Acquisition of H2O, £10m Placing & Subscription

RNS Number : 2543J

Marlowe PLC

08 September 2016

 



8 September 2016

Marlowe plc

Acquisition of H2O Chemicals Limited

Placing and Subscription of new ordinary shares to raise approximately £10 million and new debt facilities

Notice of General Meeting

Marlowe plc ("Marlowe", the "Company" or the "Group"), the support services group focused on acquiring and developing companies that provide critical asset maintenance services, announces that it has acquired H2O Chemicals Limited ("H2O") for a total enterprise value of £2.8 million (the "Acquisition").

Founded in 1992 and headquartered in Leeds, H2O is a provider of water treatment and hygiene services employing 84 staff from 3 offices across the UK. It is a national business with a strong presence in the Midlands and Yorkshire and a base of more than 600 customers in a range of sectors including industrial, leisure, food production, higher education and healthcare. It provides a portfolio of services complementary to those offered by WCS, which Marlowe acquired in April this year.

In the 12 months to 31 January 2016, H2O reported audited revenues of £6.1 million and adjusted EBITDA of £0.6 million. The Acquisition will be financed through an extension of the Company's existing debt facility with Lloyds Bank by an additional £2.5 million.

In conjunction with the Acquisition, the Company is pleased to announce a Placing and Subscription with certain institutional investors and Marlowe's existing shareholders to raise approximately £10 million. The Placing and Subscription were oversubscribed and the price of 170 pence per share (the "Issue Price") represents a premium of 1.5 per cent to the mid-market closing price per share of 168 pence on the day immediately prior to this announcement.

The Board believes the Acquisition will:

·	double the size of the Group's current Water Treatment division, offer synergy benefits and assist the Group in meeting its key strategic objective of providing national coverage in each of its sectors;
·	bring a large new base of customers with a significant proportion of recurring revenues to which it can cross-sell other Group services;
·	create an enhanced platform for further buy-and-build growth;
·	enhance earnings in its first full year of ownership.
·	Additionally, the Board believes the Subscription and Placing will provide the Group with the financial resources to pursue further acquisition opportunities within its well-developed pipeline across the Water Treatment and Fire divisions.

The total H2O enterprise value includes cash consideration of £2.1 million and the repayment of net debt of £0.3 million to be financed from Marlowe's existing cash and debt facilities, as well an additional £2.5 million new debt facility with Lloyds Bank. In addition, the Company will issue 211,765 new ordinary shares of 50 pence each (the "Consideration Shares") at the Issue Price to the H2O Managing Director who will become a senior executive of Marlowe's Water Treatment division. The Consideration Shares are subject to a lock-up period of 24 months with orderly market conditions attached after this period.

Application has been made for the Consideration Shares to be admitted to trading on AIM at 8:00am on 9 September 2016.

The Placing will raise approximately £4.4 million before expenses through the issue of 2,585,294 new ordinary shares of 50 pence each (the "Placing Shares") at 170 pence per share (the "Issue Price") to certain institutional investors.  The Subscription will raise approximately £5.6 million before expenses through the issue of 3,297,059 new ordinary shares of 50 pence each (the "Subscription Shares") at 170 pence per share to certain existing shareholders of Marlowe. The remaining Placing and Subscription Proceeds, along with the Company's existing debt facilities, will be used to support the Company's acquisition-led growth strategy as well as the general working capital requirements of the Group. The Company has a strong pipeline of acquisition opportunities.

Approximately £4.9 million of the Placing and Subscription Proceeds will be subject to approval by the Company's shareholders at the General Meeting (the "GM") to be held on 26 September 2016. Accordingly, the Company has applied for admission of 2,994,166 Placing and Subscription Shares ("First Tranche Placing and Subscription Shares"), not subject to shareholder approval, and the Consideration Shares to trading on AIM and it is expected that admission will occur on 9 September 2016. The Company will apply for admission of 2,888,187 Placing and Subscription shares ("Second Tranche Placing and Subscription Shares") to trading on AIM that are subject to shareholder approval at the GM and it is expected that admission will occur on 27 September 2016.

