Acquisition of The Dunamis Group Limited

RNS Number : 7130D

Fulcrum Utility Services Ltd

02 February 2018

 

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART, IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF SUCH JURISDICTION.

2 February 2018

Fulcrum Utility Services Limited

("Fulcrum" or the "Company")

Acquisition of The Dunamis Group Limited for £22.0 million

Placing of £10.4 million
 

Fulcrum announces that it has entered into a conditional agreement to acquire The Dunamis Group Limited ("Dunamis"), a leading electrical infrastructure services company, for a consideration of £22.0 million (the "Acquisition") and has conditionally raised £10.4 million, before expenses, by way of a placing of 17,376,000 new Ordinary Shares at 60 pence per share (the "Placing").

Highlights

·     The Acquisition will significantly expand and extend Fulcrum's capabilities and specialist knowledge in the electrical infrastructure services sector, creating one of the UK's leading gas and electrical infrastructure services groups

·      Dunamis offers a full range of fully accredited services and outstanding technical excellence in relation to the design, construction and ongoing contracted maintenance of power installations and related grid connections

·    In addition to the expansion and extension of Fulcrum's capabilities, there are significant cross-selling opportunities between the gas and electrical connections activities of the two businesses

·     Fulcrum's recently acquired Independent Distribution Network Operator ("IDNO") licence will also enable the Company to adopt, own and operate electrical connections assets installed by the Enlarged Group on an ongoing basis

·      The electrical connections market represents a significant growth opportunity for Fulcrum, and is estimated to be worth in excess of £500 million per annum

·    For the 6 months ended 31 October 2017, Dunamis achieved unaudited revenues of £10.2 million and EBITDA of £1.8 million

·      The Acquisition is expected to be significantly accretive to underlying earnings per share in the first full year following Completion

·      The consideration and associated expenses will be satisfied by the Placing to raise gross proceeds of £10.4 million, the issue of £11.2 million of new Ordinary Shares to the Sellers (the "Consideration Shares") and cash from Fulcrum's existing cash reserves of £1.5 million

·     The Placing comprises the issue of 17,376,000 new Ordinary Shares at a price of 60 pence per share - a premium of approximately 1.4 per cent to the closing middle market price of 59.2 pence per Ordinary Share on 1 February 2018

·    On Completion, Wayne Hayes, Dunamis' Chairman and founder, will join the Board of Fulcrum as a non-executive director

·    Fulcrum also announces the appointment of its Chief Financial Officer Hazel Griffiths to the Board as an executive director with immediate effect

·      Upon Completion, Dunamis shareholders will hold approximately 8.7 per cent of the Enlarged Share Capital

Martin Harrison, Fulcrum's Chief Executive Officer, commented:

"This acquisition meets key strategic goals for Fulcrum - accelerating our future growth through the cross-selling of gas and electrical connection services, increasing electrical asset adoption opportunities and significantly expanding and extending our direct delivery capability within the electrical infrastructure market. This will reinforce our trusted "right first time" service built on technical expertise.

"Under Wayne's leadership, Dunamis has become an established and respected business within the electrical infrastructure market. Together, with the combined expertise of the Enlarged Group, we have a real opportunity to rapidly develop our position within the utility services market.

"I am particularly pleased that Wayne and the senior management will become shareholders in the Enlarged Group and look forward to welcoming Wayne to our Board."

Wayne Hayes, Dunamis' Chairman, commented:

"This transaction marks an exciting milestone in the development of Dunamis and we are delighted to be entering the next stage of our growth strategy under Fulcrum's ownership. I believe that the Enlarged Group will offer a highly attractive proposition to the utility services market focused on outstanding technical expertise and project delivery. Along with my fellow directors, I am delighted in becoming a shareholder in Fulcrum, as well as joining the board of Fulcrum as a non-executive director."

The information contained within this announcement is deemed by the Company to constitute inside information under the Market Abuse Regulation (EU) No. 596/2014.

 

The preceding summary should be read in conjunction with the full text of this announcement.

