SYDNEY: The Codan Group (ASX:CDA), through a wholly owned subsidiary Codan US Inc., has entered into a binding agreement to acquire 100% of US-based organisation SKT2 LLC dba Kägwerks. Completion is expected to occur in early December 2024.

Kägwerks is a global leader in tactical operator-worn neworking communications technologies that enable connectivity and integrated secure networking in a military environment. Kägwerks has developed a portfolio of proprietary “DOCK” branded hardware and software solutions that provide soldiers with a lightweight network hub integrating disparate equipment into a single compact communications solution.

This technology provides superior situational awareness and strategic advantage in field operations by optimising real-time battlefield intelligence.

Codan’s Tactical Communications radio and wireless communications technologies have application across the core target markets of military, law enforcement, unmanned systems, humanitarian and broadcast. The acquisition of Kägwerks is consistent with Codan’s growth strategy to develop or acquire complementary IP and technologies, in this case the technology being acquired includes a radio agnostic dismounted communications solution.

The acquisition of Kägwerks, with its associated intellectual property and products, positions Tactical Communications as a US soldier communications solutions provider, as it provides immediate credibility and name recognition for Tactical Communications to compete in the US military marketplace, including throughout the US DoD, special operations community, Customs and Border Protection, law enforcement and first responders.

Further, Codan expect considerable sales opportunities will arise from leveraging Codan’s existing global distribution network with an international export version of the DOCKTM products.

The acquisition consideration consists of an upfront cash payment of approximately $33.6 million together with royalty payments for 5 years post-closing. The quantum of the royalty payments will be calculated based upon agreed annual sales target thresholds ranging from 1% to an upper limit of 5%, conditional also on minimum gross margins being achieved.

In the short to medium term, Codan expects the royalty rate to be between 1% to 2%. To hit the upper end, Kägwerks will have to be successful in entering other Program of Records and significantly increase its international product sales.

Royalty payments will be funded from operational cashflow. The upfront acquisition consideration will be funded from Codan’s existing debt facility, which has been increased from $170 million to $200 million.

Paul Sangster, Tactical Communications President and Executive General Manager, said: “We are excited to welcome the Kägwerks team to our Tactical Communications division and its technology suite to our solutions offering. Kägwerks’ intellectual property has been field-tested and accepted into U.S Department of Defence, and its proven pedigree enables us to participate in additional tenders for other Programs.

A key strategic objective is to improve our revenue predictability, and by participating in Programs of Record this will increase predictability by securing stable, long-term multi-year contracts.

The compatibility of DTC’s mesh radio with Kägwerks’ technology is highly complementary for our existing business. Together Tactical Communications and Kägwerks represent a full solutions provider that will increase opportunities across key military and law enforcement markets. The combined business also positions us to leverage international distribution channels, opening new growth and collaboration opportunities in global markets.”

Niko Hughes, Kägwerks President, said: “We are excited to announce that Kägwerks has officially joined the Tactical Communications division of the Codan Group, a global leader in communications technology. By partnering with Codan’s world-class manufacturing capabilities and top-tier suppliers, we are positioned to scale our operations, delivering even greater quality, value, and service to support the needs of our customers.

This relationship empowers Kägwerks to expand our global presence and reach new markets, enhancing our ability to serve customers worldwide. We remain fully committed to providing cutting-edge, radio agnostic dismounted communication solutions.”