Proposed Combination of Braemar Technical Services

RNS Number : 7467Y

Braemar Shipping Services PLC

13 May 2019

 

 

BRAEMAR SHIPPING SERVICES PLC

("Braemar", the "Company" or the "Group")

13 May 2019

Proposed Combination of Braemar Technical Services (excluding Braemar Engineering) and Aqualis ASA

Braemar Shipping Services plc (LSE:BMS), a leading international provider of broking, financial, consultancy, technical and logistics services to the shipping, marine, energy, offshore and insurance industries, is pleased to announce the proposed disposal of three business lines within the Braemar Technical Services division (Offshore, Adjusting and Marine) ("BTS") to Aqualis ASA ("Aqualis") in exchange for a significant equity stake in the combined group (the "Combination").

Aqualis is a leading provider of consultancy and engineering services to the offshore oil & gas and offshore wind sectors, and is listed on the Oslo Stock Exchange (OSE:AQUA).  The combined business will be led by the Aqualis management team, as enhanced by the inclusion of Grant Smith to lead Insurance Services.

The consideration payable to Braemar will be in approximately 14.9 million new Aqualis ordinary shares, initially representing 26% of the Enlarged Aqualis Share Capital¹, and approximately 6.0 million performance-based warrants, to potentially take Braemar's shareholding to 33% of the Diluted Aqualis Share Capital².  The Combination will be subject to approval by Aqualis shareholders.

Combination highlights

·     Proposed combination of three business lines of the Braemar Technical Services division with Aqualis, creating one of the largest independent global marine consultancies, by staff numbers, focused on servicing the international insurance markets

·     Aqualis is a leading provider of consultancy and engineering services to the offshore oil & gas and offshore wind sectors and is listed on the Oslo Stock Exchange

·     Braemar will become the largest shareholder in the enlarged group, initially holding 26% of the Enlarged Aqualis Share Capital, and will also receive performance-based warrants to potentially take its holding to up to 33% of the Diluted Aqualis Share Capital

·     Aqualis will be rebranded and renamed as AqualisBraemar ASA - the enlarged group, "AqualisBraemar", will be entitled to use the "Braemar" brand pursuant to a licence agreement, which is anticipated to remain in place for at least three years from completion of the Combination

·     Braemar will appoint one member to the Board of AqualisBraemar, which is to be James Kidwell, Chief Executive Officer of Braemar

·     The Engineering business line will be retained by Braemar due to its joint business with the Braemar Shipbroking division in LNG, and will initially be reported independently of Braemar's other divisions

·     Aqualis intends to raise additional finance of up to approximately US$6m (before costs) for the enlarged Aqualis group by way of an equity fundraising, which will comprise approximately US$4m through an underwritten rights issue for current Aqualis shareholders, and approximately US$2m through a private placement of Aqualis shares to Braemar.  The private placement will allow Braemar to maintain its total potential holding at 33% of the Diluted Aqualis Share Capital, adjusted for the impact of the fundraising.  Braemar will subscribe for Aqualis shares in the private placement at the same price per share as set for the rights issue.  The Combination is not subject to completion of this additional fundraising

·     The Combination follows the Board's consideration of strategic options for the Technical division.  The Technical division has continued to face tough market conditions, and despite the wide ranging restructuring programme undertaken in 2016, the financial performance of the division has been disappointing in 2018 and in the first quarter of 2019

·     The Combination will be on the basis of BTS having net cash of US$0.9m, calculated on the basis of a locked box balance sheet as of 28 February 2019.  The consideration will be subject to an adjustment payable in cash to the extent that the cash in excess of this amount has not been extracted from BTS at completion of the Combination

Comments on the Combination of BTS and Aqualis

James Kidwell, Chief Executive Officer of Braemar said:

"We are delighted to be announcing the sale of substantially all of Braemar's Technical division to Aqualis ASA in exchange for an equity stake in the enlarged group.  Our respective businesses fit well together and the combination will create a market leading position in Offshore, Marine, Adjusting and Renewables services with global coverage which will enable the stronger combined business to unlock significant revenue and cost synergies. 

We strongly believe that the enlarged Aqualis group, which will retain the Braemar name and trade as AqualisBraemar, will bring numerous benefits and opportunities to both clients and employees going forward.

As the largest shareholder in AqualisBraemar, we look forward to developing the business with the management team, which has an excellent track record of growing businesses in these sectors."

David Wells, Chief Executive Officer of Aqualis said:

"The combination of Aqualis and BTS is an excellent fit of two very complementary businesses.  It will allow us to extend our service lines, providing clients with an even more complete service offering, including a broader suite of services as well as increased manpower and geographical footprint.  This will enable us to provide faster and more cost-efficient operational support worldwide.  We look forward to joining forces with BTS to strengthen our client offering within the adjusting, marine, offshore and renewables sectors."