Enquiries

Fulcrum Utility Services Limited Martin Harrison, Chief Executive Officer Hazel Griffiths, Chief Financial Officer Smith Square Partners LLP (Financial adviser) Jonathan Coddington / Matt Alexander Cenkos Securities plc (Nominated adviser and broker) Max Hartley (Nomad) / Nick Searle (Sales) Camarco (Financial PR advisers) Ginny Pulbrook / Tom Huddart

[phone] [phone] [phone] [phone]

Notice to all investors

Smith Square Partners LLP ("Smith Square"), which is authorised and regulated in the United Kingdom by the Financial Conduct Authority, is acting exclusively as financial adviser to Fulcrum and no-one else in connection with the Acquisition and will not be responsible to anyone other than Fulcrum for providing the protections afforded to clients of Smith Square nor for providing advice in connection with the Acquisition or any matter referred to herein. Neither Smith Square nor any of its subsidiaries, branches or affiliates owes or accepts any duty, 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 Smith Square in connection with this announcement, any statement contained herein, the Acquisition or otherwise.

Cenkos Securities plc ("Cenkos") which is authorised and regulated in the United Kingdom by the Financial Conduct Authority, is acting solely for Fulcrum in relation to the Placing and no-one else and will not be responsible to anyone other than the Fulcrum for providing the protections afforded to clients of Cenkos nor for providing advice in relation to the Placing or any other matter referred to in this announcement.

Forward-looking statements

This announcement contains "forward-looking statements". These forward-looking statements may be identified by the use of forward-looking terminology, including the terms "anticipates", "expects", "may", "will", "could", "would", "shall", "should" or similar expressions or, in each case, their negative or other variations or comparable terminology, or by discussions of strategy, plans, objectives, goals, future events or intentions.

These forward-looking statements include all matters that are not historical facts and include statements regarding the intentions, beliefs or current expectations of the Directors concerning, among other things, Fulcrum's results of operations, financial condition, prospects, growth, strategies and the industries in which Fulcrum operates.

Forward-looking statements speak only as of the date of such statements and, except as required by applicable law, Fulcrum undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. The information contained in this announcement is subject to change without notice and Fulcrum, Smith Square and Cenkos do not assume any responsibility or obligation to update publicly or review any of the forward-looking statements contained herein, save as required by law, regulation or the AIM Rules.

Fulcrum to acquire The Dunamis Group Limited for £22.0 million, creating one of the UK's leading gas and electrical infrastructure services groups

1.    Introduction

Fulcrum announces that it has entered into a conditional agreement to acquire The Dunamis Group Limited, a leading electrical infrastructure services company, for £22.0 million (on a cash-free, debt-free basis). The combination of Fulcrum and Dunamis will create one of the UK's leading gas and electrical infrastructure services groups. The Acquisition is consistent with Fulcrum's strategic aim of being the UK's most trusted utility services partner.

The consideration and associated expenses will be satisfied by the Placing to raise gross proceeds of £10.4 million, the issue of £11.2 million of new Ordinary Shares to the Sellers (the "Consideration Shares") and cash from Fulcrum's existing cash reserves of £1.5 million. In addition, as part of the Acquisition, Fulcrum will also acquire Dunamis' free net cash balance of £2.2 million; this will be financed from Fulcrum's existing cash reserves.

The Placing comprises 17,376,000 new Ordinary Shares, which are to be placed at a price of 60 pence per share. The Consideration Shares comprise 18,246,732 new Ordinary Shares.

Completion of the Acquisition is conditional only on the Company being in receipt of Placing proceeds of not less than £9.8 million. Completion is expected to occur on or about 5 February 2018.

2.    Information on Dunamis

Founded in 2012, Dunamis is one of the UK's leading independent electrical connections providers. The company currently has 48 employees and is headquartered in Bury St Edmunds. Dunamis' core activities cover a range of electrical infrastructure services including the design of connections to the Distribution Network Operator's ("DNO") technical standard, accredited construction and installation up to 132kV and a comprehensive range of maintenance and operational services. The business has a 100 per cent track record of completing connections on schedule over its history.