Following admission of the first tranche of Placing, Subscription and Consideration Shares, the total number of voting rights in the Company will be 24,578,808. Following admission of the second tranche of Placing and Subscription Shares the total number of voting rights in the Company will be 27,466,995.

Alex Dacre, Chief Executive of Marlowe plc, commented: 

"The acquisition of H2O will significantly expand Marlowe's water treatment activities and marks the next step towards fulfilling our strategic objective of providing national coverage in each of our sectors. H2O is a good fit with WCS and has some excellent customer relationships that will further enhance our platform for growth. The placing and subscription announced today will provide us with resources to continue to add scale to Marlowe across our Water Treatment and Fire divisions as we implement our strategy of building a leading UK support services group in complementary areas of critical asset maintenance."

For further information:
Marlowe plc	www.marloweplc.com
Alex Dacre, Chief Executive	Tel: [phone]
	[e-mail]
Cenkos Securities plc (Nominated Adviser and Broker)
Nicholas Wells	Tel: [phone]
Elizabeth Bowman
FTI Consulting
Nick Hasell	Tel: [phone]
Alex Le May

About Marlowe plc

Marlowe is an AIM-listed company formed to create sustainable shareholder value through the acquisition and development of businesses that provide critical asset maintenance services in the UK.  It is focused on fire protection, security systems and water treatment services - which are essential to its customers' operations and invariably governed by regulation, and where customers require a single specialist outsourced provider with nationwide coverage. Our customers can be found on most high streets, in office complexes and industrial estates, and include SMEs, local authorities, facilities management providers, multi-site NHS trusts and FTSE 100 companies.

The information contained within the announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 ("MAR"). Upon the publication of this announcement via Regulatory Information Service ("RIS"), this inside information is now considered to be in the public domain.

About H2O Chemicals Limited

Founded in 1992 and headquartered in Leeds, H2O is a provider of water treatment and hygiene services, employing 84 staff from 3 offices across the UK. The company is a national business with a strong presence in the Midlands and Yorkshire. H2O has a base of more than 600 customers in a range of sectors including industrial, leisure, food production, higher education and healthcare. H20 provides a complementary portfolio of services to WCS including: chemical flushing, tank cleaning, water hygiene services, chemicals and service for cooling towers and steam plant, cleaning and chlorination and servicing of reverse osmosis and water softening, and legionella monitoring.

H2O has over 600 customers and the Board estimates that over 85% of revenue is on a recurring basis. Its top 20 customers represent less than 50% of revenue and the largest customer contributes approximately 6% of revenue.

In the 12 months to 31 January 2016, H2O reported audited revenues of £6.1 million, unaudited adjusted EBITDA after non-recurring costs of £0.6 million and audited profit before taxation of £0.3 million. At 31 January 2016 audited gross assets of H2O Chemicals Limited were £2.2 million and the net assets were £0.2 million. Following a sale and leaseback of a property valued at approximately £0.5 million, net assets on acquisition are estimated to be £0.45 million. Average gross margin over the past three financial years was 27%.

Background to and reasons for the Placing and Subscription

The Company has been pleased with the performance of Swift, WCS and FAFS, the three acquisitions completed since Marlowe's admission to AIM on 1 April 2016. The Board continues to review a significant number of potential acquisition targets within its target sector of critical asset maintenance services and will expand its investor base through the Placing, providing the Company with additional funds to execute suitable acquisitions. The Placing and Subscription will provide Marlowe with a good level of cash resources going forward.

The Placing and Placing Agreement

The Company proposes to raise approximately £4.4 million gross proceeds (approximately £4.2 million net of expenses) through the Placing of the Placing Shares at the Issue Price through Cenkos Securities plc ("Cenkos"). A total of 1,315,938 of the Placing Shares ("First Tranche Placing Shares") will not be subject to shareholder approval at the General Meeting. A further of 1,269,356 of the Placing Shares ("Second Tranche Placing Shares") will be subject to shareholder approval at the GM.

