Rapid diagnostics testing company Novacyt (NYCT:AIM) has acquired IT-IS International, the exclusive manufacturer of the group’s q16 and q32 rapid polymerase chain reaction (PCR) instruments, for £10.1 million in cash. The shares rallied 5% to 870p on the news.

Management wasted no time in putting into action its recently announced strategy to strengthen the company’s intellectual property (IP) portfolio and expand its core capabilities.

Today’s deal will result in the company becoming a diagnostic platform instrument and reagent manufacturer, significantly increasing the capacity of IT-IS to meet the expected demand for its q16 and q32 PCR instruments. The new combination will also allow Novacyt to reduce its cost of goods and therefore improve the gross margin of its instrument sales.

GREAT DEAL FOR SHAREHOLDERS

Cash on IT-IS’s balance sheet of £3.6 million reduces the purchase cost to £6.5 million which represents only 8 times IT-IS’s net profit for the year ended December 2019.

Revenues for the first six months of 2020 increased significantly to an annualised £5 million from £3.9 million with an improved gross margin of 58%, due to higher levels of activity driven by the COVID-19 pandemic, making the deal even more attractive.

An earn-out of up to £1.9 million in cash is payable to the directors of IT-IS over the next two years, subject to certain manufacturing targets being achieved.

Chief executive Graham Mullis commented: ‘Novacyt has been working with IT-IS for more than five years through the sale of the q16 and q32 instruments. During this time, IT-IS has proven the quality, performance and reliability of its mobile PCR platform. This acquisition ensures that Novacyt is in a strong position to fulfil the growing market demands for rapid near-patient testing of COVID-19, as well as other infectious diseases.’

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Issue Date: 15 Oct 2020