base. It complements Vitec’s existing video activities, including Teradek, which serves a similar customer base. There are opportunities to sell SmallHD’s products through Vitec’s global sales and distributor network. SmallHD is being acquired from its current management, who will remain with the business, and it will operate as a business unit within the Videocom Division.”
The consideration will be financed out of Vitec’s existing banking facilities. The Board expects the acquisition to be earnings enhancing in the year ending 31 December 2015.
“I am delighted to welcome the SmallHD team to Vitec, said Vitec CEO Stephen Bird. “This high technology business complements our market-leading broadcast activities and is in line with our strategy of enabling our customers to capture and share exceptional images. There is an increasing demand for SmallHD’s products from the growing community of independent content creators who use this world leading technology. The business has great prospects and we anticipate that it will generate a good return on our investment.”
The purchase of SmallHD is similar to the 2013 transaction when Vitec acquired Teradek for up to $30m. For the Teradek deal, Vitec paid $14.9m in cash and up to a further $15.5m dependent on Teradek achieving against annual EBIT targets over the three-year period to 31 December 2015.
The Teradek deal appears to have been a success for Vitec. Since the time of the Teradek acquisition, subsequent Vitec financial filings indicate that the company has indeed been making earn-out payments to Teradek shareholders over the past year. The addition of Teradek, which is active in the fast growing bonded cellular and wireless communication links segment, forced the company to re-think it’s overall portfolio, and ultimately to divest its IMT Wireless Communications and Microwave Business in mid-2014.
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