Strat Aero, the international aerospace company focused on the rapidly growing Unmanned Aerial Vehicle (‘UAV’) sector, this morning announced it has entered into a Share Purchase Agreement to acquire Aero Kinetics, a Texas based privately owned company, which specialises in the provision of advanced UAV technology solutions associated communications and software capability, to a blue chip customer base, including Fortune 100 clients. The total US$1.2m cost of acquisition is being settled through a combination of convertible promissory notes (carrying an annual interest rate of 7.5%), cash with performance incentive, assumption of accounts payable along with matching and performance-based warrants. This acquisition is considered an important development towards achieving the new management team’s strategy to rapidly build a vertically integrated UAV offering, covering all aspects of the value chain including software, hardware and services. The combined results for the businesses Strat Aero is acquiring for the seven months ended 31 July 2015 were Net Assets US$142,000, Gross Revenue of US$246,000 and Net Operating Loss of US$269,000. The unaudited results listed above apply U.S. accounting rules and may or may not be consistent with IFRS. Research and development costs for the businesses have been expensed in the quarter incurred, and this method of reporting affects the Group’s balance sheet including, but not limited, to the reflective asset value of the Seraph Ground Control Software, Six Unmanned Aircraft System Designs, Unmanned Aircraft Sub-System Component Designs, and other significant assets acquired by Strat Aero under the transaction. In addition to this, Strat Aero announced that it has raised approximately £1.6m (before expenses) through the placing of 25,344,000 new ordinary shares of 1p each at a price of 6.25p per ordinary share with both new and existing shareholders, largely to fund the Acquisition. Application will be made for the Placing shares, which will rank pari passu with the existing Ordinary Shares; it is expected that Admission will become effective and dealings will commence at 7:00 a.m. on 16th December 2015. Following the issue of the Placing Shares, and the further issues of Equity as described above, the issued share capital of the Company will consist of 114,863,771 Ordinary Shares.
Beaufort Securities view on Strat Aero: The Unmanned Aerial Systems (‘UAS’) market is expected to grow exponentially over the next decade and beyond. In the US alone, civilian, law enforcement and military applications in UASs are expected to be the most dynamic growth sector in the aerospace industry, with the UAS market forecast to grow more than US$82.1bn between 2015 and 2025 (AUVSI Economic Report 2013), while the global airborne Intelligence, Surveillance and Reconnaissance (‘ISR’) market estimated to grow to US$19.23bn by 2023. Yet, to date, Strat Aero remains one of a very small handful of quoted direct investments dedicated to capturing this specific opportunity. The combination of Aero Kinetics and Strat Aero provides the enlarged Group with scope to offer multiple full solution packages while introducing significant potential for further product and service expansion. Aero Kinetics brings technological know-how and capability, while completing Strat Aero’s full service offering across all commercial markets. Importantly, once FAA type certification has been achieved (expected first half of 2016), the Group will have a compelling solution for Fortune 100 and other very large organisations with multiple internal use requirements. Specifically, this offering will provide command and control over multiple UAVs, secure often live data transmission and integration to a distant central source, minimise national and state liabilities, and maximise future use cases via urban, night-time and beyond line of sight flights. The ability to offer such comprehensive packaged solutions will clearly be one of the USPs of the Strat Aero group of companies. As an important indication , Aero Kinetics itself has also agreed to provide significant seller financing in support of closing the transaction, with the joint RNS release outlining a valuation of approximately US$24m (including incentives), based on a projected Strat Aero share price if GBP1.00 a level at which W. Hulsey Smith, CEO of Aero Kinetics, considers fair value. Beaufort reiterates its Speculative Buy recommendation on Strat Aero shares.
Beaufort Securities acts as corporate broker to Strat Aero plc
