The Vitec Group PLC - Acquisitions

RNS Number:4026X
The Vitec Group PLC
30 May 2007

Not for release, distribution or publication, in whole or in part, in or into
the United States, Canada, Australia or Japan


FOR IMMEDIATE RELEASE
30 May 2007

                              THE VITEC GROUP PLC

                     ACQUISITIONS OF NUCOMM AND RF CENTRAL


The Vitec Group plc ('Vitec' or the 'Group') announces the acquisitions of
Nucomm Inc and RF Central LLC (together 'Vitec Group RF Systems') for aggregate
initial considerations of $38.5 million (£19.4 million), with a further $37.3
million (£18.8 million) payable over the next four years, dependent on
performance (the 'Acquisition'). After taking into account anticipated net cash
of $2.8 million (£1.4 million) in the businesses at closing, the maximum
acquisition cost is $73.0 million (£36.9 million). Closing is expected by early
June 2007.


The two companies are technological leaders in providing wireless links for
broadcast applications, including camera, mobile broadcast van and fixed
location transmitters and receivers. They sell mainly in the US, where the
Sprint/Nextel-sponsored BAS spectrum relocation project will generate
considerable growth opportunities over the next three years.


Due to Vitec Group RF Systems' size and growth prospects, the Acquisition is an
excellent fit with Vitec's Broadcast Systems division. The acquired companies
sell to similar customers and Vitec's infrastructure is expected to provide
opportunities for further growth internationally.


The Acquisition is expected to be immediately earnings enhancing (pre
amortisation of intangibles and any one off costs) (see note 5).


Commenting on the Acquisition, Gareth Rhys Williams, Chief Executive of Vitec,
said:


'The companies we are acquiring, while strong in their own right, will benefit
from becoming a consolidated entity within Vitec and will be able to offer a
wider range of products and services to more customers. We are excited by this
opportunity to expand our product offering into a very closely-related area.


'While the companies provide proven technology, the longstanding reputation of
Vitec in the broadcast market will help to realise their potential. The volume
generated by the BAS spectrum relocation project will generate significant
potential for the Group over the next three years and, thereafter, we expect
that the ongoing consolidated business will continue to generate an attractive
return for shareholders.'


Analysts conference call


Vitec will be hosting a conference call for analysts at 8.30am on Wednesday May
30th 2007. For dial in details please contact Elaine Ryman at Financial Dynamics
on 020 7269 7121.


Enquiries:
The Vitec Group                                            Tel: 020 8939 4650
Gareth Rhys Williams
Alastair Hewgill

Financial Dynamics                                         Tel: 020 7269 7121
Richard Mountain


30 May 2007


                              THE VITEC GROUP PLC

                     ACQUISITIONS OF NUCOMM AND RF CENTRAL


Introduction


The Vitec Group plc ('Vitec' or the 'Group') announces the acquisitions of
Nucomm Inc and RF Central LLC (together  'Vitec Group RF Systems') for aggregate
initial considerations of $38.5 million (£19.4 million) and a further $37.3
million (£18.8 million) payable over the next four years, dependent on
performance (the 'Acquisition'). After taking into account anticipated net cash
of $2.8 million (£1.4 million) in the businesses at closing, the maximum
acquisition cost is $73.0 million (£36.9 million). Closing is expected by early
June 2007.


Commenting on the Acquisition, Gareth Rhys Williams, Chief Executive of Vitec,
said:


'The companies we are acquiring, while strong in their own right, will benefit
from becoming a consolidated entity within Vitec and will be able to offer a
wider range of products and services to more customers. We are excited by this
opportunity to expand our product offering into a very closely-related area.


'While the companies provide proven technology, the longstanding reputation of
Vitec in the broadcast market will help to realise their potential. The volume
generated by the BAS Relocation Project will generate significant potential for
the Group over the next three years and, thereafter, we expect that the ongoing
consolidated business will continue to generate an attractive return for
shareholders.'


Information on VGRFS


Vitec Group RF Systems makes, sells and installs wireless links, principally for
US broadcasters.


Wireless links are used by broadcast companies for the transmission of video,
audio and data. A typical application is the transmission of video signals from
a mobile camera to a mobile broadcast van, then via fixed rooftop receivers and
transmitters to the studio (where the content is edited) and, finally, to the
transmission mast. They are used mainly by sports, entertainment and news events
broadcasters, as well as rental businesses, who value the speed, cost, bandwidth
and reliability of microwave wireless transmission.