The Placing is not underwritten. The Placing Agreement contains certain warranties and indemnities from the Company in favour of Cenkos and is conditional, inter alia, upon:

(a)  in relation to 1,269,356 Placing Shares, shareholder approval of the resolutions at the GM;

(b)  the Placing Agreement having become unconditional in all respects (save for the condition relating to Admission) and not having been terminated in accordance with its terms prior to Admission; and

(c)  Admission becoming effective not later than 8.00 a.m. on 9 September 2016 for the First Tranche Placing Shares and 8:00am on 27 September 2016 for the Second Tranche Placing Shares subject to shareholder approval.

The Placing Agreement contains customary warranties and an indemnity from the Company in favour of Cenkos together with provisions which enable Cenkos to terminate the Placing Agreement in certain circumstances prior to Admission (as applicable), including where any warranties are found to be untrue, inaccurate or misleading in any material respect or in the event of a material adverse change in the financial position or prospects of the Group in the context of the Placing or Admission.

Details of the Subscription

Certain existing shareholders of Marlowe have entered into legally binding agreements to subscribe for up to £5.6 million directly with the Company.

Use of proceeds of the Placing and Subscription

The net proceeds of the Placing and Subscription of approximately £9.8 million in aggregate will be used to:

·      repay a portion of the company's existing revolving credit facility with Lloyds Bank;

·      provide funds for further acquisitions as part of Marlowe's ongoing buy-and-build strategy;

·      and provide working capital for the Group.

General Meeting

A General Meeting to consider and approve the Second Tranche Placing Shares and Subscription Shares will be held at the offices of Brabners Chaffee Street, 55 King Street, Manchester at 11:00am on 26 September 2016. A circular will be posted to Shareholders on 9 September 2016 and will be made available on the Company's website at www.marloweplc.com 

Directors Subscription

Certain directors of the Company intend to participate in the Subscription at the Issue Price as set out in the table below.

Director	Existing Holding	Participation in first tranche of Subscription	Percentage holding following First Admission	Participation in second tranche of Subscription	Percentage holding following Second Admission
Derek O'Neill	666,667	72,636	3.0%	89,129	3.0%
Peter Gaze	450,625	76,351	2.1%	73,649	2.2%
Charles Skinner	408,333	29,941	1.8%	28,882	1.7%

Related Party Transaction

Lord Ashcroft KCMG PC is considered a Substantial Shareholder under the AIM Rules and is subscribing for 2,563,428 new ordinary shares in the Subscription at the Issue Price. His Subscription participation constitutes a related party transaction under Rule 13 of the AIM Rules. The Directors consider that, having consulted with Cenkos, the terms of his participation in the Subscription are fair and reasonable insofar as shareholders are concerned.

Derek O'Neill, Peter Gaze and Charles Skinner intend to subscribe for, in aggregate, 370,588, new ordinary shares in the Subscription at the Issue Price. This aggregate participation constitutes a related party transaction under Rule 13 of the AIM Rules. Alex Dacre and Nigel Jackson consider that, having consulted with Cenkos, the terms of this participation in the Subscription are fair and reasonable insofar as shareholders are concerned.

Recommendation

The Board believe the Acquisition, the Placing and the Subscription to be in the best interests of the Company and its Shareholders as a whole. Accordingly, the Board unanimously recommend Shareholders to vote in favour of the resolutions to be put to the General Meeting as they intend so to do in respect of their beneficial shareholdings amounting to 8,528,958 or 39.91% of the existing ordinary shares.

EXPECTED TIMETABLE OF PRINCIPAL EVENTS

	2016
Announcement of the Acquisition, Placing and Subscription	8 September
Admission and commencement of dealings of the First Placing and Subscription Shares, and Consideration Shares	9 September
Posting of General Meeting Circular	9 September
Latest time and date for receipt of Forms of Proxy	11am on 22 September
General Meeting	11am on 26 September
Admission and commencement of dealings of the Second Placing and Subscription Shares if the Resolutions are passed	8am on 27 September
The Second Placing and Subscription Shares credited to CREST stock accounts if the Resolutions are passed	27 September
Despatch of definitive share certificates for Second Placing and Subscription Shares if the Resolutions are passed	week commencing 3 October

Notes:

(i)     References to times in this Document are to London time (unless otherwise stated).

(ii)    If any of the above times or dates should change, the revised times and/or dates will be notified by an announcement to an RIS.

 

END

 

 

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