Alaris Holdings: A small cap with big expansion plans

The specialist company wants to expand its international footprint, mainly in the US.

Although Alaris Holdings is not a household name or probably on the radar of large investors on South Africa’s JSE because of its small size, the company is forging ahead with its big offshore expansion plans. 

The small-cap company (R339 million market capitalisation), which was first introduced to the market as Poynting Holdings when it embarked on an initial public offering (IPO) in 2008, is a specialist company that produces some of the best antennas globally. 

Alaris came to the market during an IPO boom that also saw a number of its smaller peers vying for the attention of investors. Like some of its peers, Alaris’ share price hasn’t shot the lights out since its market debut (up less than five percent) and hasn’t overcome the lack of liquidity.

The company also had difficulties in articulating its strategy of pursuing growth to investors in a sector that is arguably not sexy.  However, the company is working to prove to the market that it’s a worthy contender of investors’ attention. After all, the company has had a stable and proven track record of 18 years in the industry.

“We are proud to be a South African company, with our own intellectual property, registered patents, manufacturing in South Africa and exporting to international customers.  The knowledge, skills and experience of our R&D team is world-class, providing cutting edge technology solutions to our customers,” Alaris group CEO Juergen Dresel told M&A Africa.

To court the attention of investors, Alaris has identified the US market as its growth vector, with the company planning to ramp up investments in the country’s defense and homeland security industry. 

“We want to exploit the US market more because it is among the biggest security and defense industries in the world,” said Juergen.

Antennas – like the ones Alaris produces – are a vital part of any electronic communication system as they can be used in various environments and homeland security applications.  In homeland security applications, antennas are widely used in armored vehicles, aircrafts, naval vessels to provide better surveillance and accurate tracking.

Since 2011, the annual defense budget in the US has grown closer to the $1 trillion mark because the country wants to improve its ability to respond to international security crises. For 2019 alone, the U.S. Senate approved a budget of $716 billion (R10.2 trillion), which is one of the biggest defense budgets in modern American history.  

And Alaris wants a share of this defense budget. “The US defense market covers about 50 percent of global defense spending. We have already seen growth in US revenues in Alaris and we believe this will further increase with our presence in the US,” said Juergen.

Although Alaris is domiciled in South Africa, up to 90 percent of its group revenue is generated from clients that are outside of the country. Its client exposure is heavily geared towards Europe with 42 percent of its revenue generated in the region, South Africa (29 percent), Asia and the Middle East (16 percent), and the US (13 percent). 

Juergen wants the US to be the biggest market for Alaris.  The company is planning to use its newly acquired US-based business, mWave Industries, as a vehicle to supply antennas and other related radio frequency products in the country.  In October 2018, Alaris completed the $2.75 million (R39 million) acquisition of mWave, which is a designer and manufacturer of passive radio frequency and microwave antenna solution. mWave provides Alaris with a platform to expand in the US.  Through mWave’s management, the deal also gives Alaris a local partner with local market knowledge.

Underscoring the growth potential is that mWave supplies antenna solutions to clients that are based in about ten US states out of the total 50 states in the country.  “We want to be able to reach all states,” said Juergen.

However, expanding its international footprint comes with several challenges.

“It’s always a challenge to find quality businesses in the market. When we come across quality businesses, they usually command higher valuations and price-to-earnings multiples,” he added.

That Alaris doesn’t have large debt on its balance sheet means that it can comfortably fund any deal it lands on through debt or raising capital in the market. Its balance sheet has no gearing – a key metric used by investors to measure a company’s debt to equity. 

Alaris CFO Gisela Heyman (pictured) said the company has a mandate from the board to raise its gearing levels between 25 percent and 50 percent. “However, raising gearing to such levels will depend on the size and quality of deals we come across,” said Gisela.

She said Alaris’ heightened focus on the US market doesn’t necessarily mean that it will neglect its focus on Europe and Asia, but that it will continue growing its client base in both regions.

The company’s Europe and Asia engagements form part of its two other divisions; Alaris Antennas, which manufactures broadband antennas and other related products; and Cojot, an  acquired company that is based in Finland and designs antenna products that mainly serve the homeland security and public safety markets globally.