As with Scott's 2008 $10 million cash and script purchase of niche market mining sector supplier Rocklabs, this week's $4.4 million acquisition of HTS-110 Ltd will be both earnings and cash-flow positive, albeit "modest" earnings, Scott managing director Chris Hopkins said yesterday.
HTS is a crown research institute and it is expected the Government will continue to contribute research and development funding, alongside HTS' own income growth from increased sales.
"HTS's technology is an emerging technology which enables the transmission of electricity without resistance or loss of energy. It enables the manufacture of lighter, smaller and more efficient machines than can be achieved with existing copper-wire technology," Mr Hopkins said.
Applications of HTS's product range include use in cutting-edge nanotechnology, the manufacture of ultra-high capacity computer hard drives, uses in accelerated drug development, boosting yields in biofuel plants and in magnetic resonance imaging systems used by hospitals.
Following the announcement, shares in listed Scott, which went ex-dividend yesterday, were up 2c at $1.44, having in the past fortnight risen steadily from $1.30.
Craigs Investment Partners broker Peter McIntyre said the purchase was a "good and smart acquisition", being earnings accretive from "day one" of ownership and taking Scott Technology further into having a sound stake in leading technology.
"Scotts are becoming national leaders in what they do ... this acquisition is more of being entrepreneurial in a southern way," Mr McIntyre said.
The HTS purchase is initially funded through bank debt, but Scott is putting together a prospectus for a one-for-three rights issue to shareholders to pay for the acquisition.
Any excess capital raised would go towards paying for the earlier, separate, $6 million cash component paid for Rocklabs and the $1.5 million purchase of specialist company Malcolm Smith Reference Materials.
Mr Hopkins said HTS's initial customers were major research institutes, but as HTS's reputation grew, the business had expanded to industrial customers.
"HTS's systems are attractive for industrial applications as they combine high-performance and throughput with small size, sturdiness and energy efficiency," he said.
Mr Hopkins said revenues and earnings from HTS were "expected to grow significantly in the medium to long term as the product range moves through to full commercialisation".
Scott delivered a strong half-year result last week as revenues increased from $20.3 million to $21.8 million, while profit before tax was up from $1.4 million to $2.2 million; citing its diversification as key to its growth after taking a hammering during the recession, especially from the strong New Zealand dollar.
Scott serves the New Zealand and Australian meat industry in a Dunedin-based joint venture with Silver Fern Farms, developing robotics for the freezing works, and manufactures assembly lines for worldwide sales from its Christchurch plant.
Scott has taken a controlling 50.65% stake in HTS, after the exit of shareholder Endeavour Capital and a dilution of the shareholdings of Industrial Research Ltd (IRL) and American Superconductor Corp, and also some minority shareholders.
IRL chief executive Shaun Coffey said HTS had been growing rapidly in recent years to develop a "leading position in the global superconducting magnet market".
"Its success and potential to grow further means it is now an appropriate juncture for IRL to transfer this world-leading technology to an ambitious New Zealand firm," he said in a statement yesterday.
Endeavour Capital chairman Neville Jordan said as a fund manager of one of the Government's Venture Investment Funds, Endeavour was charged with seeding investment into "innovative, fast-growing New Zealand companies like HTS" and he was now satisfied to see HTS move to a new development phase under the guidance of Scott, which he described a one of the country's "top technology companies".
At a glance
• HTS-110 designs, manufactures and sells powerful electromagnets, using world-leading superconducting technology it has developed.
• More than 90% of its commercial revenues are from international system sales.
• Products range in price from $100,000 to $1 million.
