Disposal and Directorate Change

Marlowe PLC

22 February 2024

 

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 as amended by regulation 11 of the Market Abuse (Amendment) (EU Exit) Regulations 2019/310. Upon the publication of this announcement via Regulatory Information Service, this inside information is now considered to be in the public domain.

22 February 2024

Marlowe plc

Divestment of certain GRC software and services assets

Board Changes

Binding agreement to dispose of certain GRC software and services assets for an enterprise value of £430 million in cash

Marlowe plc ("Marlowe", the "Group" or the "Company"), the UK leader in business-critical services and software which assure regulatory compliance, announces that it has entered into a binding agreement for the sale of certain Governance, Risk & Compliance ("GRC") software and services assets (the "Divestment") to Inflexion Private Equity ("Inflexion") ( the "Purchaser"), for an enterprise value of £430 million on a debt free, cash free basis (the "Transaction").

Highlights

·      Following the strategic review announced in November 2023, the Company announces the divestment of a select number of its GRC software and service assets for an enterprise value of £430 million, representing a multiple of 16.2x proforma adjusted cash EBITDA1 in the year ended 31 March 2023 ("FY23").

·      The enterprise value of the Divestment, which accounts for approximately 20% of Group revenues and 40% of Group adjusted EBITDA, represents 121% of Marlowe's market capitalisation as at 20 February 2024 and 121% of Marlowe's market capitalisation based on a 3-month volume weighted average share price as at 21 February 2024.

·      Marlowe's continuing operations ("Compliance Services") comprise the Testing, Inspection and Certification ("TIC") and Occupational Health ("OH") businesses.

·      The Group intends to use the proceeds of the Divestment (the "Net Cash Proceeds") to retire in full its current debt facility and return in excess of £150 million of surplus cash to shareholders.

·      This sale will deliver significant value for shareholders and represents the culmination of Marlowe's FY24 strategic review focused on generating major shareholder value whilst simplifying the Group's focus and strategy upon its core Compliance Services businesses, which all deliver largely recurring service revenues in large and attractive regulated markets, with significant scope for future growth.

·      The Group's ongoing focus following the Divestment will be centred upon driving organic growth across its market leading businesses in the attractive TIC and OH markets whilst delivering margin expansion and strong cash generation.

·      Alex Dacre will transfer with the Divestment and resign as Chief Executive of Marlowe on completion and Kevin Quinn will take up the position of Executive Chair on an interim basis. The Board has begun a search for a new Chief Executive, which will include both internal and external candidates.

1 Adjusted cash EBITDA is after capitalised software development costs.

Commenting on the Divestment, Kevin Quinn, Marlowe's Chairman said:

"This divestment represents an excellent outcome for Marlowe and its shareholders and underscores the significant value that has been created through the delivery of our growth strategy. The valuation achieved demonstrates the substantial potential within our business and will reset our capital structure, giving Marlowe strategic agility whilst delivering meaningful returns to our shareholders.

Following the sale, Marlowe's business will consist of two market-leading compliance service divisions in Testing, Inspection and Certification and Occupational Health, with a clear and refocused strategy in our core compliance service markets.

Since 2015, Alex has been instrumental in developing Marlowe into a UK powerhouse in regulatory compliance which, through a combination of over 80 acquisitions and strong organic growth, has been transformed into a company with more than £500 million in revenues, over 5,000 colleagues and thousands of clients across the UK. On behalf of the Board, I would like to thank Alex for this exceptional achievement and his outstanding leadership in building Marlowe."

Alex Dacre, Marlowe's outgoing Chief Executive said:

"It has been a privilege to lead Marlowe since its inception and through the Group's rapid evolution into the UK's leader in safety and compliance. This divestment represents a significant premium to our market capitalisation and clarifies the Group's forward strategy to focus on the highly attractive and regulated compliance service markets. I wish everyone at Marlowe every future success."

1. INTRODUCTION

The Divestment comprises the following Group business lines: WorkNest, Vinciworks, William Martin, Elogbooks, Barbour, IMSM & Corestream. The Divestment does not include Marlowe's Compliance Services businesses in OH and TIC, which represented approximately 80% of Group revenues in FY23.

The Divestment consideration of £430 million is payable in full and in cash on the date of completion (the "Consideration"), subject to customary adjustments based on the amounts of working capital, debt and cash in the Divestment at completion. The Consideration implies a multiple of 16.2x of FY23 proforma adjusted cash EBITDA¹.

After adjustments for the estimated transaction costs and settlement of certain liabilities including earn-outs, the net cash proceeds from the Divestment to the Company are expected to be approximately £405 million. The Board expects to return an amount in excess of £150 million of the Net Cash Proceeds to Ordinary Shareholders and will provide further details in due course after consulting with key shareholders. The Board also intends to use the Net Cash Proceeds to retire its current debt facility in full.

