Proposed Acquisition

RNS Number : 5138Y

NCC Group PLC

13 May 2021

 

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN, INTO OR WITHIN THE UNITED STATES, CANADA, SOUTH AFRICA, JAPAN OR AUSTRALIA.

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION

For Immediate Release

13 May 2021

NCC GROUP PLC

PROPOSED ACQUISITION OF THE INTELLECTUAL PROPERTY MANAGEMENT BUSINESS OF IRON MOUNTAIN

Immediately provides greater global scale for NCC's Software Resilience Division

Significantly earnings enhancing from Completion

Opportunities for further revenue synergies and growth

NCC Group plc (LSE: NCC, "NCC", the "Company" or the "Group") is pleased to announce the signing of an agreement for the proposed acquisition of the Intellectual Property Management business (the "IPM Business") of Iron Mountain Inc. ("Iron Mountain"), comprising substantially all of the assets of Iron Mountain Intellectual Property Management, Inc. ("IPM") together with certain other assets of affiliates of Iron Mountain exclusively related to the IPM Business, for a cash consideration of $220 million (£156 million) (the "Acquisition").

Strategic Highlights

Creating a Market-Leading Escrow Business

· IPM is a leading provider of software resilience services to a large and diverse US market - the combination will provide immediate additional scale to NCC's core software resilience business, making the US region the largest contributor of the division's revenues and profits.

o  IPM reported revenue of $32.9 million (£23.3 million) and EBITDA of $21.6 million (£15.4 million) for the 12 months ended 31 December 2020 (audited).

· The IPM Business has built a market-leading escrow business, serving in excess of 6,000 customers, across the full life-cycle of escrow and verification services as well as across a range of industries.

· IPM has a strong, established team, led by Mr. John Boruvka and Ms. Joy Egerton, which is expected to be retained as part of the Acquisition. Mr. Boruvka, Ms. Egerton and the senior members of the IPM Business team have agreed to continue in their roles following Completion.

Strong Strategic Alignment

· In addition to organic growth across the recurring revenue base of IPM, the proposed Acquisition represents a compelling opportunity for both of NCC's Assurance and Software Resilience divisions to benefit from revenue synergies across an enlarged, blue chip customer base which spans a majority of the Fortune 500.

· NCC believes that these revenue synergies could be made up of:

o  increased penetration of NCC's verification services into the IPM Business customer base;

o  offering the Group's nascent but fast-growing Escrow-as-a-Service (EaaS) cloud proposition into the IPM Business customer base; and

o  satisfying IPM client demands for cyber assurance services.

Compelling Financial Rationale

· The proposed transaction is expected to provide the Enlarged Group with a number of financial benefits and therefore provide further compelling reasons for the combination:

o  The Acquisition will be significantly accretive to earnings per share from Completion, even without factoring in revenue synergies¹;

o  The Acquisition will be immediately accretive to Group EBITDA margins¹;

o  The Group will have an enlarged recurring revenue base, with 80% of IPM's revenues being recurring (against 60% of NCC's Software Resilience division's revenues being recurring);

o  The Acquisition will strengthen the Group's cash generation owing to IPM's cash conversion ratio² of over 90% for the last three years which, following cash interest and tax deductions, should provide a rapid de-leveraging profile and enable further organic and inorganic investment in the near term;

o  Material tax savings which the Directors believe will be created over a 15 year period as a result of intangible assets created by the Acquisition that can be amortised for tax purposes; and

o  The provision of material additional scale to the Group - the IPM Business reported revenue of $32.9 million (£23.3 million) and EBITDA of $21.6 million (£15.4 million) for the 12 months ended 31 December 2020 (audited).

Greater Strategic Strength

· Following the Acquisition, the Software Resilience business will have a greater global presence and is expected to achieve critical mass and international reach that provides the Group with enhanced scale and strategic flexibility

· The enlarged recurring revenue profile and enhanced cash generation will provide the Group with a platform to make further strategic investments, if deemed appropriate and value-accretive

o  Such investments could take the form of organic initiatives, inorganic opportunities in line with the Group's strategy or a complementary mix across both divisions

Overview of IPM

The Intellectual Property Management division of Iron Mountain (NYSE: IRM-US) is a leading software escrow platform in the United States. The IPM Business, which is founded on the principles of security and protecting companies' critical assets, serves as a trusted and secure third party for mitigating the risk for both software users ("beneficiaries") as well as providing higher levels of assurance for software developers ("depositors"), through the provision of a suite of escrow services.  Such escrow services support the beneficiaries in the event the depositor is unable to support their software as a result of an unforeseen set of circumstances.

