Codan Announces Intention to Acquire Zetron
- Deal comprises of upfront cash payment of around AUD59 million
- Acquisition is part of an attempt to take advantage of a US bill currently in consideration
- Transaction is due for completion by 30 April 2021
Codan (ASX:CDA) has announced on 1 April 2021 that it has entered into an agreement to purchase 100 per cent of shares in the US-based company Zetron Inc from JVCKENWOOD Corporation, a Japanese multinational electronics company. Zetron is a company that specialises in developing mission-critical communication solutions such as fire station alert systems and computer-aided dispatch.
The acquisition will comprise of an upfront cash payment of approximately AUD59 million. It will be funded through a combination of existing cash and debt from a recently approved AUD100 million banking facility. The transaction will be on a cash-free, debt-free basis is expected to complete by 30 April 2021.
Of particular interest is Zetron’s Next Generation 911 (NG911) products. NG911 is an initiative by the US and Canadian governments to update North America’s current emergency call-taking infrastructure and bring it in line with modern technological expectations. Importantly, the US government is currently considering an infrastructure bill that includes a proposed USD15 billion of NG911 funding.
If passed, the bill will undoubtedly drive demand for NG911 products and with this acquisition, Codan will be in a strong position to capitalise on the expanding market. While exciting, Codan is not the only company currently preparing to take advantage of the bill, the company notes Motorola and AT&T as major competitors who currently dominate the market.
Zetron and Motorola however, are the only companies in the market that offer a full suite of NG911 applications, and Codan hopes this will give them a significant edge. The company estimates that it stands to capture approximately a third of the total market and expects the addressable market to grow at 9.3 per cent per year if the bill passes.
Codan estimates the acquisition will add around AUD67 million in sales and is targeting AUD8 million in Earnings Before Interest Tax Depreciation and Amortisation by FY22. Codan also intends to capitalise on Zetron’s powerful brand presence in North America, and once the acquisition is completed, they plan to merge Zetron with another of its subsidiaries, Critical Communications, to create a single critical-communications company that will trade under the Zetron name.
Codan prides itself on its focus on researching and developing new products, and the acquisition of Zetron is in line with this philosophy. Previously on 16 February 2021, Codan announced another agreement to acquire a company called Domo Tactical Communications. They plan to increase Research and Development funding to both companies over time in the hopes of achieving market dominance through the creation of unique IP.
The announcement ended on an optimistic note. The president of Critical Communications, Scott French, commented on the two companies’ similar history and company culture, both being in the critical-communications sector. It’s hoped that by combining the two, Codan will be able to offer its customer more choice, more value and better meet demand.