Pre-close and acquisition

Inspace Plc
24 July 2006


Press Release                                                       24 July 2006



                                  Inspace plc


                          ('Inspace' or 'the Company')


                              Pre-close statement


                             Acquisition of Widacre


           Application for Admission to trading on AIM of 13,201,320

                              Consideration Shares


                    Notice of Extraordinary General Meeting


Inspace plc (AIM:INSP), the property based support services business that is now
one of the UK's leading repair and maintenance service providers, will announce
its interim results for the six months ended 30 June 2006 on Tuesday 26
September 2006.  An analyst briefing will be held at 9:00 a.m. that same morning
at the London Stock Exchange, 10 Paternoster Square, London EC4M 7LS.


The Directors are pleased to confirm that the overall trading position is in
line with consensus forecasts for the first half of 2006.  This has been
achieved during a period when the Company has seen a lag in new social housing
contract awards as well as an under spend on a Decent Homes contract.  A
combination of these factors is likely to create some pressure on the full year
figures and the board is taking a more conservative outlook for new contract
orders for future years.  Notwithstanding this, after a relatively quiet
tendering period over the last six months, the Company has seen a higher level
of activity more recently.  The pipeline of opportunities is some £2.5 billion.


The Company also announces today that it proposes to acquire the entire issued
share capital of Widacre, the owner of two complementary businesses: Willmott
Dixon Housing, one of the largest social housing providers in the United
Kingdom; and Widacre Homes, an affordable housing provider.  The Company has
agreed to pay an equity value of £64.535 million which is to be satisfied by the
allotment and issue of the 13,201,320 Consideration Shares at 151.5p per share
and by £44.535 million in cash.  The Acquisition is conditional upon, inter
alia, the approval of Shareholders, which is to be sought at an Extraordinary
General Meeting to be convened for 12 noon on 22 August 2006.


Acquisition highlights

  •       Acquiring Willmott Dixon's social housing interests: Willmott Dixon 
          Housing and Widacre Homes

  •       Headline price of £64.5 million

  •       Funded by £44.5 million cash and £20 million equity

  •       Expected growth in sales, earnings and EPS

  •       Provides distinct competitive advantages over immediate industry peer 
          group


Commenting on the acquisition of Widacre, Andrew Telfer, Chief Financial Officer
of Inspace plc, said:  'The obvious synergies between Widacre and Inspace make
this an excellent acquisition providing the Company with 'first mover' advantage
and positions us as a leading specialist service provider who can now offer a
complete integrated service across the evolving UK social housing market.'


'This acquisition is also earnings enhancing from day one and will provide a
significant increase in our earnings visibility going forward.  Importantly it
allows us access to the major RSL maintenance, stock reinvestment and new build
market.'


Further details concerning the background to and reasons for the acquisition,
details on the companies, the new board director and the EGM are set out below.


                                    - Ends -


For further information:

Inspace plc
Andrew Telfer, Chief Financial Officer                 Tel: [phone]
[e-mail]                                    www.inspace.co.uk

Seymour Pierce
Mark Percy, Corporate Finance                          Tel: [phone]
[e-mail]                                www.seymourpierce.com

Media enquiries:
Abchurch
Henry Harrison-Topham                                  Tel: [phone]
[e-mail]                               www.abchurch-group.com



Seymour Pierce Limited, which is regulated by the Financial Services Authority,
is acting as nominated adviser exclusively to Inspace plc and will not be
responsible to anyone other than Inspace plc for providing the protections
afforded to clients of Seymour Pierce Limited nor for providing advice in
relation to the Acquisition. Its responsibilities as the Company's nominated
adviser under the AIM Rules are owed solely to London Stock Exchange plc and are
not owed to the Company or to or any other person in respect of the Acquisition
or any acquisition of ordinary shares in Inspace plc.


Introduction


Your Board announced today that your Company proposes to acquire the entire
issued share capital of Widacre, the owner of two complementary businesses: the
first, Willmott Dixon Housing, is one of the largest social housing providers in
the United Kingdom specialising in new build projects ranging from large
multi-phase regeneration schemes to greenfield housing; the second, Widacre
Homes, is an affordable housing provider specialising in the development of new
homes for sale, alongside registered social landlords, in mixed tenure housing
projects run by Willmott Dixon Housing.  The Independent Directors believe that
the addition of these new skills alongside your Company's well established track
record of maintaining and improving existing social housing stock, will provide
an excellent platform to service the Government's evolving strategy to create
integrated and sustainable communities.