Complementary to the core escrow offering, the IPM Business also provides verification services for beneficiaries in order to assist them in determining whether the software IP deposited in escrow is complete and operates in line with expectations.

The IPM Business benefits from minimal client concentration and attractive market dynamics, including increasing corporate spend and focus on software, IT resilience, security and risk management.

The business currently serves over 6,000 customers and in excess of 15,000 beneficiaries across a diverse range of end markets, with a client retention rate of 86%.

For the 12 months ended 31 December 2020, the IPM Business reported revenues of $32.9 million (£23.3 million), of which escrow services comprised 86% with verification services accounting for the remaining 14%. 80% of the IPM Business's revenues are recurring or re-occurring. EBITDA of $21.6 million (£15.4 million) in 2020 equates to an EBITDA margin of 65.7%.  

Financing of the Acquisition

The consideration for the Acquisition of $220 million will be satisfied entirely in cash. The consideration and all related transaction costs will be funded through a combination of:

· approximately $99 million (£70 million), being the estimated gross proceeds of the Placing announced on the date of this Announcement³;

· $70 million (£50 million) from a new three-year Term Facility Agreement;

· existing cash balances of $10 million (£7 million); and

· the balance from the Company's existing Revolving Credit Facility Agreement.

The Directors expect leverage to be approximately 1.5x net debt to Enlarged Group EBITDA immediately following the Acquisition.

Timetable to Completion

The size of the Acquisition means that it constitutes a Class 1 transaction for the purposes of the Listing Rules and accordingly is conditional on the approval of Shareholders at a General Meeting. A circular containing further details of the Acquisition, the Directors' recommendation, the notice of the General Meeting and the Resolutions (the "Circular"), is expected to be published on 14 May 2021. Assuming Shareholders approve the Acquisition at the General Meeting, the Acquisition is expected to be completed a few days thereafter.

Trading update

The Directors reaffirm their current expectation that the Group's Pre-IFRS 16 Adjusted EBIT for the year ending 31 May 2021 will be no less than market consensus of £33 million⁴. Pre-IFRS 16 Adjusted EBIT is defined as the Group's operating profit before adjusting items to assist in the understanding of the Group's performance. Adjusting items represent amortisation of acquired intangibles, the impact of IFRS 16, share-based payments and individually significant items.

Adam Palser, Chief Executive Officer, NCC, commented:

"This acquisition will transform NCC Group's Software Resilience business, making it a market leader, and deliver immediate financial and operational benefits to the whole of the Group. The IPM Business shares many similarities with our own Software Resilience business, including a commitment to providing exemplary service for clients. There are tremendous opportunities to grow the combined business by offering IPM's blue-chip clients the choice of new services and support.

Following completion, NCC Group will be a stronger and broader business with an even greater ability to support clients in the ceaseless struggle against cyber-crime in all its forms."

The preceding summary should be read in conjunction with the full text of the following Announcement and its appendices. The defined terms set out in Appendix II apply to this Announcement.

A virtual meeting for analysts and investors relating to the Acquisition will take place at 09:30am (UK) today, 13 May 2021. The details for this can be obtained from Maitland/AMO using the following email address: [e-mail].

Lazard is acting as financial adviser to NCC and Peel Hunt is acting as sponsor to NCC, in each case in relation to the Acquisition. Baird is acting as financial adviser to Iron Mountain in connection with the Acquisition.

For further enquiries please contact:

NCC Group plc Adam Palser, Chief Executive Officer Tim Kowalski, Chief Financial Officer	[phone]
Lazard Cyrus Kapadia Louise Campbell	[phone]
Peel Hunt Edward Knight Charlie Batten Nick Prowting	[phone]
Maitland/AMO Neil Bennett Sam Cartwright	[phone]

About NCC Group plc

NCC Group exists to make the world safer and more secure. As global experts in cyber security and risk mitigation, NCC Group is trusted by over 14,000 customers worldwide to protect their most critical assets from the ever-changing threat landscape. With the company's knowledge, experience and global footprint, it is best placed to help organisations assess, develop and manage their cyber resilience posture.

