The ikegps Group Ltd (ASX: IKE) share price opened 10% higher today on news the company has entered an agreement to acquire assets of Visual Globe LLC.
At the time of writing, the ikeGPS share price is holding today's 10% gain at $1.10.
Image source: Getty Images
So what are the terms of the agreement?
In today's announcement, the company said the Visual Globe assets were expected to deliver revenue targets totalling US$21 million over the period to March 2024 (80% of the total earn-out). It would also retain key people to 31 March 2024 (20% of the total earn-out).
Following ikeGPS's initial payment of US$3.3 million, an additional US$4.99 million of cash and up to $2.1 million in ikeGPS shares will be paid to Visual Globe. The additional payments are based on how the Visual Globe assets perform over the three-year period ending 31 March 2024.
Arrangements like this are referred to as 'earn out payments'. Some investors see these as a nice insurance policy to ensure that the assets acquired perform to expectations.
What type of assets did ikeGPS acquire?
The ikeGPS technology is used to measure and locate utility poles. This information can be then used to improve electrical infrastructure. We spoke more about what ikeGPS technology gets up to back in September.
Through the Visual Globe arrangement, ikeGPS will benefit from additional resources that enable the company to incorporate new tools in its utility pole analysis services. This includes access to drones and smart phone technology. This means that ikeGPS can collect and analyse significantly higher amounts of data, a valuable service to the company's target markets.
On the topic of target markets, Visual Globe is a US-based company with established relationships in the North American market. Will this new exposure lead to opportunities that keep the ikeGPS share price moving in a positive direction?
What lies ahead for the ikeGPS share price?
Commenting on the deal, ikeGPS CEO Glenn Milnes said:
This transaction with Visual Globe allows IKE to expand our addressable markets and adds important advanced bulk data collection & analysis capability.
This enables IKE to continue to disrupt often inefficient or manual work practices across the electric utility and communications markets.
As ikeGPS stretches its legs into new markets, investors have reacted positively so far. We'll learn more about how the deal will work out as the company progresses deeper into the three-year arrangement.