Consideration payable to Braemar

·     Total consideration for 100% of the shares in Braemar Technical Services Holdings Limited (the holding company for BTS) in the form of 14,865,621 new Aqualis ordinary shares with a value of approximately £5.5m³, and performance-based warrants over 5,973,556 Aqualis ordinary shares, totaling 33% of the Diluted Aqualis Share Capital.  The consideration will be subject to an adjustment payable in cash to the extent that the cash in excess of the US$0.9m locked box balance sheet amount has not been extracted from BTS at completion

·     Initial consideration shares representing 26% of the Enlarged Aqualis Share Capital, subject to a two-year lock up period, which will be issued shortly after completion of the Combination

·     Two equal tranches of performance-based warrants to potentially take Braemar's holding to up to 33% of the Diluted Aqualis Share Capital, with performance measured over a two-year period from 1 April 2019:

o  Tranche 1: based on the enlarged Aqualis' average annual, adjusted EBITDA⁴ over two years with an average EBITDA performance floor of US$4.5m and a ceiling of US$7.5m for proportional nil / maximum vesting

o  Tranche 2: based on average annual, aggregate, adjusted gross profit⁵ for the former Braemar Adjusting and Marine businesses over two years, with a performance floor of US$12.6m and a ceiling of US$14.3m for proportional nil / maximum vesting

·     The warrants will be exercisable in a two-year period after the date of vesting, which will follow the determination of the EBITDA and gross profit for the two-year measurement period.  The exercise will be subject to payment of a subscription price of NOK0.1 per Aqualis ordinary share, being the nominal value per Aqualis ordinary share

Combination benefits

·     Allows Braemar to focus on its core, profitable activities of Shipbroking, Financial Advisory and Logistics

·     The combined business will be led by the Aqualis management team, as enhanced by the inclusion of Grant Smith to lead Insurance Services.  The Aqualis management team have a track record of driving profitable growth and successfully refocusing a business on new geographies and customers, with their former business Noble Denton merging with DNV GL

·     Braemar will benefit from any revenue and cost synergies realised from the combination as a result of its stake in the enlarged Aqualis

·     AqualisBraemar will have market leading positions in all four business segments: marine, adjusting, offshore oil and gas, and offshore wind, and is expected to benefit from increased scale relative to each of the individual entities, offering a stronger, global partner for clients

·     AqualisBraemar and Braemar expect to refer business to each other and work together on some mandates and will enter into a preferred supplier agreement for an initial period of two years

Financial effects of the Combination

·     The Combination will result in loss-making businesses (BTS unaudited operating loss of £1.7m in the financial year ended 28 February 2019) being replaced with a significant stake in an enlarged group with a strong management team that has a demonstrated ability to grow and realise value in technical services businesses.  Aqualis' operating profit for the financial year ended December 2018 was US$2.7m

·     Following completion of the Combination, Braemar will account for its investment in AqualisBraemar as an associate on an equity accounting basis.  The Combination will be accounted for as a disposal of BTS, with a related unaudited accounting loss on disposal of £19.7m treated as part of discontinued operations and which will not form part of ongoing underlying profit

·     The Combination should facilitate more efficient capital allocation by Braemar through its more focused divisional structure and removing the funding requirement for BTS working capital

·     Aqualis had a market capitalisation of NOK 176.8m (approximately £15.5m) based on the mid market closing price as of 10 May 2019, the last trading date before the date of this announcement

Timetable to completion

Aqualis will require shareholder approval in order to effect the Combination.  This approval will be sought at a General Meeting to be held on or around 11 June 2019.

Completion of the Combination is expected to take place in June 2019.

Braemar will now announce its results for the 12 months to 28 February 2019 on 20 May 2019, four business days later than originally planned to allow for management commitments connected with this transaction.  Following this, the Braemar management team is meeting with Braemar shareholders, as organised by its advisors.  Please contact Buchanan, contact details below, for further details.

This announcement contains inside information as defined under the Market Abuse Regulation (EU) No. 596/2014.

For further information contact:

Braemar Shipping Services
James Kidwell, Chief Executive	Tel [phone]
Nick Stone, Finance Director
Peter Mason, Company Secretary
PricewaterhouseCoopers LLP Financial Adviser to Braemar Coolin Desai Jon Raggett	Tel [phone]
Shore Capital
Robert Finlay / Antonio Bossi / Henry Willcocks	Tel [phone]
Buchanan
Charles Ryland / Stephanie Watson / Matilda Abraham	Tel [phone]

About Braemar Shipping Services plc

Braemar Shipping Services plc is a leading international provider of knowledge and skill-based services to the shipping, marine, energy, offshore and insurance industries.  Founded in 1972, Braemar employs approximately 750 people in more than 60 locations (although this will fall by approximately 250 people and 30 locations following the disposal of the Technical business units) worldwide across its Shipbroking, Financial, Logistics and Engineering divisions.

