AAC Clyde Space — Building the platforms for growth

AAC Clyde Space continues to pursue its ambition of becoming a leading player in the small satellite market, offering more economic low-cost access to space-based operations for potential customers. While growing rapidly organically, it continues to seek value-adding acquisitions that bring technologies, market positions and relationships to enhance the overall offering.

Following the transformational acquisitions of SpaceQuest and Hyperion Technologies in late 2020, on 31 March 2020 AAC Clyde made two announcements regarding two contingent transactions that should further accelerate the development of the products and services offering of the group:

The two issues require shareholder approval at an EGM to be held in late April. Shareholders representing 22% of the existing voting rights have already indicated support for both issues.

AAC Clyde Space has reached an agreement to purchase 100% of Omnisys Instruments, a well-established and privately owned Swedish based supplier of scientific instruments and sensors to the space industry. It was founded in 1992 and currently employs 26 people.

The approximately SEK75m initial consideration is to be settled through a cash payment on completion of SEK25m with the balance met by the issue of 17.34m new consideration warrants to the vendors. Each warrant converts into one new AAC Clyde Space share exercisable in three equal tranches at market prices six months, 12 months and 18 months after completion. As a result, the final consideration is contingent on the share price performance until the final tranche of warrants is priced.

Net assets being acquired are SEK4.8m with SEK70.2m of initial goodwill, from which we expect some purchase price allocation (PPA) of intangibles to be identified and amortised following completion.

In addition, there is an earn-out agreement of up to SEK25m if Omnisys meets certain milestones, which are yet to be determined. Payments will be made 60% in cash and 40% in earn-out warrants. The maximum cash element of the earn-out payments is SEK15m with up to SEK10m payable via the issue of c SEK10m of earn-out warrants, which are again convertible on a 1:1 basis into AAC Clyde Space shares. The cash payment of the earn out is payable within two weeks of its determination, with warrants issued two months thereafter.

The deal is subject to AAC Clyde Space shareholders’ approval of the issue of the consideration warrants, which will be sought at an EGM to be held on 22 April 2021.

With almost 30 years of design, development and production experience of high-performance electronics hardware for the space and satellite industry experience, Omnisys fits well with AAC’s existing subsystems portfolio with products in radiometer systems, microwave instruments, THZ systems and power and control systems, especially power conditioning and distribution units (PCDUs). Omnisys brings a strong market position for earth observation sensors for reliable weather forecasting and data for climate research data, which are areas of interest for AAC Clyde’s space-as-a-service offering.

Omnisys is profitable and has opportunities for further growth as its scientific instruments are integrated into the AAC Clyde Space platform and space services offering. Its world-class sensors are used widely by an established customer base in the European and US space industry, including ESA, Airbus Defence and Space and many other commercial and institutional customers.

In FY20, Omnisys generated revenue of SEK34.9m, generating a gross profit margin of 86.6% and SEK1.9m EBITDA, SEK1.7m EBIT and SEK1.4m of EBT. It has a current order backlog of SEK133m compared to AAC Clyde Space’s year-end order backlog of SEK156m.

At the same time as announcing the Omnisys deal, AAC Clyde Space also successfully undertook and concluded an accelerated bookbuild for another directed new share issue of 39,215,686 shares at SEK2.55 (a 7% discount to volume weighted average price on 31 March 2021) raising approximately SEK100m before costs, conditional on approval at the EGM to be to held on 22 April. Completion of the directed share issue is contingent on approval at the EGM of the issue of the consideration warrants relating to the Omnisys acquisition. Shareholders who hold c 22% of the voting rights in AAC Clyde Space have undertaken to vote in favour of both issues at the EGM.

The issue of new shares under the directed share issue and full exercise of the consideration warrants would lead to a 38.4% increase in the number of shares in issue to 203.8m, diluting existing shareholders’ voting rights by 27.8%.

The decision by AAC not to waive preferential rights delivers its desired extension of the shareholder base as well as benefiting from the external appetite for participation. However, we would hope that going forward greater consideration would be given to those investors who were early supporters of the group. At the beginning of March 2021, the number of shareholders had doubled to 12,000 over 12 months.

Following the recent acquisitions and the departure of Craig Clark, on 1 March AAC announced changes to its management structure that it believes should increase agility and underpin continuing growth. It has established a decentralised structure, with group level sales and strategic leadership, with geographic operations management for each country.

The group management board is now formed by CEO Luis Gomes, CFO Mats Thideman, Group VP of business development Peter Andersson and CTO Andrew Strain. Luis Gomes and Mats Thideman also comprise the Strategic Steering Group.

Under the new country structure, John Charlick will take the role of director of operations UK, with Mattias Örth assuming the role of director of operations Sweden, both reporting to Luis Gomes. The adopted structure mirrors the one already used for Hyperion led by Bert Monna, and SpaceQuest led by Dino Lorenzini.

AAC achieved strong growth in revenues in FY20 despite the disruptive impacts of COVID-19 and the adjustments that were required to operate in the locked down environment. The year was transformational with the acquisitions of both Hyperion technologies in the Netherlands and SpaceQuest in the US completed close to the end of the year. As a result, these had little impact on the income statement, although they were fully consolidated in the year-end balance sheet. The main highlights of the results were:

The order backlog at the year end was SEK156m including both Hyperion and SpaceQuest, which compared to SEK169m at the prior year end. The backlog for platforms was down around SEK8m to c SEK120m largely due to an adverse currency impact. The reduction in Subsystems backlog to c SEK36m from c SEK42m was more a direct reflection of the disruption to order activity caused by COVID-19. It is unclear what the acquisitions added.

At the year end the CEO said that the clean rooms were busy, with eight satellites at various stages of production. AAC Clyde Space has also built a large and promising sales pipeline. Management expects to see strong growth and has given a medium-term expectation of sales reaching SEK500m by 2024.

As is our usual practice we have not adjusted our estimates for the pending transactions as the acquisition of Omnisys and the contingent directed share issue have yet to be completed. That should occur on 22 April 2021 at the EGM and we will adjust our model then.

As for the response to the FY20 results, there is very little change to our FY21 estimates, although we have slightly reduced our depreciation and amortisation charge, which reduces the loss before tax and loss per share by almost 20% compared to our previous estimates.

We introduce FY22 forecasts, where we expect to see continued strong revenue growth, a healthy improvement in EBITDA margin, a transition to positive EPS and net cash generation.