Incap Corporation | Inside Information | July 03, 2023 at 09:00:00 EEST

Inside information: Incap Corporation acquires Pennatronics Inc., a U.S. based EMS company
Incap Corporation has signed on 1 July 2023 an agreement to acquire 100% ownership of Pennatronics Inc., an experienced and well-performing Electronics Manufacturing Services company with a top-of-the-line factory in Pennsylvania, USA.
The enterprise value of the acquired company is USD 18.6 million (EUR 17.1 million*) and the agreement also includes a potential additional earn-out of a maximum of USD 3.0 million (EUR 2.8 million). The transaction will be paid in cash except for the amount of approximately USD 1.6 million (EUR 1.5 million), which will be paid in Incap’s shares.
Overview of Pennatronics Inc.
Founded in 1999, Pennatronics has a production facility of approximately 6,000 square metres in a town called California near Pittsburgh, Pennsylvania. The company offers complete electronics manufacturing services including PCB assembly, box-build assembly as well as engineering and sourcing services. In its business, Pennatronics has established strong long-term customer relationships, and its customers come from many different industry sectors.
Pennatronics’ revenue for the financial year that ended on 31 March 2023 was USD 30   million, (EUR 28 million**), and EBITDA was USD 2.9 million (EUR 2.7 million), or 10 per cent of net sales. The result for the financial year was USD 1.6 million (EUR 1.5 million). In the financial year that ended on 31 March 2022, Pennatronics’ revenue was USD 24.6 million (EUR 22.9 million) and EBITDA USD 0.9 million (EUR 0.8 million), or 4 per cent of net sales. The result for the financial year 2022 was USD 0.3 million (EUR 0.2 million). Pennatronics has 102 employees.
 Pennatronics’ key figures
Profit and loss statement and balance sheet for financial years ended 31 March 2021–31 March 2023

USD 1,000 1 Apr 22- 31 Mar 23 1 Apr 21- 31 Mar 22 1 Apr 20- 31 Mar 21
Net sales 29,973 24,639 19,227
Cost of Goods Sold -24,832 -21,438 -17,722
Gross Profit 5,140 3,201 1,505
Other operating expenses, total -2,254 -2,306 -2,070
Depreciation and Amortisation -488 -491 -555
Operating income 2,398 404 -1,120


USD 1,000 31 March 2023 31 March 2022 31 March 2021
Tangible assets 4,407 4,631 4,975
Other assets 68 61
Total non-current assets 4,407 4,699 5,036
Inventories 6,793 5,747 4,568
Accounts receivable 6,269 5,580 3,761
Prepayments 148 217 351
Cash and cash equivalents 7,143 6,925 8,420
Total current assets 20,353 18,469 17,100
Total assets 24,760 23,168 22,135
Equity 21,605 20,017 19,761
Deferred Taxes – Long Term 344 354 411
Total long-term liabilities 344 354 411
Accounts payable 1,506 1,559 904
Accruals and deferrred income 1,081 1,073 1,023
Other creditors 102 99 35
Income tax payable 122 65
Total short-term liabilities 2,811 2,796 1,963
Total liabilities 3,156 3,150 2,374
Total equity and liabilities 24,760 23,168 22,135

Strategic rationale
The acquisition is in line with Incap’s growth strategy, and it will establish Incap’s presence in the U.S. market and create a foothold for further expansion in the U.S. market. Pennatronics’ U.S. production facility complements Incap’s current production facilities located in Estonia, India, in the U.K. and in Slovakia. Incap’s customer base will be broadened through the acquisition, and Incap will be able to offer U.S. based services to existing and new customers, while Pennatronics’ customers will benefit from opportunities to source services from Europe and India. In the long term, the acquisition is expected to bring cross-selling opportunities and synergy benefits in e.g., material purchasing.
Key terms of the acquisition and financial impacts
The enterprise value of the acquired company is USD 18.6 million (EUR 17.1 million). The acquisition is initially financed by a loan of EUR 19.5 million. Incap may at a later stage, subject to market conditions, explore the option of equity financing to optimise its capital structure. In addition to this, approximately USD 1.6 million (EUR 1.5 million) will be paid with Incap’s shares to the owners of the acquired company. The acquisition agreement includes an additional payment in the form of a potential earn-out that will be paid in 2024 depending on Pennatronics’ business performance during the financial year ending in March 2024. Its maximum amount is USD 3.0 million (EUR 2.8 million) based on Pennatronics’ EBITDA during the financial year ending in March 2024.
The closing of the agreement will occur after the 4th of July festivities in the U.S. The closing is not subject to any approval by competition authorities or any other conditions precedent. Pennatronics’ figures will be included in Incap Group’s reporting as of July 2023. The transaction is estimated to have a positive impact on Incap Corporation’s revenue in 2023. Additionally, the transaction is expected to have a slightly positive impact on operating profit (EBIT) due to one-time integration and transaction costs as well as the purchase price allocation amortisation. The amount of integration costs incurring will be specified in more detail during the financial year 2023.
“I am very excited about widening our geographic presence and gaining foothold in the U.S. market. I am also very happy to welcome the Pennatronics team of 102 professionals onboard. The acquisition will benefit both companies’ existing customers with opportunities to source from new areas and I am convinced that, together with Pennatronics, we can create new opportunities to expand our business in line with our growth strategy,” comments Incap’s CEO Otto Pukk.
After the acquisition, the former owners of Pennatronics, Ralph B. Andy and Keith D. James, are committed to support Incap over the transition period.
“I am enthused about the opportunity for our seasoned management team and dedicated employees to join forces with Incap,” said Pennatronics’ President & CEO, Ralph B. Andy. “The Pennatronics team is excited to become Incap’s first factory and cornerstone facility in the US to help fuel their future growth. This combination will enable us to take our business to the next level and provide our customers with enhanced capabilities and even greater value. I wish Incap North America a successful future as they expand their production footprint into the US.”