Dmatek in talks with LMS

Electronic monitoring technology provider Dmatek said it was in talks regarding a possible takeover offer from AIM-listed investment company LMS Capital. However, the company said: “There can be no assurance that any offer or transaction will eventually be made.”

LMS also confirmed that it was in discussions with Dmatek. Rothschild is advising LMS with JPMorgan Cazenove acting at nominated adviser to the AIM company.

Shares in the Israeli company rose by 16.5p, or 14%, to 134p on the news, valuing the company at £30m (US$52m).

Dmatek has just won two major contracts with US states to track 4,000 convicts that should provide up to US$26m in total revenues over the next five years.

First-half sales rose 29% this year to US$26.3m. At the end of June the group, which made interim pre-tax profits US$3.4m, had net cash of US$12.6m.

Earlier this year, LMS sold major investment Energy Cranes to Close Brothers Private Equity for £142m. That gave LMS a return of 4.5 times its initial investment made in 2003 in the producer of cranes for use on offshore oilrigs and net proceeds of £83m.

Managing director Martin Pexton said in an interview with Acquisitions Monthly that he now wanted to make fewer but larger investments. “The sale of Energy Cranes has given us lots of cash. The timing has been quite good,” he said.

“We want to back more management buyouts in the lower mid-market with an equity cheque of between £10m and £25m,” he added. “There will be fewer, but larger, investment positions within the portfolio with more direct investments.”

LMS is different from many mid market private equity investors in that it manages no funds for third parties, with all its investments held on the AIM company’s balance sheet.

Chief executive Robert Rayne and his family are the major shareholders in the company, which at the end of June had a net asset value of £308m.