To support its mission, NCC Group continually invests in research and innovation and is passionate about developing the next generation of cyber scientists.  With circa 2,000 colleagues in 12 countries, NCC Group has a significant market presence in North America, Europe and the UK, and a rapidly growing footprint in Asia Pacific with offices in Australia, Japan and Singapore.

About Iron Mountain

Iron Mountain Incorporated (NYSE: IRM) is the global leader in innovative storage and information management services, storing and protecting billions of valued assets, including critical business information, highly sensitive data, and cultural and historical artifacts. Founded in 1951 and trusted by more than 225,000 customers worldwide, Iron Mountain helps customers CLIMB HIGHER™ to transform their businesses. Through a range of services including digital transformation, data centers, secure records storage, information management, secure destruction, and art storage and logistics, Iron Mountain helps businesses bring light to their dark data, enabling customers to unlock value and intelligence from their stored digital and physical assets at speed and with security, while helping them meet their environmental goals.

Important notices

This Announcement contains inside information. The person responsible for arranging and authorising the release of this Announcement is Tim Kowalski, Chief Financial Officer and Company Secretary of NCC Group plc.

This Announcement is issued at 7:00 am BST on 13 May 2021. This Announcement is not intended to, and does not constitute, or form part of, any offer to sell or issue or any solicitation of an offer to purchase, subscribe for, or otherwise acquire, any securities or a solicitation of any vote or approval in any jurisdiction. NCC Group shareholders are advised to read carefully the Circular once it has been published. Any response to the Acquisition should be made only on the basis of the information in the Circular to follow.

Lazard & Co., Limited ("Lazard") is acting as financial adviser to NCC and Peel Hunt LLP ("Peel Hunt") is acting as sponsor to NCC in connection with the Acquisition. Each of the Lazard and Peel Hunt is authorised and regulated by the FCA in the United Kingdom and is acting exclusively for NCC and no one else in connection with the Acquisition and will not regard any other person (whether or not a recipient of this Announcement) as a client in relation to the Acquisition or the matters described in this Announcement. Neither Lazard or Peel Hunt will be responsible to anyone other than NCC for providing the protections afforded to its clients or for providing advice in relation to the matters described in this Announcement. Neither Lazard or Peel Hunt nor any of their subsidiaries 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 its client in connection with this the Acquisition and the matters referred to in this Announcement, any statement contained in this Announcement or otherwise. Apart from the responsibilities and liabilities, if any, which may be imposed on Peel Hunt as sponsor by FSMA or any other regulatory regime established under FSMA, neither of Lazard and Peel Hunt accepts responsibility for the contents of this Announcement, and no representation or warranty, express or implied, is made by either Lazard or Peel Hunt in relation to the contents of this Announcement, including its accuracy, completeness or verification of any other statement made or purported to be made by it, or on its behalf, in connection with NCC, the Acquisition or the matters described in this Announcement. To the fullest extent permissible by law, each of Lazard and Peel Hunt accordingly disclaims all and any responsibility or liability whether arising in tort, contract or otherwise (save as referred to above) which it might otherwise have in respect of this Announcement or any such statements.

The Company's securities have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the "Securities Act"), or under the securities laws of any state or other jurisdiction of the United States, and may not be offered, sold, pledged or transferred, directly or indirectly, in, into or within the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and in compliance with any applicable securities laws of any relevant state or other jurisdiction of the United States. There has been and will be no public offering of the securities of the Company in the United States.

Cautionary statement regarding forward-looking statements

This Announcement includes statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "plans", "anticipates", "targets", "aims", "continues", "expects", "intends", "may", "will", "would" or "should" or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this Announcement and include statements regarding the Group's and/or the Directors' intentions, beliefs or current expectations concerning, among other things, the Group's results, operations, financial condition, prospects, growth strategies and the markets in which the Group operates. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. A number of factors could cause actual results and developments to differ materially from those expressed or implied by the forward-looking statements, including without limitation: conditions in the markets, the market position of the Group, earnings, financial position, return on capital, anticipated investments and capital expenditure, changing business or other market conditions and general economic conditions. These and other factors could adversely affect the outcome and financial effects of the events described herein and the Group. Forward-looking statements contained in this Announcement based on these trends or activities should not be taken as a representation that such trends or activities will continue in the future.

