Rakon to buy Crystal Oscillator manufacturer for $us37m

By NZPA

Monday 12th February 2007

Auckland-based high technology company Rakon sees a $US37 million ($NZ54.9 million) acquisition as a key step in turning itself into a global enterprise.

Rakon announced today it was buying the frequency control products (FCP) division of Britain's C-MAC MicroTechnology.

FCP is a leading supplier of high-precision crystal oscillators and quartz crystals. It has manufacturing facilities in Britain and France.

As well as announcing the FCP acquisition today, Rakon provided an updated earnings guidance.

Earnings before interest and taxation (ebit), for the year ending March 31, excluding the FCP acquisition, are now forecast to be marginally above $16 million.

That was an increase of about $1.2 million over guidance given in September, and would be achieved on revenue of $100 million.

Rakon managing director Brent Robinson said the first part of the calendar year was traditionally slower as distribution channels consumed stock built up for the holiday season.

But this year demand had ramped up faster than expected after Christmas, with demand for personal navigation devices, in particular, looking strong through to the end of March.

Robinson said the FCP acquisition was a key step in making Rakon a global enterprise with a diverse product range and strong relationships with blue chip customers in a wider range of high growth industries.

The deal is to be funded by a $60 million equity placement to institutional and habitual investors, with trading of Rakon shares on the New Zealand stock exchange suspended at Rakon's request while the placement is completed.

Robinson said FCP's product offering covered the full range of crystal oscillator products, compared to Rakon's more focused range.

There was little overlap between the products of the two companies, he said.

The deal increased Rakon's exposure into some high growth markets, including emergency location where a transition was under way from emergency beacons that did not give positions to newer generation models that did.

The deal is seen as providing Rakon with leading market positions in the supply of crystal oscillators to the GPS, telecommunications network timing and synchronisation, and aerospace markets.

The FCP business employs about 240 people with operations in Britain and France.

Robinson said FCP could withstand the high manufacturing costs in those countries, with most of its products having high margins.
But Rakon did see an opportunity to improve FCP's manufacturing costs with testing and automation technology Rakon had developed. A more international manufacturing model could also be adopted to reduce costs.

For the 12 months ended August 31, FCP's revenue was $63.8 million and earnings before interest, taxation, depreciation and amortisation (ebitda) $7 million.

That was a 25% increase in revenue and 483% increase in ebitda on the prior year.

Impacts of the deal on Rakon's revenue mix will include an increase in the proportion of revenue coming from Europe, from 10% to 28%.

The share of revenue from GPS will decline from 90% to 52%, while revenue from communications applications will increase from 10% to 34%.

Sales to component distributors will in future make up 8% of revenues, and to military/aerospace applications 5% of revenues.

Rakon shares closed at $4.35 on Friday, having that day hit $4.40, the highest price since the company was listed in May.

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