 Vitec Group RF Systems comprises three companies:

  * Nucomm - based in Hackettstown, New Jersey, is one of the leading
providers in the US of fixed and mobile links. Presently employing some 95
staff, the business is majority owned by Dr John Payne, the founder, and his
son, John Payne IV, both of whom will be staying with the business;
  * RF Central - based in Carlisle, Pennsylvania, is a US distributor and
integrator of microwave products, particularly mobile links. The business,
employing some 50 people, is managed by Jeff Winemiller, the founder, who
will also be staying with the business, and majority owned by Jeff
Winemiller and his wife. RF Central also has an agreement to acquire MSC,
below;
  * Microwave Services Corporation (MSC), based in Haverhill, Massachusetts; a
leading US microwave repair house, managed by the founder, Warren Parece,
who will also be staying with the business post closing.


Information on BAS Relocation Project


In exchange for being granted radio spectrum for their telecoms needs, Sprint/
Nextel have been required by the US FCC to compress the existing Broadcast
Auxiliary Service (BAS) spectrum into a smaller portion of the 2GHz radio
spectrum. This compression requires the use of digital equipment. Under this '
BAS Relocation Project', Sprint/Nextel will replace all 2GHz analogue microwave
systems in the United States with Standard Definition digital systems on a
like-for-like basis. This project is expected to result in 2GHz equipment sales
and integration services of c.$600 million between 2006 and 2009 (predominantly
2007 to 2009).


As the BAS demand is significantly higher than the typical annual requirement,
Sprint/Nextel has been issuing manufacturers with advance stocking orders, and
paying those manufacturers in advance for those stocks to be put in place. In
this way, when the broadcasters make their final choice of equipment, there is
expected to be significant stocks available at each manufacturer.


Opportunity for VGRFS / Vitec


The Vitec Directors believe that  Vitec Group RF Systems, with proven digital
technology and in aggregate probably the number two position in the US market,
is well placed to gain significant sales during the BAS Relocation Project, by
providing leading products and installation services to customers who have to
abandon their legacy analogue systems. Customers, reassured by Vitec's
involvement and support of these businesses, can plan purchases, not just for
the BAS Relocation Project, but afterwards when it is envisaged that other
opportunities, such as the upgrade of equipment from Standard Definition to High
Definition, and the transition from analogue to digital for similar equipment
operating on other frequencies, will underpin  Vitec Group RF Systems' long-term
performance.


Information on financial performance of VGRFS


In the year ended 31 December 2006, based on US GAAP audited accounts,  Vitec
Group RF Systems' aggregated revenue and loss before tax were $19.3 million and
$7.0 million respectively.


On an unconsolidated basis, the profit before tax and gross assets attributable
to the  Vitec Group RF Systems businesses (sourced from US GAAP audited
accounts) were as follows:


                          Year end                  Loss before tax                    Gross assets
Nucomm                31 December 2006        $5.8 million (£2.9 million)      $36.2 million (£18.3 million)
RF Central            31 December 2006        $1.2 million (£0.6 million)      $24.4 million (£12.3 million)


In 2006, both companies built up significant inventories in support of the BAS
project which cannot be recognised as revenue, which led to the reported losses.
Under US GAAP, despite having been paid for the product by Sprint/Nextel, the US
vendors cannot recognise sales until the products are shipped to the end
customer. As those inventories are delivered to the broadcast customers, revenue
can be recognised, resulting in a significant improvement in trading
performance. This is expected to be enhanced by increased market share and
integration benefits. Aggregated revenue (under US GAAP) for the first quarter
of 2007 was more than 60% higher than in the first quarter of 2006.


Going forward, the results of Vitec Group RF Systems will be reported within
Vitec's Broadcast Systems division under IFRS.


Summary terms of the Acquisition


Under the terms of the acquisition agreements, Vitec has acquired the shares of
 Vitec Group RF Systems' constituent companies for an initial consideration of
$38.5 million (£19.4 million) from existing management of the respective
businesses, before cash in the business of $2.8m (£1.4 million). The Acquisition
will be funded from: (i) the Group's existing bank facilities ($35.0 million /
£17.7 million) and (ii) by the issuance of around 295,000 new Vitec shares ($3.5
million / £1.8 million), which are locked up for 18 months from closing.