2. BACKGROUND TO AND RATIONALE FOR THE DIVESTMENT

Since its foundation in 2015, Marlowe has pursued a strategy of building a UK leader in compliance services and software.

The Group first built a leading position in its core TIC markets of Fire Safety & Security and Water & Air Hygiene. From 2020, it extended this focus into new adjacent GRC markets such as HR and employment law, health & safety, eLearning, ISO, compliance software, and more recently OH, all of which are similarly underpinned by regulation and non-discretionary dynamics.

Marlowe has allocated capital to consolidate and build scale across all these attractive end-markets, completing over 80 deals since inception, integrating the businesses into their respective platforms, while demonstrating resilient levels of organic growth and margin expansion.

In November 2023, Marlowe announced the Board had begun a strategic review to evaluate the optimal organisational and capital structure to maximise shareholder value. By undertaking the Divestment, Marlowe recognises the distinct operational and strategic differences between certain GRC software and service assets and our Compliance Services businesses whilst delivering significant shareholder value.

The Divestment will allow the Group to capitalise on the inherently attractive end markets of TIC and OH, strengthen its balance sheet while also providing an opportunity for a more optimised approach to capital allocation.

3. USES OF PROCEEDS AND FINANCIAL BENEFITS TO THE GROUP OF THE DIVESTMENT

In FY23, Marlowe's Divestment contributed revenue and adjusted EBITDA of £85.8 million and £31.4 million respectively. As of 31st December 2023, the Divestment had unaudited net assets of approximately £310 million.

The Net Cash Proceeds are expected to be approximately £405 million at completion after relevant adjustments including estimated transaction costs, settlement of certain transaction related liabilities, reorganisation and separation costs.

The Company expects to return in excess of £150 million of Net Cash Proceeds to Ordinary Shareholders.

The Board has made no final decisions as to timing, quantum and specific application of the remaining Net Cash Proceeds following a return of Net Cash Proceeds to Ordinary Shareholders. However, the Board intends that remaining Net Cash Proceeds will be used to:

·      Retire the current debt facility;

·      Return further capital to shareholders; and/or

·      When the Board considers it appropriate to do so, invest in carefully selected bolt-on acquisition opportunities across our remaining Occupational Health and TIC assets once restructuring investments in respect of historically completed acquisitions have reduced.

4. UPDATE ON RETAINED GROUP AND FUTURE STRATEGY

Following completion, the Group will be organised into two divisions: (i) Testing, Inspection and Certification; and (ii) Occupational Health.

The Group's TIC division is focussed on ensuring the safety and compliance of customers' business premises in accordance with relevant regulation and legislation. With a focus on fire safety & security and water & air hygiene, our comprehensive services cater to approximately 27,000 customers. This extensive support is delivered by around 1,900 specialists who consistently achieve best-in-class compliance rates, reinforcing our market-leading position. Operating on largely multiyear contracts, our offerings are underpinned by regulations making them mandatory which result in a high degree of recurring revenues.

Marlowe's Occupational Health division is the UK leader in the occupational health and wellbeing sector. The backdrop for the UK workforce is one that is getting older and progressively less healthy with an estimated £90bn+ lost through absence and presenteeism in the UK. In addition, the compliance burden for employers is significantly increasing. Our comprehensive OH services improve the health & wellbeing of our customers' employees, minimising workplace risk and maximising corporate productivity. Our services are delivered, often through multi-year contracts, by some 900 occupational health clinicians to over 3,000 customers. Similar to our TIC division, we ensure compliance with regulations, such as HSE, COSHH, Noise at Work Regulations and the Working Time Directive, which provides a high degree of recurring revenues.

The Group will continue to focus on the completion of integration programmes and the associated wind down of integration investments associated to the significant M&A activity that we have conducted in recent periods. The near-term focus will be to continue to drive organic revenue growth while improving margins and generating attractive free cash flow per share.

Marlowe's Board will continue to execute the delivery of the Group's strategy while regularly evaluating ways to maximise shareholder value.

5. BOARD CHANGES

The Company announces that Alex Dacre, the Company's Chief Executive, will transfer at completion with the Divestment and therefore resign as Chief Executive of Marlowe plc and as a Director of the Company on completion of the Divestment.

Kevin Quinn will take up the position of Executive Chair on an interim basis and the Board has begun a search for a new Chief Executive, which will include both internal and external candidates. Further updates will be provided, as appropriate, in due course.

6. DETAILS OF THE SALE AND PURCHASE AGREEMENT

The Company, and its wholly owned subsidiary Marlowe 2016 Limited (together the "Sellers"), have entered into a binding Share Purchase Agreement (the "SPA") with the Purchaser in relation to the Divestment.

