2017

Acquisition of Sepura plc

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Smith Square advises Hytera Communications Corporation Limited on its recommended cash offer for Sepura plc

On 24 May 2017, Hytera Communications Corporation Limited (“Hytera”) announced that its wholly-owned subsidiary, Project Shortway Limited (“Bidco”), had completed the acquisition of Sepura plc (“Sepura”), announced in December 2016. The acquisition valued the entire issued and to be issued ordinary share capital of Sepura at approximately £74 million (enterprise value c. £150 million) and was implemented by means of a Court-sanctioned scheme of arrangement.

This is the first offer by a Chinese listed company for a UK main list business (the second if including AiM). It is also the first ever Chinese bidder to go straight to a formal intention to make an offer (under Rule 2.7 of the UK Takeover Code), with bespoke conditions, rather than announcing a possible offer (under Rule 2.4 of the UK Takeover Code).

In addition to the bespoke Chinese regulatory conditions, the acquisition was subject to a number of European competition and public interest reviews, including a Public Interest Intervention Notice (“PIIN”) issued by the Department for Business, Energy & Industrial Strategy in the UK (only the seventh such notice issued on national security grounds and the twelfth since 2003 when the Enterprise Act came into force). The PIIN was concluded successfully with the Secretary of State accepting the undertakings agreed between Hytera and the Home Office.

Background on Hytera

Hytera is a leading provider of PMR communications solutions, providing complete and customised communication solutions to clients in government, public security, utility, transportation and enterprise sectors across more than 120 countries and regions across the world. Hytera’s global sales network includes 30 branches in, amongst others, the USA, UK, Germany, Australia and Brazil, over 600 partners across the world and a research and development team of over 1,200 engineers in five research centres. Hytera’s shares are listed on the Shenzhen Stock Exchange. As at the date of the announcement, Hytera’s market capitalisation was RMB 23.4bn (approximately £2.7bn).

Background on Sepura

Sepura is a leading global provider of critical communications solutions for the PMR market. Sepura designs, develops and supplies digital radio solutions, complementary accessories, support tools and devices that are used by a wide range of public safety and commercial organisations. Operating globally, and with revenues of approximately €190 million for the year ended 1 April 2016, Sepura has a product portfolio with the unique ability to offer TETRA, P25 and Long Term Evolution (LTE) system solutions. Sepura’s shares are listed on the London Stock Exchange.

For the 12 months ended 1 April 2016, Sepura’s revenues were approximately €189.7 million, adjusted operating profit was approximately €12.4 million and its loss before tax was approximately €19.0 million.

For the half year ended 30 September 2016, Sepura’s revenues were approximately €43.3 million, adjusted operating losses were approximately €13.0 million and its loss before tax was approximately €62.1 million.

Commenting on the Acquisition, Alan Lovell, Chairman of Sepura, said:

“This transaction with Hytera recognises the underlying strengths of Sepura’s technology and customer base despite the difficulties of the last 12 months. It will provide certainty for our shareholders, and secure the future of the business. There will be additional opportunities and benefits for the business and its employees as part of a larger group.”

Commenting on the Acquisition, Chen Qingzhou, Chairman and Chief Executive Officer of Hytera, said:

“We are very pleased to reach this agreement with Sepura. The industry in which we operate is undergoing significant changes and Sepura represents an excellent strategic fit for Hytera and will allow us to expand the range of products and services we provide to our clients around the world.”

Smith Square acted as financial adviser to Hytera and Bidco.

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