Deferred consideration of up to a maximum of $37.3 million (£18.8 million) is
also payable, at least 50% in Vitec shares, a portion of which are also locked
up for 18 months from receipt, the rest in cash, on the achievement of certain
annual profitability targets for 2007-10. The earnout hurdles are set such that
Vitec would recover its initial investment before any earnout payments are made.
The current majority owners of the Vitec Group RF Systems companies will stay
with their businesses and participate in the earnout arrangements. The maximum

total consideration for the Acquisition, including upfront and earn-outs, is $73
million (£36.9 million) and is achievable if adjusted after-tax profits are
cumulatively around $97 million (£49.0 million) by the end of 2010.


The upfront consideration and earnout maxima are as follows:


                                      Upfront        (Cash) / Debt*    Maximum earnout         Maximum
US$ million                                                                                 consideration
Nucomm                                 29.5              (11.3)             12.7                 30.9
RF Central                              6.0               8.5               21.8                 36.3
MSC                                     3.0                -                 2.8                 5.8
Total                                  38.5              (2.8)              37.3                 73.0


*Assumed (cash) / debt taken over at closing


Completion, dependent on certain contractual matters, is expected by early June.


Financial effects of the Acquisition


The acquisition is expected (pre amortisation of intangibles and any one off
costs) to be earnings enhancing for the year ended 31 December 2007 and
materially enhancing thereafter to 2009 (see note 5), when the BAS Relocation
Project will scale down, at which time there will also be an increase in working
capital as the prepaid inventories are delivered.


The Directors of Vitec expect the return on investment to materially exceed
Vitec's weighted average cost of capital for the year ending 31 December 2008
and onwards.


Following the Acquisition, and based on the Group's net debt position as at 31
December 2006, the pro forma net debt of the enlarged Group would have been
£39.8 million at that date. In line with the significant expected cash
generation of Vitec Group RF Systems, and assuming no other transactions,
Vitec's gearing is expected to reduce over the following years. Vitec expect
that the majority of the intangibles acquired will be amortised during the BAS
relocation period.


Enquiries:


The Vitec Group                                   Tel: 020 8939 4650
Gareth Rhys Williams
Alastair Hewgill

Financial Dynamics                                Tel: 020 7269 7121
Richard Mountain
Susanne Walker


Notes


1.    The Vitec Group supplies a wide range of equipment and services to the
broadcasting, entertainment and photographic industries. Its products are
distributed in nearly 100 countries, either through dealerships or direct to the
end user or corporate customer. Vitec is based on strong, well known, premium
brands that professionals rely on. Vitec is organised in three divisions:
Imaging & Staging (formerly Photographic), Broadcast Systems and Broadcast
Services. More information can be found at: www.vitecgroup.com.


2.    For more information on the Vitec Group RF Systems companies please see:


Nucomm - www.nucomm.com

RF Central - www.rfcentral.com

Microwave Service Corporation - www.microwaveservice.com

Sprint/Nextel BAS Relocation project - www.2ghzrelocation.com


3.    US Dollar to £ Sterling conversions have been shown at the rate of $1.98 /
£1, The Vitec Group share price assumed in the calculation of the number of new
shares to be issued was £6.


4.    Key terms:

Fixed link. A wireless link that operates between two fixed points, for example
between two towers that might comprise part of a wider relay system

Mobile link. A link between a mobile unit and a fixed point, for example between
a handheld touch line camera and an outside broadcast van

Standard Definition. The format of television signal used until the recent trend
to 'High Definition'. Standard Definition signals can be either analogue or
digital, whereas High Definition signals have to be digital due to the
significantly higher data rates required.


5.    This statement should not be taken to mean that earnings per share (pre
amortisation of intangibles and any one off costs) of The Vitec Group plc will
necessarily exceed historic earnings per share (pre amortisation of intangibles
and any one off costs) of The Vitec Group plc and no forecast is intended or
implied.


6.    Statements made in this announcement that look forward in time or that
express management's beliefs, expectations or estimates regarding future
occurrences are 'forward-looking statements' within the meaning of the United
States federal securities laws. These forward-looking statements reflect Vitec's
current expectations concerning future events and actual results may differ
materially from current expectations or historical results.


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            The company news service from the London Stock Exchange
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