Dunamis operates across its four wholly-owned subsidiaries:

·     Matrix Networks (Renewables) Limited ("MNR") provides the installation and project management of renewable related connections up to and including 132kV, such as connecting battery storage facilities, Short Term Operating Reserve ("STOR") facilities, wind farms, solar farms and anaerobic digestion plants to the grid;

·     Matrix Networks (Eastern) Limited ("MNE") provides the installation and project management of new grid connections, up to and including 132kV, in the UK Power Networks region (East of England). These connections typically relate to new commercial and industrial developments that require an electricity supply;

·     Matrix Professional Services Limited ("MPS") offers fully-accredited design work to external clients as well as in-house to MNR and MNE. Each tailored design covers the civil, electrical and earthing requirements of a project; and

·     Maintech Power Services Limited ("Maintech") builds, project manages and subsequently maintains private networks, including the undertaking of any remedial works. The business provides operational and maintenance services to approximately 200 sites across the UK.

Dunamis' specialist capabilities in electrical connections also mean it is well positioned to capitalise on opportunities in relation to the anticipated growth of electric vehicle charging stations and infrastructure across the UK.

For the 6 months ended 31 October 2017, Dunamis achieved unaudited revenues of £10.2 million and EBITDA of £1.8 million. Approximately 81 per cent of this revenue (£8.3 million) was generated by Dunamis' grid connections activities carried out by MNR and MNE, 18 per cent (£1.8 million) by Maintech (of which the majority of revenue is contracted and/or quasi-recurring in nature) and the balance by MPS. For the 6 months ended 31 October 2017, Dunamis achieved a gross margin of approximately 26 per cent.

For the 12 months ended 31 October 2017, Dunamis achieved unaudited revenues of £16.6 million and EBITDA of £2.6 million. For the year ended April 2017, Dunamis achieved audited revenues of £10.1m with EBITDA of £1.2 million. For the year ended April 2016, Dunamis achieved audited revenues of £19.1 million and EBITDA of £4.1 million. As at October 2017, Dunamis had net assets of approximately £14.7 million.

In the current financial year, Dunamis' focus on battery storage facilities has given rise to a key customer (across a number of separate projects) representing approximately 40 per cent of Dunamis' annualised revenues.

3.    Information on Fulcrum

Fulcrum is a multi-utility infrastructure and services provider based in Sheffield. The Company's primary business is the provision of utility infrastructure services to the residential, commercial and industrial markets throughout the mainland UK. These range from the design, installation or alteration of utility services for single site properties to large complex multi-site projects. Through its subsidiary, Fulcrum Pipelines Limited, Fulcrum is also licensed as an Independent Gas Transporter ("IGT"), allowing the Company to own and operate gas pipelines that connect properties to the main UK gas networks, and as a meter asset manager ("MAM").

In November 2017, Fulcrum Electricity Assets Limited, an operating subsidiary of the Company, announced that it had been granted an Independent Distribution Network Operator ("IDNO") licence by Ofgem. The industry qualification processes, which will formally enable the Company to adopt and own electrical assets, are progressing well with completion expected in Q1 2018. The granting of the IDNO licence is an important strategic step for the Company, allowing it to broaden and increase its long‐term income stream through the adoption of electricity assets in addition to gas assets.

In the financial year ended 31 March 2017, Fulcrum generated underlying EBITDA of £7.3 million (FY16: £5.3 million) on revenue of £37.7 million (FY16: £36.1 million). In Fulcrum's interim results for the 6 months ended 30 September 2017, the Company reported underlying EBITDA of £4.0 million (H1 FY16: £3.5 million), on revenue of £19.6 million (H1 FY16: £18.1 million).