The Acquisition (as a consequence of Colin Enticknap being a shareholder in
Widacre and a director and shareholder in Willmott Dixon Limited) is a related
party transaction under the AIM Rules and is a transaction regulated by section
320 of the Act requiring the prior approval of Shareholders.  The Acquisition is
therefore conditional, inter alia, on the passing of the Resolutions and
Admission.


Information on Widacre


Widacre is a holding company and has two wholly owned subsidiaries: Willmott
Dixon Housing and Widacre Homes.


Willmott Dixon Housing is a specialist provider of new social housing projects.
Its clients are predominantly Registered Social Landlords (RSLs), as well as
Widacre Homes. It provides design, consultation, management and contracting
services in relation to the construction of new social housing, with mixed
tenure development, key worker accommodation and extra care housing also being
areas of focus.  Use of new procedures and technologies to drive performance
improvement in recent years, including prefabrication and modularisation of
components, have extended Willmott Dixon Housing's capabilities and meant a move
away from the direct provision of building works, which it subcontracts.  In
2005, Willmott Dixon Housing established a new division to manage
pre-construction services, which is now extensively engaged in providing design,
planning and cost consultancy advice to clients on a wide range of projects.


Widacre Homes is a smaller business launched in 2003 which provides
predominantly low cost homes for sale in partnership with RSLs, usually
alongside social housing built by Willmott Dixon Housing as part of more
extensive mixed tenure schemes.  The Independent Directors believe that one of
the key strengths of Widacre Homes is its ability to cultivate strong
relationships with RSLs and by doing so, helps to facilitate the RSLs' low risk
involvement in developing homes for sale, their ability to cross subsidise
funding towards social housing, and their ability to create integrated and
sustainable communities in line with the Government's clear policy guidelines.
Widacre Homes has already established a number of joint venture companies with
RSLs and through its involvement in the Key London Alliance consortium, has been
appointed to provide mixed tenure developments under the Government's London
Wide Initiative.


Willmott Dixon Housing developed around 1,000 homes last year, predominantly
throughout London and the south east, nearly all of which were conventional
social housing.  To date, Widacre Homes has completed one development but it is
working on substantial new developments and opportunities.  The aim is for there
to be increasing levels of synergy between Willmott Dixon Housing and Widacre
Homes, with Widacre Homes using Willmott Dixon Housing as its specialist
contractor for the design, cost planning and construction of new housing, and
the RSLs also using Willmott Dixon Housing for the social housing part of mixed
tenure developments.


Willmott Dixon Housing expects to build around 1,500 new units this year (which
compares favourably with competitors) and it currently has fourteen Framework
Agreements with RSLs with a further eight at the tender stage.  Widacre Homes
expects to complete 67 homes this year, rising to 325 in 2008 when the final
phases of its Eastside development, situated alongside the 2012 Olympic site in
East London, are completed.


All of the senior management of the Widacre businesses have been in place for
several years and are to transfer with the business to the Enlarged Group.  In
most cases, they have spent much of their working life with the businesses.
Chris Durkin, in particular, is seen as key to the future development of the
Widacre businesses.  In total, approximately 300 employees are expected to
transfer as part of the Acquisition.


Last year, the combined Widacre businesses generated post tax profits of £2.61
million on turnover of £128.97 million.  The Independent Directors believe that
the combined Widacre businesses should generate turnover of around £125.0
million and EBIT of approximately £6.0 million for the year ended 31 December
2006 and will make a positive contribution for the four months in which they
will be consolidated into the Enlarged Group's statutory accounts for this
current financial year.


The Evolving Social Housing Market


The evolving UK market for social housing currently falls into three distinct
categories, which are determined principally by the source of funding for the
services provided:


  (i)   The ongoing repair and maintenance of existing stock is funded by the 
        annual budgets of social landlords, who may be either local authorities 
        or RSLs;

 (ii)   The major refurbishment and improvement market is also in part funded by
        social landlords but this funding may be considerably enhanced by the 
        Decent Homes initiative which is funded by central government; and

(iii)   The provision of new social housing in England and Wales is mainly 
        undertaken by RSLs and is funded from reserves, through grants from the 
        Housing Corporation (a central government funded body) and through 
        external debt.


Total spending on social housing is currently around £14 billion per annum, of
which around £10.3 billion is spent on repair, maintenance and improvement.  Of
this, £4 billion is spent on ongoing repair and maintenance, with the remaining
£6 billion being spent on capital projects such as major refurbishment and
improvement.  This includes a contribution of between £1 billion and £2 billion
a year from the Decent Homes initiative.  The provision of new housing, which is
currently running at around 35,000 units a year, adds a further £3.5 billion to
this sum.


