The Schnapp Ltd. (TASE: SHNP) tire and battery company has entered the car stereo and alarm system market. Schnapp, controlled by Sky Fund and the founding family, headed by CEO Uri Rosenshein, announced this morning (Monday) that it has signed an agreement with brothers Avraham and Yitzhak Zino, owners of A.D. Smart Car Systems Ltd., for the purchase of a 50% stake in the company for NIS 75 million.
The deal is effective from 1 January 2017. Until then, Schnapp will have to pay half of this sum (NIS 37.5 million), while the other half will be paid by 31 March 2017. In addition, Schnapp will gain the option, valid until 2022, to become controlling stakeholder in A.D.I, by purchasing the remaining A.D.I Systems stake, at a value which will be determined by an external assessor, and an addition of a 20% premium; alternatively, it could only pay the control premium, without buying the option stake. In exchange, Schnapp will be able to appoint another director on A.D.I's board of directors, giving it 3 out of 5 directors.
In order to complete this deal, Schnapp yesterday deposited NIS 32.5 million (taken in short-term credit) with a trustee, until the Antitrust Authority approves this deal. After the deal is approved, the sum will turn into a loan to A.D.I Systems and later become part of the payment for the 50% stake. If the deal is not authorized, A.D.I will return the loan to Schnapp. Schnapp intends to finance this deal using loans from banks or other financial institutions.
A.D.I Systems was founded in 1984. It imports, markets and installs a various smart products for Israel's car market: audio, multimedia, convenience, communications, protection and detection systems.
Company statements indicate that the profit margins in its field of activity are relatively high. In 2015, its revenue totaled about NIS 140 million, a 27% leap from 2014. The operating income increased by 30%, reaching NIS 23.5 and net profit increased by 35% to NIS 17.3 million.
At the end of 2015, A.D.I's liabilities amounted to NIS 45.8 million. Schnapp estimates that by the deal's completion, A.D.I's net bank debt would amount to NIS 60 million and its equity, after distribution of dividends, will be NIS 42.5 million. Under these terms, the current stakeholders will owe the company NIS 32.5 million, against which they have provided a personal guarantee to the company and put their right to receive the preferred dividend as lien.
A.D.I Systems is the exclusive representative in Israel of Japanese firm Kenwood; Harman, which produces premium audio products; Infinity; JBL; RoadRover, which produces designated, multimedia systems compliant with the car's original system; and Eglober, which develops and produces navigation connectors for the car's original screen. The company is an exclusive service provider for some of Israel's leading car importers, including UMI; Carasso Motors; TELCAR; Japanauto; and Mahshirey Tnuaa. It has an agency in China devoted to seeking products and business opportunities and has commercial and working relations with several plants in China.
Schnapp, produces, imports and markets car batteries, and has also entered the tire market in the past few years. In the first quarter of 2016, the company's business results improved - revenue rose 4% compared with the parallel quarter in 2015, totaling NIS 92 million. Gross profit rose 13% to NIS 22.8 million and operating profit rose 22% to NIS 9.4 million. Overall, Schnapp increased its net profit by 40% to NIS 9.4 million. At the end of the quarter, Schnapp's equity was NIS 178 million, about 55% of the consolidated balance sheet. The company's share has jumped 10% following the announcement regarding this deal, reaching an overall increase of over 60% in 2016, with its market cap up to NIS 295 million.
Published by Globes [online], Israel business news - www.globes-online.com - on August 8, 2016
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