MTI Wireless Edge buys 51pc of defence tech firm PSK

The AIM-traded firm said initial consideration would be $1.2m, with an earn-out payment subject to performance of up to $2.56m.

In addition, MTI Summit would make a loan to PSK of $0.8m, and would be party to an option agreement in relation to the acquisition of the remaining 49% of PSK.

MTI described PSK as an Israeli company, well-known to MTI having collaborated together on a number of projects over the last decade.

It said PSK specialises in the development, manufacture and integration of communication systems and advanced monitoring and control systems for the government and defence industry markets.

PSK has more than 20 employees in Israel with high-security classifications, qualifying it to serve government and defence industry customers on strategic long-term projects.

In 2020 and over the first six months of 2021, PSK suffered from the effects of the Covid-19 pandemic and a lack of government budget in Israel, which translated into lower military and corporate spending.

Since July, however, PSK had received an increasing level of orders and had quoted on a number of “significant” potential projects, which were expected to be delivered from 2022 onwards.

MTI’s board said it believed PSK had both revenue and profit growth potential, adding that it was a platform for MTI to increase its recurring revenue from service and maintenance contracts in the defence sector, and expand its business strategy in its antenna and distribution and professional consulting services divisions.

PSK's audited revenue for the year ended 31 December 2020 was NIS 10.4m ($3.4m), and its audited operating loss was NIS 1.5m.

MTI’s directors said they believed PSK was breakeven for the year ended 31 December 2020 on an adjusted unaudited operating profit basis, after adjusting for one-off write offs as part of the process of becoming part of a public company, and for conversion to IFRS accounting.

PSK's unaudited balance sheet as at 30 November included NIS 4.6m of gross assets and net liabilities of NIS 2.3m.

It was currently funded by bank loans, which would be repaid out of MTI's investment and loan, with the consideration to be funded out of MTI's existing cash resources.

“We are delighted with this acquisition, which the board expects to be earnings enhancing and will contribute to our future profits,” said chief executive officer Moni Borovitz.

“The acquisition will enable MTI Summit to step up the value-chain in the Israeli defence market by offering not only components, but also turn-key solutions.

“We have been in discussions with PSK for nearly a year and waited to see the recovery in its order book and project quotation activity prior to executing the acquisition.”

Borovitz noted that PSK was affected by the pandemic over the last 18 months, and a subsequent lack of government budget in Israel, which led to reduced spending and delays in projects and commitments from its existing and potential customers.

“In recent months this has improved, with an increase in orders and opportunities, which has given us confidence in PSK's immediate growth potential.

“The synergies between PSK and MTI's antenna division and distribution and professional consulting services division are significant.

“We expect that MTI's strength and size will assist PSK in increasing its customer base and involvement in the market, while enabling MTI to offer a wider range of higher value products to customers.”

At 1509 GMT, shares in MTI Wireless Edge were up 7.19% at 82p.