Pursuant to the SPA, the Group is to sell the entire issued share capital of IMSM Holdings Limited, International Management Systems Marketing Limited, Barbour EHS Limited, Core Stream Ltd, Cedrec Information Systems Limited, Vinci Legal Limited, William Martin 2018 Limited, William Martin Compliance Limited, Cirrus Holdco Limited and Marlowe US Holdings Inc. and Marlowe 2016 Limited is to sell the entire issued share capital of The Compliance Office Ltd, Worknest (Holdings) Limited, Inclusive Learning Limited and Quantum Risk Management Limited, such companies and their subsidiaries forming the GRC software and services assets (together the "Divestment Group") the subject of the Divestment.

Completion of the SPA is in all respects conditional (the "Conditions") upon both (1) the Financial Conduct Authority approving the change of control of certain companies that are members of the Divestment Group which are FCA Regulated Entities, (2) the Solicitors Regulation Authority approving the change of control of certain companies that are members of the Divestment Group which are Authorised Bodies and (3) the Secretary of State for the Department of Business, Energy and Industrial Strategy approving the direct and indirect acquisition of certain companies that are members of the Divestment Group, the activities of which may make them subject to the mandatory notification requirements of the National Security and Investment Act 2021.

Subject to satisfaction of the Conditions, the total Consideration for the Divestment would be the receipt in cash of the sum of £430 million, at Completion, subject to the contents of a statement containing estimates of the cash, debt, intra-group payables, intra-group receivables and working capital that the Sellers are obliged to deliver to the Buyer prior to Completion and the agreement or adjudication of completion accounts following completion.

The Sellers will give customary sellers' warranties to the Purchaser and, save for certain fundamental warranties concerning the title and capacity to the shares of the companies comprising certain GRC software and service assets (and with the exception of fraud) the Sellers' liability under such warranties is capped at £1, with the Purchaser's recourse under the warranties to come under a warranty and indemnity insurance policy.

For further information:

Marlowe plc
Alex Dacre, Chief Executive		www.marloweplc.com
Adam Councell, Chief Financial Officer		Tel: [phone]
Benjamin Tucker, Head of Investor Relations
Goldman Sachs International (Sole Financial Adviser to Marlowe Plc)
Khamran Ali		Tel: [phone]
Owain Evans
Cavendish Securities plc (Nominated Adviser and Joint Broker)
Ben Jeynes		Tel: [phone]
George Lawson
Berenberg (Joint Broker)
Dan Gee-Summons	Tel: [phone]
Mark Whitmore
Stifel (Joint Broker)
Matthew Blawat	Tel: [phone]
Francis North
FTI Consulting
Nick Hasell	Tel: [phone]
Alex Le May

About Marlowe plc

Marlowe is a UK leader in business-critical services and software which assure regulatory compliance. The company was formed to create sustainable shareholder value through the acquisition and development of businesses that provide regulated safety and compliance services and software. It is focused on compliance software, eLearning, health & safety, employment law & HR compliance, fire safety & security, water & air hygiene and occupational health services - all of which are vital to the wellbeing of its customers operations and are invariably governed by regulation. Marlowe currently provides software to over 1 million users and services to over 25% of Britain's commercial premises. The Group provides customers with a single outsourced, nationwide, provider of a range of regulated compliance and safety solutions. Our customers can be found in office complexes, high streets & leisure facilities, manufacturing plants and industrial estates, and include thousands of SMEs, local authorities, facilities management providers, multi-site NHS trusts and FTSE 100 companies.

About Inflexion Private Equity

Inflexion is a leading European mid-market private equity firm which works in partnership with ambitious management teams of high growth, entrepreneurial businesses to accelerate sustainable growth. Inflexion's flexible approach allows it to back both majority and minority investments, typically investing £10m to £500m of equity in each deal. With bespoke teams and dedicated capital, Inflexion's funds invest across a variety of sectors from offices in London, Manchester, Amsterdam and Stockholm. Funds advised by Inflexion Private Equity Partners LLP have funds under management of c.£8bn. 

IMPORTANT NOTICES

Goldman Sachs International is acting as Sole Financial Advisor to Marlowe plc. Fieldfisher LLP is acting as legal counsel to Marlowe plc.

Goldman Sachs International, ("Goldman Sachs") which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority in the United Kingdom, is acting exclusively for Marlowe plc and no one else in connection with the matters referred to in this announcement and will not be responsible to anyone other than Marlowe plc for providing the protections afforded to clients of Goldman Sachs International, or for providing advice in relation to the matters referred to in this announcement.

 

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