Axon announces expansion in the US 08/04/2005
Axon Group plc, the leading Business Transformation consultancy, announces that it has acquired Feanix Corporation, the leading provider of SAP consulting services to the US Aerospace and Defence Industry for an initial consideration of US$23.5m (£12.5m) consisting of US$12m (£6.4m) cash plus 2.8m newly issued Axon Group plc shares worth US$11.5m (£6.1m).
Feanix’s deep industry and SAP skills, combined with Axon’s broader consulting services, provides a platform to create a leading US Business Transformation consultancy for large corporations that have chosen SAP as their strategic enterprise platform.
Feanix was formed in February 2004 from an MBO of Xansa’s SAP practice in the US and already has more than 85 consultants working on critical SAP programmes at major corporations such as Sikorsky Aircraft, Pratt & Whitney and the Goodrich Corporation.
It has grown its revenues from US$1.8m (£1.0m) in the first three months of trading to US$4.4m (£2.3m) in the first quarter of 2005. It delivered a total EB IT DA of US$2.4m (£1.3m) on revenues of US$12.2m (£6.5m) in its first 12 months of trading.
Axon’s US business now has revenues at a run-rate in excess of US$20m (£10.6m) per annum and it is anticipated that it should contribute US$15m (£8.0m) for 2005. Whilst the acquisition of Feanix is earnings enhancing, Axon’s continued investment in the US market means that the overall contribution of Axon’s US business will be earnings neutral for 2005.
Mark Hunter, Chairman and CEO of Axon Group plc said:
“Feanix is a terrific business and we have known the founding team for many years as a consequence of our acquisition of the MBO from Xansa SE Asia, in 2004. In the last three years, we have established the leading European Business Transformation Consultancy focused on the needs of large corporations that have chosen SAP as their strategic enterprise platform. We now see an opportunity to repeat our success in the US . The combination of our respective businesses has created a new force in the market that has nearly 100 consultants, a significant track record of success with major US corporations, and it provides us with a platform to become an effective alternative to the Big Four."
Simon Hopkins, co-founder of Feanix added:
“In the last 12 months we have grown our business to become a leading SAP player in the US Aerospace and Defence industry. We now have a tremendous opportunity to leverage Axon’s Business Transformation capabilities. The cultural, organisational and operational fit between the two companies means that we can immediately take full advantage of the upturn in the US Consulting market.”
For further information, please contact:
Axon
Mark Hunter/Steve Cardell 01784 480 800
Bell Pottinger
Geoff Callow/Chris Hamilton 020 7861 3232
Notes:
Axon
Axon is a Business Transformation Services company that designs, implements and supports solutions to complex business issues faced by multinational organisations that have chosen SAP as their strategic enterprise platform.
Historically, Axon established its reputation as a leading business transformation partner in Europe , and since 2002 it has leveraged this success through the establishment of significant operations in the US , Asia Pacific and the Middle East .
Axon in the US
Axon has a ten year track record in strategic business consulting in the US for organisations such as Cadbury Schweppes, the New York Housing Authority and Motts. It has generated annual revenues in the range of US$2-4m (£1-2.1m). In the last 12 months, Axon has engaged on a number of small SAP assignments that have broadened the nature of its US business.
Following the completion of the Feanix acquisition, Axon’s US business will have approximately 75 US employees and 20 long-term associates. Axon’s US business now has revenues at a run rate in excess of US$20m (£10.6m), of which Feanix contributes approximately 85%.
Feanix Corporation
Since its formation, Feanix has experienced rapid growth. In the 12 months ended 31 March 2005 , Feanix delivered revenues of US$14.1m (£7.5m), EB IT DA of US$2.5m (£1.3m) and profit before tax of US$2.4m (£1.3m). As at 31 March 2005 Feanix had net assets of US$3.4m (£1.8m).
The New Jersey-based company specialises in the provision of strategic and SAP project consulting to the Aerospace and Defence market. Feanix now has more than 65 permanent and 20 long-term associate consultants working on critical SAP programmes and its clients include Sikorsky Aircraft, Pratt & Whitney and the Goodrich Corporation. Feanix typically provide specialist industry and technical input into multi-million dollar programmes focused on reducing costs and increasing efficiencies.
Feanix’s consultants combine strong Aerospace & Defence (A&D) experience with deep SAP technical expertise, and they have on average seven years of SAP consulting experience. SAP is the dominant software platform for the A&D sector, and Feanix is the leading consultancy. It has helped to develop the standard SAP package and its consultants have been involved in over 25% of all SAP A&D implementations on a global basis.
Rationale for the Acquisition
There are several reasons why the acquisition is of strategic importance.
Firstly, Axon is already experiencing demand from existing clients for SAP Business Transformation services in the US market. This is because many US corporations have begun to realise that they cannot afford to sustain their historic best-of-breed application strategy, and as a consequence, SAP is experiencing rapid growth in the US . Furthermore, it is clear that there is a real gap in the market for an organisation like Axon to provide both high-end Business Transformation consultancy as well as deep SAP consulting expertise.
Secondly, both Axon and Feanix engage on large, complex, projects and we have a significant opportunity to bring Axon’s broader services portfolio to these projects. Furthermore, the deep SAP skills that Feanix require to succeed in the Aerospace & Defence market are also very applicable to other sectors such as Oil & Gas and Utilities. For example, Feanix’s unique position in providing Asset Life-Cycle Management solutions to Aerospace and Aviation companies readily translates to other industries with the need to manage and maintain complex equipment and products.
Thirdly, Axon is an excellent cultural fit with Feanix. In 2004, we acquired MyDruid Services SDN. BHD who were an MBO from Xansa SE Asia, and as a consequence we have known the Feanix management team for many years. They, like us, are leaders in their chosen market and have a track record for excellence.
Finally, the deal structure that has been put in place is predicated upon continued profitable growth of our US business. Thirteen of the key people in Feanix are now shareholders in Axon, who could see their rewards increase by 100%+ should the business meet its objectives.
Deal structure:
An initial consideration of US$23.5m (£12.5m) has been paid to the 13 shareholders of Feanix. This initial consideration is being satisfied as to US$12.0m (£6.4m) in cash, which has been paid from Axon’s existing resources, and as to US$11.5m (£6.1m) by the issue of 2.8m shares in Axon Group plc, valued at the closing share price of £2.175 on 7 April 2005 . The Feanix shareholders have entered into lock-in agreements in relation to their shares, under which they are released from lock-in over a phased three year period.
Application will be made for the 2.8m new shares in Axon Group plc to be admitted to listing on the Official List and admitted to trading on the London Stock Exchange market for listed securities. The new ordinary shares to be issued will rank pari passu in all respects with existing shares save that they shall not rank for the final dividend of 1.75p in respect of the year ended 31 December 2004 .
Deferred consideration will be paid in respect of each year ending 31 December until 31 December 2009 dependent on future profitable growth of the US business. This deferred consideration is capped at US$20.5m (£10.9m) should annual revenues exceed US$75m (£39.9m). An EB IT DA test limits the deferred consideration payable so that cumulative payments shall not exceed ten times the cumulative annual incremental EB IT DA over and above $2.3m. 40% of the deferred consideration will be satisfied by the issue of new shares in Axon, up to a maximum of 2.5m shares, with the balance satisfied in cash.
The acquisition is subject only to customary corporate filings in the United States that are expected to be completed on 8 April 2005 .
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