Why the Codan (ASX:CDA) share price is smashing all-time highs

The Codan Ltd (ASX: CDA) share price is setting new all-time highs today on news of an acquisition. We take a look at the details.

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At climber at the top of a mountain, indicating a share price on the ASX that has hit a record high

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The Codan Limited (ASX: CDA) share price is setting fresh all-time highs today after the company announced a new acquisition.

In morning trade, the communications equipment and metal detector manufacturer’s shares touched record highs, at one point hitting $13.64 a share. At the time of writing, the Codan share price has pulled back slightly to $13.28, up 6.84%.

What has the Codan share price setting new highs?

Codan acquires US-based communications supplier

In an announcement released to the market this morning, Codan has entered into an agreement to acquire US-based Domo Tactical Communications (DTC). DTC provides high bandwidth wireless communications, specialising in MIMO Mesh networks. Through the use of multiple antennas and software, MIMO networks are self-forming and self-healing.

DTC is a long-term and trusted supplier of more than 20 US government agencies and ‘Five Eyes’ intelligence communities. DTC’s products enable wireless transmission of data for its customers, including border control, first responders, broadcasters, military, and special forces.

The acquisition comes with an initial A$114 million price tag. An additional USD$16 million earn-out payment may be made, depending on targets being met in 2021. Codan will fund this acquisition with existing cash reserves, while potentially leveraging its current banking facility. The company’s cash balance as of the end of June 2020 was A$92.83 million.

Expected contribution to the business

Furthermore, Codan outlined its expectations for DTC in its first full year of ownership, stating: “It will be earnings-per-share accretive from day 1.”

The company expects DTC to add $90 million in sales, $14 million in earnings before interest, tax, depreciation and amortisation (EBITDA), and A$9 million in profit before tax.

Codan chief executive Donald McGurk said the acquisition demonstrated Codan’s strategic growth plan for its tactical communications business:

This acquisition fills a technology gap and will be able to leverage Codan’s global distribution channels into the developing world.

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Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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