The Government has recently announced that the present Decent Homes initiative
spending round, under which local authorities and their Arms Length Management
Organisations (ALMOs) bid for central government funds to improve poor quality
housing stock, will be the last in its current form.  The Decent Homes
initiative, which has been a significant source of funding for social housing
projects, has very recently attracted criticism from some government quarters,
which perceive it as encouraging social landlords to improve poor quality homes
by, for example, installing replacement kitchens and bathrooms, on estates that
might better have been considered for wider scale regeneration.


The Government housing policy is aimed at creating integrated and sustainable
communities, capable of supporting improved social and environmental standards
in the longer term.  Creating such communities often demands wider scale and
more complex regeneration initiatives.  As part of its 2007 Spending Review, the
Government is expected to consider ways in which future spending can prioritise
such initiatives, and has recently published a comprehensive consultation paper
entitled 'From Decent Homes to Sustainable Communities'.


The Independent Directors believe that another important change in the market
relates to the approach taken by RSLs towards the repair and maintenance of
their social housing stock.  Traditionally, Government incentives and inspection
regimes have encouraged RSLs to prioritise their new build housing programmes,
with grant funding favouring those capable of delivering large scale programmes
with minimum subsidy.  Whilst this remains the case, measures relating to the
repair and maintenance of existing stock have now become key features under the
inspection regime, with RSLs expected to demonstrate satisfactory levels of
service to their tenant population alongside satisfactory levels of value and
efficiency.  Those who fail to meet minimum criteria now risk their development
programmes being frozen and ultimately the threat of Housing Corporation
supervision.  As a result, most RSLs have been forced to review their approach
towards repair and maintenance activity, and many are now seeking to adopt more
strategic partnering led solutions.


Details of and Reasons for the Acquisition


Taking into consideration the evolving market in which the Company operates (as
summarised above), the Independent Directors believe that the Acquisition will:

  •       position the Enlarged Group as one of the UK's leading specialist 
          service providers to the social housing market, and one of the only 
          providers able to offer a comprehensive and integrated service across 
          all sectors; repair and maintenance, refurbishment and improvement and
          new build;

  •       give Inspace greater exposure to the RSL maintenance and improvement 
          market, in addition to its traditional local authority customer base;

  •       provide transferable contracting and supply chain management skills to
          enable Inspace Partnerships to expand into stand-alone Decent Homes 
          refurbishment schemes;

  •       afford access to the new build social housing and the low cost homes 
          sectors, significantly enhancing growth prospects;

  •       significantly increase the Company's earnings visibility with secured 
          orders and Framework Agreements of around £1.35 billion; and

  •       ensure that the Enlarged Group is well positioned to take advantage of
          any change in central government policy relating to funding social 
          housing projects.


For these reasons, inter alia, the Independent Directors believe that strategic,
operational and financial benefits can result from the Acquisition.


Subject to satisfaction of the conditions (see further below), your Board has
agreed to pay an equity value of £64.535 million which is to be satisfied by the
allotment and issue of the 13,201,320 Consideration Shares at 151.5p per share
and by £44.535 million in cash.  The £44.535 million in cash is to be
supplemented by the £7.5 million in surplus cash resources in Widacre, giving a
total cash payment to the Vendors of £52.035 million.  In order to fund the cash
element of the consideration and the costs of the transaction, and to provide
further working capital facilities for the Enlarged Group, the Company has
conditionally increased its bank facilities with the Royal Bank of Scotland.


New Director


The board has agreed that Christopher Durkin, currently Chief Operating Officer
of Widacre, will be appointed to the board of Inspace on completion of the
Acquisition.


Conditions


As Colin Enticknap holds Widacre Shares and is a director and shareholder of
Willmott Dixon Limited, the Acquisition is deemed to be a 'Related Party
Transaction' under the AIM Rules and also a substantial property transaction
involving directors under Section 320 of the Act.  Pursuant to Section 320 of
the Act, the Acquisition requires the prior approval of Shareholders in general
meeting.  The Acquisition is therefore conditional on, inter alia, the passing
of Resolution 1, which will be proposed at the Extraordinary General Meeting,
and Admission.  In addition, pursuant to the AIM Rules, the approval of the
Acquisition requires a confirmation from the Independent Directors that having
consulted Seymour Pierce (its Nominated Adviser) they consider the terms of the
Acquisition to be fair and reasonable insofar as the Shareholders are concerned.
For the purposes of the Acquisition, Colin Enticknap is not an Independent
Director.

Application will be made for Admission of the Consideration Shares to trading on
AIM and it is expected that dealings in the Consideration Shares will commence
on AIM at 8.00 a.m. on 8 September 2006.  The Consideration Shares will rank
pari passu in all respects with the existing Ordinary Shares in issue.