4.    Strategic rationale for the Acquisition

The Board believes the electrical infrastructure market is strategically important for Fulcrum, particularly given the increasing desire of customers to seek gas and electrical installation services from one provider and also Fulcrum's ability to adopt and own electrical connections under an IDNO licence (in the same way it adopts gas connections under its IGT licence) and build a valuable portfolio of stable, secure, low risk and long term income-generating assets.

Dunamis offers a full range of services and outstanding technical expertise in relation to the design, construction and ongoing contractual maintenance of power installations and related grid connections, including full accreditation up to and including 132kV connections. The Acquisition will significantly expand and extend Fulcrum's capabilities and specialist knowledge in the electrical infrastructure services sector.

The Directors believe that the acquisition of Dunamis represents a compelling strategic opportunity for Fulcrum, allowing the Company to extend and expand its services to create one of the UK's leading multi-utility services groups. The Acquisition will significantly strengthen Fulcrum's position in the approximately £500 million UK electrical connections market, and substantially expand and extend the Company's electrical utility services offering. The electrical connections market is of strategic importance to the Company as it seeks to provide the most trusted end-to-end multi-utility service in the industry and continues to drive growth in multi-utility contract wins.

The Acquisition offers substantial opportunities for combined sales activity between the gas and electrical divisions of the Enlarged Group. A proportion of the electrical connections projects undertaken by Dunamis require both gas powered grid support and electrical installations or storage facilities (for example, where ancillary gas generators are attached to large renewable energy assets to regulate output). Similarly, attractive cross-selling opportunities exist between the commercial and industrial connections activities of Fulcrum and Dunamis.

Dunamis also undertakes a significant amount of work in relation to renewable energy assets such as battery installations and Short Term Operating Reserve ("STOR") facilities as well as solar and wind farms and other renewable energy sites. The rapid development of battery technology is leading to a significant increase in the installation of battery storage units at renewable generation sites (for example, to address the climatic limitations of solar and wind generation). The National Grid forecast an annualised increase in the capacity of the energy storage market of 11.4 per cent between 2016 and 2025 even under its "Slow Progression" scenario. Further, while it is expected that additional capacity will continue to be built in solar and wind markets (for example, under the same "Slow Progression" scenario, the National Grid forecast a 5.2 per cent annualised increase in solar capacity and 8.2 per cent annualised increase in wind capacity over the period 2016-2025), there is also a significant amount of work required in the market to update and upgrade existing solar/wind infrastructure. This includes the requirement for the replacement of defective or inefficient components, which demands specialist electrical infrastructure expertise.

Separately, the anticipated rapid development and adoption of electric vehicles is likely to require a fundamental change to the UK's electricity infrastructure as the demand for charging infrastructure increases throughout the UK. Rapid charging technology in particular requires high voltage / current and requires a high degree of specialist skills to install, own and operate. The Enlarged Group will be well positioned to capitalise on this exciting market development.

Through its subsidiary, Fulcrum Electrical Assets Limited, Fulcrum was granted an IDNO licence in November 2017 to adopt, own and operate electrical assets. Following receipt of the IDNO licence, Fulcrum is now embarking on a programme to identify and secure electrical assets from independent connection services providers across the UK, which it can then adopt and own from Q1 2018. Going forward, the IDNO licence will also enable the Company to adopt and own the electrical assets installed by the electrical connections activities of the Enlarged Group.

5.    Key terms of the Acquisition

Under the terms of the Sale and Purchase Agreement (the "SPA") between Fulcrum and the Sellers, Fulcrum will acquire the entire issued share capital of Dunamis for a purchase price of £22.0 million (on a cash-free, debt-free basis).

The Acquisition is conditional only upon the Company being in receipt of Placing proceeds of not less than £9.8 million. The SPA includes customary warranties and indemnities from the Sellers in favour of Fulcrum.

