Milwaukee-based Brady Corp. paid $173 million to acquire The Code Corp., a Utah-based provider of barcode scanners and software used in track-and-trace applications, the company announced Thursday.
J. Michael Nauman, president and chief executive officer of Brady, said the deal would help accelerate the company’s move into the industrial track-and-trace market.
“We believe the need to digitize everything to track products throughout the manufacturing cycle and to drive efficiency at every possible point of the manufacturing process will increase in prominence as companies realign their supply chains to avoid over reliance on certain geographies and as companies revamp their manufacturing processes to cut down on personnel needs while they find it even more and more difficult to even find workers,” Nauman said.
Code has primarily been focused on health care markets, but has worked on developing offerings for industrial applications. Asked by analysts what had held Code back from expanding into other markets, Nauman said the company was right to focus on a single area.
“They were a privately-held company that was developing excellence first,” he said. “Smart private companies as they grow have a rifle shot approach. I’ve actually seen the opposite create chaos for companies where you have a more shotgun approach and I would say it was wisdom that kept them into the U.S. medical space.”
Nauman added that companies are typically stronger if they can come to dominate a single area first.
“Now this is a transition point for us to help them dominate more spaces,” he said.
Code has around 100 employees, annual revenues anticipated around $50 million for Brady’s upcoming fiscal year and EBITDA of about $10 million after integration costs.
Nauman said paying the multiple of more than 17-times earnings was a direct result of the company’s anticipated growth rate and the potential for revenue synergies with Brady.
He said there is also an opportunity for cost synergies in the combination of the two companies, but said those wouldn’t come from Code’s technical capabilities.
“I would not expect you to see any cost out of that area at all,” he said. “We purchased the organization primarily for their incredible technology that comes from their amazing team.”
The Code deal is the third acquisition Brady made in the current quarter and the second one focused on expanding its technical capabilities. In May, Brady announced the acquisition of 90% of the shares of Nordic ID, a publicly-traded Finnish company that offers a line of RFID readers, scanners and related software, for $13 million. Nauman said the company hopes to acquire the remaining shares this year.
Nauman said Brady does have a lot of integration work to do and expanding its capabilities for track-and-trace technology will take time and research and development investments. He said the key will be developing a software umbrella that works across all of the different offerings.
“Don’t expect to see a dramatic change in organic sales overnight, but we see this as an excellent opportunity to expand Brady’s presence in the faster growing end markets,” Nauman said, suggesting Brady’s growth could go from near the pace of GDP to consistently exceeding GDP.
He also said despite the flurry of deals, Brady still is in the financial position to make additional investments in R&D and other acquisitions. The company went from $322 million in cash on hand as of April 30 to around $75 million in net cash after the deals.