Hudaco has agreed to pay about R709m to acquire the trading assets and liabilities of Isotec, as part of its diversification strategy.
The category 2 transaction, which does not require shareholder approval, will result in Hudaco taking over Isotec, which manufactures and distributes thermal and electrical insulation materials primarily used in manufacturing and repairing transformers and electrical motors for the manufacturing, mining, repair, railway, generation and switchgear segments.
Isotec has 119 employees in five locations in SA and generates revenue of about R500m annually.
“The offering of Isotec will complement and enhance the range of products and services that Hudaco already offers to the electrical power transmission sector, particularly through its Powermite and Varispeed businesses,” Hudaco said in a statement. “They will work together in developing their routes to market and expanding the combined customer base.”
Hudaco imports and distributes industrial, automotive and electronic products and also provides technical support and training for their products. Isotec’s main production activities involve the insulation of copper and aluminium conductors and the production of composite material according to customer specifications.
The Johannesburg-based group said Anthony Schimper, Isotec’s MD and beneficial owner, has agreed to an employment contract for a minimum period of three years. Additionally, he consented to sign a restraint of trade agreement in favour of Hudaco as part of the agreement, which will last for five years after his job ends.
For the fiscal year that ended February 2024, Isotec made R69m in profit after tax, with R152m in net asset value at that time. However, the profit after tax was R90m, and the estimated net asset value to be delivered on the effective date is R250m after accounting for factors that are not specifically related to the purchase of the trading assets and liabilities from Isotec.
The maximum consideration of R709m will be financed by cash generated by Hudaco’s businesses, existing facilities, and if necessary new facilities, Hudaco said.
It said depending on the actual average levels of profitability attained in each of those years, the consideration will be paid in three instalments of R250m to R287m, payable in cash on the first, second, and third anniversaries of the effective date.
The deal comes as Hudaco has been grappling with contracting demand for its products amid reduced load-shedding and an oversupply of energy products in the market. This has been coupled with weak economic conditions and increased pressure on the consumer, which has had an effect on its consumer-related products.
However, Hudaco said its businesses were well positioned to supply an economy that was potentially revitalised as it recovered from 16 years of stagnation and responded to increased demand driven by consumer spending.
The firm, with a R6.4bn market cap on the JSE, acquired the Brigit group for up to R315m, gaining a foothold in the fire detection, containment and suppression market in the prior financial year. It also bought local plastic welding equipment importer and stockist Plasti-Weld.
The latest transaction is set to also significantly improve Isotec’s BBBEE rating and Hudaco will be able to use its experience and expertise in value-added distribution to enhance Isotec’s market position, resulting in long-term benefits to shareholders, Hudaco told investors.
Up 0.48% to R211 on Tuesday morning, Hudaco shares have risen 34% in the last year.
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