Cogo Group, Inc., a leading provider of customized module and subsystem design solutions in China, announced that it intends to acquire certain businesses of MDC Tech, Inc. The businesses will be merged into Cogo’s existing Industrials business, which is currently the company’s fastest growing business segment. A technology solutions and engineering services company with most of its operations in China, MDC Tech focuses on two of the fastest growing industrial markets in China: the Smart Grid roll-out and Medical Equipment.
Anticipated to close in the first quarter of 2011, the deal will likely be an all-cash transaction of $22 million that will be paid over several quarters. According to the press release, it is currently expected that MDC will contribute revenue of approximately $15 to $20 million and $2 to $2.5 million in operating income in the first four quarters after closing. Because MDC has large existing contracts in place and the integration will require limited upfront investment, it is anticipated that the deal will be instantly accretive to Cogo’s earnings. Recognizing MDC’s contract pipeline and the expected ability to leverage these assets across its base of 1,500 customers, Cogo expects to grow MDC’s sales at an anticipated 20% compounded annual growth rate (“CAGR”) over the next five years.
“The acquisition of MDC enhances our already strong position in the Smart Grid roll-out and puts us in the sweet spot of China’s healthcare reform,” stated Jeffrey Kang, CEO of Cogo Group. “Total spending on the Smart Grid is expected to reach $300 million over the next five years and $125 billion for Healthcare in the next three years. We anticipate this deal will allow us to move ‘upstream’ in some cases and focus more on broad solutions and sub assembly design and servicing.”
“After the close of this deal, we will be increasingly well-positioned to take advantage of the massive spending anticipated in China, including the 10-year plan to complete a unified, national Smart Grid system, a nationwide infrastructure for high-speed Railways, and an upgrade of the country’s Healthcare system to universal coverage,” added Jeffrey Kang. “We are now sitting in the sweet spot of all of these end markets, and we expect to expand our share in these segments and add new Industrial verticals as we move through 2011.”