COLLAGEN Solutions is planning to raise £6 million through a share placing to help fund the acquisition of a business which will help it push into Asia.
The AIM-listed company, which has its main manufacturing base in Glasgow, has proposed a cash and shares takeover of Southern Lights Biomaterials, based in Napier on the north island of New Zealand.
Collagen Solutions, which makes collagen products for a range of diagnostic and clinical uses as well as for medical devices, said the deal is complementary to its existing activities.
Southern Lights reported revenue of almost £1.27 million in its most recent financial year, covering the 12 months to March 31, with its earnings before interest, tax, depreciation and amortisation coming in at £273,911.
Its largest customer, based in South Korea, represented 63 per cent of total revenue in that year and it has an agreement for the supply of collagen with the client running through to 2018.
Stewart White, the Glasgow based chief executive of Collagen Solutions, said: "The collagen supply world is fairly specialist.
"There are not hundreds of companies doing it so we have known of Southern Lights for a while.
"They are a great business, profitable and have an exciting pipeline as well as an existing customer list that is very solid and interesting. There is no cannibalisation of business or customers.
"There are lots of benefits to this transaction. One of which is longitudinal access to the Asian market where Southern Lights are very active and we are not."
Collagen Solutions will make an initial £4m payment when the transaction completes made up around £2.5m in cash and £1.5m of shares. A further £2m in cash could be paid if Southern Lights reaches a certain level of sales over the next few years.
Geoffrey Bennett, from Southern Lights, will also join the board of Collagen Solutions as its chief business officer.
The deal will see Collagen Solutions add nine staff in New Zealand on top of the nine it employs in Glasgow and the three at its research and development lab in San Jose, California.
In interim results covering the six months to September 30 Collagen Solutions posted a pre-tax loss of £560,831 while revenue was £143,213.
It had not recorded any revenue in same period of 2013 and booked a £62,631 loss.
Mr White said: "The rest of the year is looking very attractive. We are looking to secure contracts and communicate that to the market in due course."
Shares closed up 0.5p, or 10.7 per cent, at 7.75p.
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