Braemar joined the Official List of the London Stock Exchange in November 1997 and trades under the symbol BMS.

For more information, visit www.braemar.com

About Aqualis

·     Aqualis provides consultancy and engineering services to the offshore oil & gas and offshore wind sectors through two leading brands: Aqualis Offshore (Offshore Oil & Gas) - marine consultancy and engineering services; and Offshore Wind Consultants (Renewables) - engineering and project management consultancy

·     Strong global presence, particularly in the Middle East, with a global office network consisting of 19 offices in 15 countries

·     Clients include owners of offshore installations and vessels, utilities, EPC contractors, financial institutions and insurance companies

·     187 employees (incl. subcontractors) as at 31 March 2019

·     Growing strongly with a 3 year revenue compound annual growth rate to December 2018 of 15%

·     Aqualis' operating profit for the financial year ended December 2018 was US$2.7m

·     Listed on Oslo Stock Exchange in 2014

Further information on BTS

·     BTS specialises in the provision of technical consulting services to the Energy, Offshore and Marine Insurance industries

·     The Braemar Technical Services division operates through four sub-divisions: Marine, Offshore, Adjusting and Engineering.  Engineering will not form part of the Combination as a result of its continuing joint business with the Braemar Shipbroking division in LNG

·     BTS is a leader in its 27 global markets, benefiting from its heritage and the strength of the Braemar name

·     The division has experienced challenging conditions in recent years, leading to an extensive restructure in 2016

·     BTS made an unaudited operating loss of £1.7m in the financial year ended 28 February 2019

·     Unaudited gross assets for BTS were £24.4m as at 28 February 2019

·     Management believes that BTS is well-placed to benefit from increased volumes given its operational leverage, with further benefit to be gained from additional restructuring activities

The AqualisBraemar management team

·     David Wells, CEO - more than 35 years of experience in the offshore consultancy sector, with a particular focus on offshore operations, MWS and marine consultancy.  Ex-Noble Denton

·     Kim Boman, CFO - more than 20 years of experience in corporate finance, accounting / auditing, strategy consulting and investor relations, with particular experience within the offshore, shipping and renewable energy industry.  Ex-REC Solar, DnB, First Securities and PwC

·     Reuben Segal, Group COO and Offshore COO - more than 20 years of experience in the offshore and shipping sectors, covering both engineering design and ship surveying.  Extensive global business development experience with focus on design and construction of offshore oil and gas assets.  Ex-Noble Denton

·     Grant Smith, Insurance Services COO - more than 25 years of experience adjusting large complex losses in the Energy / Power and Marine sectors.  Currently Global Managing Director, Braemar Technical Services

Notes

¹Enlarged Aqualis Share Capital: the current Aqualis ordinary share capital accounting for dilution caused by the issue of the new Aqualis ordinary shares to Braemar, and before the impact of the warrants and the planned Aqualis equity fundraising and employee share incentive schemes

²Diluted Aqualis Share Capital: the current Aqualis ordinary share capital accounting for dilution caused by the issue of the new Aqualis ordinary shares to Braemar and full vesting and exercise of the warrants, and before the impact of the planned Aqualis equity fundraising and employee share incentive schemes

³Based on the closing Aqualis share price as at 10 May 2019, and the GBP/NOK rate of 0.0879183 as at 10 May 2019

⁴Adjusted EBITDA: earnings before interest, foreign exchange gains or losses, tax, depreciation and amortization for the consolidated combined business of Aqualis and BTS

⁵Adjusted gross profit: gross profit, being revenue less cost of sales and direct costs, for the Adjusting and Marine businesses of BTS

PricewaterhouseCoopers LLP ("PwC"), which is authorised and regulated in the United Kingdom by the Financial Conduct Authority ("FCA"), is acting exclusively for Braemar in relation to the Combination and for no-one else in connection with the Combination or the matters referred to in this announcement and will not be responsible to any person other than Braemar for providing the protections afforded to clients of PwC, nor for providing advice in relation to the Combination nor to the matters referred to herein. Neither PwC nor any of its members owes, accepts or assumes any duty of care, liability or responsibility whatsoever (whether direct or indirect, whether in contract, in tort, under statute or otherwise) to any person who is not a client of PwC in connection with the matters referred to in this announcement, or otherwise.

Shore Capital Limited ("Shore Capital"), which is authorised and regulated in the United Kingdom by the FCA, is acting exclusively for Braemar in relation to the Combination and for no-one else in connection with the Combination or the matters referred to in this announcement and will not be responsible to any person other than Braemar for providing the protections afforded to clients of Shore Capital, nor for providing advice in relation to the Combination nor to the matters referred to herein. Neither Shore Capital nor any of its members owes, accepts or assumes any duty of care, liability or responsibility whatsoever (whether direct or indirect, whether in contract, in tort, under statute or otherwise) to any person who is not a client of Shore Capital in connection with the matters referred to in this announcement, or otherwise.

 

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