The consideration and associated expenses will be satisfied by the Placing to raise gross proceeds of £10.4 million, the issue of £11.2 million of Consideration Shares to the Sellers and cash from Fulcrum's existing cash reserves of £1.5 million. The Consideration Shares are subject to a lock in for a period of 4 years following completion of the Acquisition with the Sellers being entitled to sell one quarter of their initial Fulcrum shareholdings on each anniversary of Completion. The lock in arrangements are subject to customary exceptions and also enable the Sellers to dispose of Consideration Shares in certain other circumstances (for example to raise funds required to satisfy a claim under the SPA over and above their cash consideration). Wayne Hayes, Dunamis' Chairman, will receive 4,883,935 Consideration Shares under the agreed terms of the Acquisition.

The number of Consideration Shares to be issued to the Sellers has been calculated on the basis of a price per Fulcrum share of 61.6 pence, being the average closing middle market price per Ordinary Share over the 11 dealing days preceding this announcement.

Following the issue of the Consideration Shares, Dunamis shareholders will hold approximately
8.7 per cent of the Enlarged Share Capital of Fulcrum.

6.    Financing for the Acquisition

The cash consideration of £10.8 million will be financed by a combination of existing cash on the balance sheet (£0.9 million) and the net proceeds of the Placing (£9.8 million).

The Placing

The Placing Shares have been conditionally placed by Cenkos Securities, as agent for Fulcrum, with institutional investors in accordance with the terms of the Placing Agreement. The Placing is conditional, among other things, on Admission.

Subject to Admission, Fulcrum will allot 17,376,000 Placing Shares, which will raise approximately £10.4 million before expenses of the Placing (which are estimated to be £0.6 million (excluding VAT) in total). Fulcrum intends to use the net proceeds of the Placing to fund part of the cash consideration of £10.8 million payable under the terms of the SPA.

The Placing Shares will represent approximately 9.9 per cent of Fulcrum's current issued share capital and approximately 8.3 per cent of the Enlarged Share Capital immediately following Admission of the Placing Shares and the Consideration Shares. The Placing Shares and Consideration Shares will, following Admission, rank in full for all dividends and distributions declared, made or paid in respect of the issued ordinary share capital of Fulcrum and otherwise rank pari passu in all other respects with the then existing Ordinary Shares. The Placing Price represents a 1.4 per cent premium to the closing mid-market price of 59.2 pence per Ordinary Share on 1 February 2018 (being the latest practicable date prior to the date of this announcement).

Application has been made to the London Stock Exchange plc for the Placing Shares and the Consideration Shares to be admitted to trading on AIM. It is expected that Admission of the Placing Shares will become effective and that dealings in the Placing Shares will commence on AIM on 5 February 2018. It is expected that, subject to Completion, Admission of the Consideration Shares will become effective and that dealings in the Consideration Shares will commence on AIM on 6 February 2018.

The Enlarged Share Capital of the Company is expected to be 210,544,729 Ordinary Shares.

7.    Financial effects of the Acquisition

The Acquisition and associated expenses will be satisfied by the Placing to raise gross proceeds of approximately £10.4 million, the issue of £11.2 million of Consideration Shares to the Sellers and cash from Fulcrum's existing cash reserves of £1.5 million.

The Acquisition is expected to be significantly accretive to underlying earnings per share in the first full year following Completion. This statement does not constitute a profit forecast. As part of the Acquisition, Fulcrum will also acquire Dunamis' free net cash balance of £2.2 million; this will be financed from Fulcrum's existing cash reserves (in addition to the amounts referred to above).

8.    Board, management and employees

On Completion, Wayne Hayes, Dunamis' Chairman, will be appointed to the Board of Directors of Fulcrum as a non-executive director.

The Board of Fulcrum is also pleased to announce the appointment of the Company's Chief Financial Officer, Hazel Griffiths (aged 36), as an executive director of the Board. Hazel Griffiths holds no other directorships. Ms. Griffiths currently holds 39,311 Ordinary Shares in Fulcrum.

Save as disclosed above, there is no further information required to be disclosed pursuant to Schedule 2, paragraph (g) of the AIM Rules in relation to Hazel Griffiths. Further information will be provided in relation to Wayne Hayes following his appointment on Completion.

