Vitec Group Plc – Acquisition and Trading Update

The Vitec Group plc

Acquisition and Trading Update

Highly complementary, bolt-on acquisition in a faster-growing segment

The Vitec Group plc (“Vitec” or “the Group”), the international provider of premium branded hardware products and software solutions to the growing content creation market, announces an acquisition for our Imaging Solutions Division and a brief update on the Group's trading for the four months to end of 31 October 2021 and FY 2021 outlook.

Key highlights

Stephen Bird, Group Chief Executive, commented:

“A key part of the Group's strategy is to invest in businesses exposed to faster-growing segments of the content creation market. Savage gives the Group a leading position in the growing global backgrounds market, which is the largest consumables product used by professional studio photographers. This gives us more frequent contact with our customers as well as more of a regular repeat purchase revenue stream.

“Vitec is the natural home for this well-respected brand as we know the market and their business extremely well. We are uniquely positioned to drive significant growth and commercial synergies by leveraging the Group's global distribution channels to develop Savage internationally, by expanding their customer base to capitalise on the fast-growing vlogger, influencer and gamer market already served by our JOBY brand, and by using our digital expertise to sell Savage products online.

“This is a hugely complementary and financially attractive, bolt-on acquisition in a classic Vitec niche. I am delighted to welcome the Savage team to the Group.”

Acquisition of Savage Universal Corp. and its affiliates (“Savage”)

Based in Phoenix, US, Savage is a global market leader in backgrounds for the professional studio photographic market. Trusted by creative professionals, Savage manufactures an extensive range of high quality, specialist, seamless paper backgrounds, or backdrops. Backgrounds are a key aspect of imaging production as they are the quickest and easiest way to achieve the desired look for commercial and product photography, portraits, video interviews and social media posts, and they dramatically reduce post-production time. Despite advances in technology, we believe that backgrounds will remain the preferred solution for the foreseeable future.

We know the market and the Savage business extremely well; Vitec's existing Imaging Solutions professional studio photography customers already buy backgrounds and these will be found alongside many of the Group's brands in most photographic studios and rental houses. c.65% of Savage's current revenue is in the US, where they sell direct to retail and c.35% is sold internationally to distributors, with c.40% of that business being distributed in continental Europe and the UK by Vitec Imaging Solutions under our Colorama brand.

Savage will become part of Vitec's Imaging Solutions Division. The business has 85 permanent employees. The COO Rich Reiser will join Vitec while the Chairman and CEO will leave the business at closing of the transaction.

Strategic rationale for the acquisition

A key part of Vitec's strategy is to continue to look for businesses which are exposed to faster-growing segments of the content creation market, particularly in Imaging, where, post-pandemic, we have seen growth in vlogging and influencing, and also in professional photographic studios which are exposed to growth from the internet. Savage fits this strategy:

1.  It is exposed to the growing area of professional studio photography, which is driven particularly by the global growth in demand for digital content and in retail e-commerce, where new products must be frequently photographed or videoed to quickly put fresh content online.

2.  There is the opportunity to sell Savage products to the fast-growing professional influencer and vlogger segment where we estimate that there are more than 40 million vloggers, with a following of over 1,000 people, who share and monetise their content on social media. JOBY is a market leader in this huge untapped market and JOBY revenue in FY 2021 is on track to be c.50% up on 2019.

3.  This is the first company purely focused on consumables that the Group has acquired for some time and it is the largest consumables product in the professional studio photographic market. Backgrounds are bought on a weekly or monthly basis and the acquisition gives Vitec the opportunity to have more frequent contact with our customers, as well as giving the Group more of a regular repeat purchase revenue stream.

4.  Vitec knows the market and the Savage business well and is therefore well positioned to drive commercial synergies and growth. We will expand their distribution internationally, especially in APAC, and we will use our digital expertise to market and sell Savage products online.

Financial aspects of the acquisition ⁽¹⁾

Savage's pro forma results for the year to 31 December 2020 were $24.0 million (£17.9 million) revenue, $4.7 million (£3.5 million) EBITDA and $3.8 million (£2.8 million) profit before tax. The business has grown both revenues and EBITDA materially in 2021 year-to-date. Given the timing, the acquisition  will have a negligible  effect on Vitec's revenue and adjusted profit before tax for FY 2021.  

At 31 December 2020, the gross assets of Savage, subject to the transaction, were $10.1 million (£7.5 million). At 30 September 2021, the net operating assets of Savage to be acquired were c.$7.2 million (£5.4 million). Upon completion of the acquisition, Vitec will recognise around $9.3 million (£6.9 million) IFRS16 lease liabilities and right-of-use assets.

The consideration payable at completion is $53.8 million (£40.1 million) on a cash/debt free basis, plus transaction and financing costs, and will be subject to customary working capital adjustments. Completion is expected by the end of November 2021. Up to a further $1.5 million (£1.1 million) cash retention award will be payable to the COO of Savage, Rich Reiser, half in December 2022 and half in December 2023, based on him remaining in the business and managing the transition for at least two years post acquisition. 

The financial impacts of the acquisition and the benefits to Vitec include:

The acquisition will be funded by a new committed acquisition facility of $53.0 million (£39.6 million) from our existing banks. The total one-off financing costs will be $1.2 million (£0.9 million) and the annual interest expense of this facility will be $1.1 million (£0.8 million) at current interest rates. The term of the facility is three years, with the first repayment due on 30 June 2022.

Trading Update

For the four months to end 31 October 2021, Vitec continued to see strong order intake and revenue, above 2019 levels, albeit with some component shortages, particularly in the Creative Solutions Division, holding revenue back. The Group now expects FY 2021 adjusted profit before tax to be slightly above current market consensus.