Wireless firm buys security integrator ATC International
EXTON, Pa., and MIAMI--WPCS, a NASDAQ-traded specialty communications and wireless technology design-build engineering firm, announced this week a letter of intent to purchase ATC International, a security systems integrator based in Miami with offices in Central America. WPCS will pay $2.45 million in cash at closing, with an additional earn out to be paid upon the achievement of certain earnings targets over a period of 24 months. The deal is expected to close within 60 days.
This represents an entry into the security market for WPCS. "There's a confluence of wireless technology in the security market," said WPCS chairman and chief executive officer Andrew Hidalgo, "and it's becoming more and more prevalent, especially with video surveillance. We're a specialty communications engineering company, and with ATCI, now we're in a position to strengthen our wireless offerings and add a security offering."
ATCI strengthened its own wireless position in the fall of 2006 with the acquisition of JBE Technology, a wireless engineering firm based in Hollywood, Fla. "As that impacted our business, we felt we needed a broader exposure in the wireless market," said ACTI president Chris Cavallo, "and to do that we felt we needed two things: more capital and manpower that knew what they were doing. We happened to be contacted by Andy and his group, and we were just really taken aback in a very positive way with their business model." Since WPCS wasn't yet in the security market, but did have extensive experience in wireless engineering and deployment, "they had what we needed, we had what they needed," he said.
WPCS was also attracted to ACTI's international successes. ATCI has been operating an office in El Salvador for the past five years, and just opened an office in Panama City in the past three months, where they have entered into a joint marketing agreement with Panamanian security integrator MIMSA. "We'll be working in conjunction with them to grow the southern portion of the Central American market as well as South America," said Cavallo.
"We're trying to expand our international scope without question," said Hidalgo, "and the Latin American portion was very attractive to us." He also noted a letter of intent announced Feb. 1 to purchase a 60 percent stake in China-based Taian AGS, a communications infrastructure engineering company that generated roughly $1.8 million in revenues in 2006.
Despite the good fit, the companies had no previous working relationship. "We weren't familiar with them or aware of them," said Cavallo. "If you're a spiritual person, it's what they call a God incident."
Hidalgo said WPCS learned of ACTI through mutual clients like the Seminole Indian tribe and the Hard Rock Cafe chain. "We heard of them through their reputation; they have an outstanding reputation," said Hidalgo. Once WPCS began investigating the company, Hidalgo found "they were very strong from a engineering point of view, and from a management team point of view. Plus, they were historically profitable, so they were an excellent fit for us."
ATCI estimates $7 million in revenues and $500,000 in EBITDA for 2006, so the purchase price is under .5x of revenues and 5x EBITDA, slightly lower than the current market standards for security integrators. However, "I think both parties are satisfied with the price," said Cavallo. "As long as you walk away with both parties feeling that they've won, then that's a good deal."