9.    Strategy of the Enlarged Group

The strategy of the Enlarged Group will remain consistent with Fulcrum's current strategy of sustainable, balanced growth in the utility services market. The Board will seek to achieve this through the delivery of utility contracts across the UK and growing its asset base while maintaining customer service excellence.

Following the Acquisition, the Enlarged Group will also be strategically focussed on expanding and developing its multi-utility infrastructure offering, realising potential cross-selling opportunities between gas and electrical work, using its expanded technical know-how and accreditation in delivering complex electrical installation projects, increasing its exposure to higher-growth market segments such as battery storage and electric vehicle charging, and developing a portfolio of profitable income-generating electrical assets.

10.  Trading update

The Company announced its Interim Results for the 6 month period ended 31 October 2017 on 5 December 2017. Since that date, the Company has traded in line with management's expectations.

Placing and Acquisition Statistics

Number of Ordinary Shares in issue immediately prior to the date of this announcement	174,921,997
Placing Price	60 pence
Number of Placing Shares	17,376,000
Number of Consideration Shares	18,246,732
Number of Ordinary Shares in issue immediately following Admission of the Placing Shares	192,297,997
Number of Ordinary Shares in issue immediately following Admission of the Consideration Shares	210,544,729
Placing Shares as a percentage of the Enlarged Share Capital	8.3 per cent
Consideration Shares as a percentage of the Enlarged Share Capital	8.7 per cent
Gross proceeds of the Placing	Approximately £10.4 million
Estimated net proceeds of the Placing	Approximately £9.8 million

Definitions

The following words and expressions shall have the following meanings in this announcement unless the context otherwise requires:

"Acquisition"	the proposed acquisition by Fulcrum of Dunamis
"Admission"	the admission to trading on AIM of the Placing Shares and/or the Consideration Shares (as the context required) becoming effective
"AIM"	the AIM market of the London Stock Exchange
"AIM Rules"	the rules for AIM companies as published by the London Stock Exchange from time to time
"Board of Directors" or "Directors"	the directors of Fulcrum
"Cenkos Securities"	Cenkos Securities plc
"Completion"	completion of the Acquisition
"Consideration Shares"	18,246,732 new Ordinary Shares to be issued to the Sellers pursuant to the SPA
"DNO"	Distribution Network Operator
"Dunamis"	The Dunamis Group Limited
"EBITDA"	earnings before interest, tax, depreciation and amortisation
"Enlarged Group"	Fulcrum and its subsidiary undertakings, including Dunamis, following Completion
"Enlarged Share Capital"	the issued ordinary share capital of Fulcrum immediately following the issue of the Consideration Shares (and therefore including the Placing Shares), but assuming no further Ordinary Shares are issued after the date of this announcement
"Fulcrum" or the "Company"	Fulcrum Utility Services Limited
"IDNO"	Independent Distribution Network Operator
"IGT"	Independent Gas Transporter
"MAM"	Meter Asset Manager
"Maintech"	Maintech Power Services Limited
"MNE"	Matrix Networks (Eastern) Limited
"MNR"	Matrix Networks (Renewables) Limited
"MPS"	Maintech Professional Services Limited
"Ofgem"	The Office of Gas and Electricity Markets
"Ordinary Shares"	ordinary shares of 0.1 pence each in the share capital of Fulcrum
"Placing"	the placing of the Placing Shares pursuant to the Placing Agreement
"Placing Agreement"	the conditional placing agreement entered into between Fulcrum and Cenkos Securities on 2 February 2018
"Placing Price"	60 pence per Placing Share
"Placing Shares"	17,376,000 new Ordinary Shares
"Sellers"	Wayne Hayes, Christopher Mann, Michael Long, Stephen Macbeth, Richard Jupp, Daniel Gray, Keith Alcock and Darryl Wright
"STOR"	Short Term Operating Reserve
"SPA"	the conditional sale and purchase agreement entered into between the Sellers and Fulcrum setting out the terms and conditions of the Acquisition
"UK" or "United Kingdom"	the United Kingdom of Great Britain and Northern Ireland

 

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