These forward-looking statements speak only as at the date of this Announcement. Except as required by the Listing Rules, the Disclosure Guidance and Transparency Rules and any applicable law, NCC does not have any obligation to update or revise publicly any forward-looking statement, whether as a result of new information, further events or otherwise. Except as required by the Listing Rules, the Disclosure Guidance and Transparency Rules and any applicable law, NCC expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained herein to reflect any change in NCC's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this Announcement might not occur.

NCC GROUP PLC

PROPOSED ACQUISITION OF THE INTELLECTUAL PROPERTY MANAGEMENT BUSINESS OF IRON MOUNTAIN

13 May 2021

1.  Introduction

NCC Group plc (LSE: NCC, "NCC", the "Company" or the "Group") is pleased to announce the signing of an agreement for the proposed acquisition of the Intellectual Property Management business (the "IPM Business") of Iron Mountain Inc. ("Iron Mountain"), comprising substantially all of the assets of Iron Mountain Intellectual Property Management, Inc. ("IPM") together with certain other assets of affiliates of Iron Mountain exclusively related to the IPM Business, for a consideration of $220 million (£156 million) (the "Acquisition").  The consideration for the Acquisition will be satisfied entirely in cash.

The IPM Business, operating from Boston, Massachusetts, USA, is a leading software escrow providers with operations primarily in the United States. The IPM Business serves a large and diverse blue chip customer base which spans a majority of the Fortune 500, as well as many other prominent US institutions. The IPM Business is part of the wider Iron Mountain data and records management business and is proposed to be combined with NCC's existing Software Resilience business. 

2.  Summary information on NCC and NCC's strategy

NCC's shares are listed on the Main Market of the London Stock Exchange and NCC is a constituent of the FTSE 250 index.

NCC is a global cyber security and software resilience business operating across a range of different sectors, geographies and technologies. By utilising its global insights into the cyber threats facing our increasingly connected society, NCC enables organisations to assess, manage and develop their cyber security resilience and posture. In turn, this affords clients the ability to operate safe in the knowledge that their business, software, and personal data are both protected and secure.

NCC comprises two divisions: "Assurance" which focuses on cyber security consultancy and technical services and "Software Resilience" which provides software escrow and verification services.

Over the past three years NCC has been executing its transformation programme, Securing Growth Together, which is focused on solidifying the core strategic and operational foundations required to underpin:

· the mission to make the world safer and more secure; and

· the vision to be the leading cyber security advisor globally - trusted to protect and secure customers' critical assets as well as being sought after for complete people-led, technology-enabled cyber resilience solutions that enable customers to thrive.

As part of this transformation, NCC has focused on improving the performance of the Software Resilience division which has resulted in a number of investments in new technology, services, and people.

Despite an unprecedented year of global challenges as a result of the COVID-19 pandemic, not just for NCC but all stakeholders and clients alike, the Directors are delighted that NCC continues to make material progress on the execution of its strategy, as demonstrated by the most recent reported financial performance and outlook for the Group published in its interim results on 4 February 2021. This progress provides the Group with the foundation to undertake a successful acquisition of the IPM Business and integration thereafter.

3.  Summary Information on the IPM Business

The Intellectual Property Management division of Iron Mountain (NYSE: IRM-US) is a leading software escrow platform in the United States. The IPM Business, which is founded on the principles of security and protecting companies' critical assets, serves as a trusted and secure third party for mitigating the risk for both software users ("beneficiaries") as well as providing higher levels of assurance for software developers ("depositors"), through the provision of a suite of escrow services.  Such escrow services support the beneficiaries in the event the depositor is unable to support their software as a result of an unforeseen set of circumstances.

Complementary to the core escrow offering, the IPM Business also provides verification services for beneficiaries in order to assist them in determining whether the software IP deposited in escrow is complete and operates in line with expectations.

The IPM Business benefits from minimal client concentration and attractive market dynamics, including increasing corporate spend and focus on software, IT resilience, security and risk management.

The business currently serves over 6,000 customers and in excess of 15,000 beneficiaries across a diverse range of end markets, with a client retention rate of 86%.