Irrevocable Undertakings


Irrevocable undertakings to vote in favour of the Resolutions have been given by
Shareholders who own, in aggregate, 26,982,965 Ordinary Shares, representing
approximately 39.80  per cent. of the current issued share capital of the
Company.


Extraordinary General Meeting


The Acquisition is conditional upon, inter alia, the approval of Shareholders,
which is to be sought at an Extraordinary General Meeting to be convened for 12
noon on 22 August 2006


Recommendation from the Independent Directors


The Independent Directors, having consulted with Seymour Pierce in respect of
the AIM Rules, consider the terms of the Acquisition to be fair and reasonable
insofar as Shareholders are concerned.  Accordingly, the Independent Directors
unanimously recommend you to vote in favour of the Resolutions to be proposed at
the Extraordinary General Meeting, as we intend to do so in respect of our own
beneficial holdings of, in aggregate, 960,471 Ordinary Shares representing
approximately 1.42 per cent. of the Company's existing issued share capital.


Colin Enticknap, who is not an independent director in respect of the
Acquisition, also intends to vote in favour of the Resolutions in respect of his
beneficial holding of 3,787,665 Ordinary Shares representing 5.59 per cent. of
the Company's existing issued share capital.


Expected timetable

Circular posted to Shareholders                                     25 July 2006

Latest time and date for receipt of the Form of Proxy  12 noon on 20 August 2006

Extraordinary General Meeting                          12 noon on 22 August 2006

Dealings expected to commence in the Consideration Shares       8 September 2006
on AIM                                             



Definitions

The following definitions apply throughout this announcement, unless the context
requires otherwise:

'Act'                               the Companies Act 1985 (as amended)

'Acquisition'                       the proposed acquisition of the entire share
                                    capital of Widacre from the Vendors

'Acquisition Agreement'             the conditional share purchase agreement 
                                    dated 21 July 2006 made between the 
                                    Company (1) and the Vendors (2)

'Admission'                         admission of the Consideration Shares to 
                                    trading on AIM becoming effective in 
                                    accordance with the AIM Rules

'AIM'                               the AIM market of the London Stock 
                                    Exchange plc

'AIM Rules'                         the rules applicable to companies whose 
                                    shares are traded on AIM published by the 
                                    London Stock Exchange plc

'Board' or 'Directors'              the directors of the Company at the date of 
                                    the Circular

'Company' or 'Inspace'              Inspace plc

'Consideration Shares'              the 13,201,320 new Ordinary Shares to be 
                                    issued to the Vendors pursuant to the 
                                    Acquisition Agreement (such number of shares
                                    having been calculated on the basis of the 
                                    average mid market closing price on the
                                    40 days prior to 21 July 2006 (subject to a 
                                    minimum of £1.515 per share))

'Enlarged Group'                    the Company and its subsidiaries as enlarged
                                    after the Acquisition

'Extraordinary General Meeting' or  the extraordinary general meeting of the 
'EGM'                               Company to be held on 22 August 2006 at 12 
                                    noon or any adjournment thereof, notice of 
                                    which is set out at the end the Circular

'Form of Proxy'                     the form of proxy which accompanies the 
                                    Circular for use by Shareholders in 
                                    connection with the EGM

'Framework Agreement'               the statement of terms or principles under 
                                    which Willmott Dixon Housing will contract 
                                    with Registered Social Landlords

'Independent Directors'             Christopher Sheridan, David Batchelor, 
                                    Duncan Forbes and Andrew Telfer

'Ordinary Shares'                   ordinary shares of 2 pence each in the 
                                    capital of the Company

'New Director'                      Christopher Simon Durkin

'Resolutions'                       the resolutions set out in the Notice of EGM
                                    at the end of the Circular to be proposed at
                                    the EGM

'Seymour Pierce'                    Seymour Pierce Limited

'Shareholders'                      holders of Ordinary Shares

'Vendors'                           Willmott Dixon Limited, Steven Ian Graham 
                                    Dixon, Christopher Simon Durkin, Colin 
                                    Enticknap, Rathbone Jersey Trustees Ltd and 
                                    Richard John Willmott

'Widacre'                           Widacre Limited, the holding company of 
                                    Willmott Dixon Housing and Widacre Homes

'Widacre Homes'                     Widacre Homes Limited

'Widacre Shares'                    10,420,000 ordinary shares of 1 pence each 
                                    and 1,500,000,000 redeemable preference 
                                    shares of 1 pence each in the capital of 
                                    Widacre

'Willmott Dixon Housing'            Willmott Dixon Housing Limited




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