For the 12 months ended 31 December 2020, the IPM Business reported revenues of $32.9 million (£23.3 million), of which escrow services comprised 86% with verification services accounting for the remaining 14%. 80% of the IPM Business's revenues are recurring or re-occurring. EBITDA of $21.6 million (£15.4 million) in 2020 equates to an EBITDA margin of 65.7%.

The IPM Business' headline financials over the past three years to 31 December 2020 comprise:

	Year ended 31 December 2018	Year ended 31 December 2019	Year ended 31 December 2020
Revenue ($ million)	32.8	33.2	32.9
EBITDA ($ million)	22.5	21.9	21.6
Costs allocated from Parent undertaking⁵ ($ million)	3.0	3.2	3.4
EBITDA margin (%)	68.6%	66.0%	65.7%
Cash conversion ratio¹ (%)	95.4%	93.9%	91.7%

This financial information has been extracted without material adjustment from the audited historical financial information for IPM for the three years ended 31 December 2020, prepared in accordance with International Financial Reporting Standards as adopted by the European Union in a form consistent with the accounting policies adopted by NCC in its own annual consolidated accounts, and which will be set out in the Circular when it is published.

4.  Reasons for the proposed Acquisition

The Directors believe that the strategic and financial rationale for the Acquisition are compelling and that the Acquisition is strongly aligned with the Group's existing strategy.

The Directors believe that the Acquisition and combination of NCC's Software Resilience division with the IPM Business will:

· scale-up the Group's core business to create a global business and platform for further growth;

· generate revenue synergies through allowing the enlarged division to offer NCC's broader suite of established verification services as well as the newer Escrow-as-a-Service (EaaS) cloud offering to the IPM Business's existing customer base;

· present an exciting new opportunity to sell NCC's cyber security services from its Assurance division into the IPM Business's broad and blue chip customer base;

· be immediately accretive to earnings¹; and

· result in greater strategic strength for the future.

In summary, the Acquisition will bring opportunity to both of NCC's divisions and enable NCC to deploy its complete service offering at scale in the US market to the ultimate benefit of all of its stakeholders.  

The combined business will have increased operational reach and stronger financial performance. This is expected to provide opportunities for the Enlarged Group to pursue further organic and inorganic investments both within the software resilience market, including adjacent sectors, but also across the broader cyber assurance landscape.

Scaling NCC's software resilience division to create a global business and platform for growth

The IPM Business is a leading software escrow provider within a large and diverse US market. The Directors believe that a combination of the IPM Business with the existing NCC Software Resilience division will provide immediate scale-up of the core business while making the US region NCC's largest contributor of divisional revenues and profits. In addition, the IPM Business represents a stable platform for NCC to deliver accretive revenue growth in the growing EaaS cloud and cyber market. Combined, NCC and the IPM Business are estimated to have a leading share of the total current addressable US market for software resilience of $180 million, offering a strong platform to accelerate growth.

More broadly, the Directors believe that the introduction of a new, diversified and international contracted customer set will present a further opportunity to extend the NCC footprint globally and in doing so grow its recurring revenue base.

Exciting potential for revenue synergies and growth

The Directors believe that the proposed Acquisition represents a compelling opportunity for both of NCC's Assurance and Software Resilience divisions to benefit from an enlarged, blue chip customer base and in doing so to generate revenue synergies alongside organic growth from NCC's core offering. The Directors believe that these revenue synergies could be made up of:

· increased penetration of established verification services into the IPM Business's customer base;

· offering the Group's nascent but fast-growing EaaS cloud proposition to the IPM Business's customer base; and

· satisfying demand for cyber services in the IPM Business's customer base.

The Group generates approximately 32% of revenue in its Software Resilience division from verification services whereas the IPM Business generates 14%. The Directors believe that NCC currently offers a broader set of verification solutions than the IPM Business and believes that there is potential to sell these broader solutions to the IPM Business's large customer base.

In addition to long-established verification services, the Directors are pleased that the Group's flagship EaaS cloud offering, which was launched in 2019, is experiencing significant customer demand with over 100 users now using the service. The Directors are therefore excited by the potential opportunity of offering this product to the customer base of the IPM Business, which spans a majority of the Fortune 500 as well as many other prominent US institutions.

NCC's Assurance division is also anticipated to benefit from the ability to offer its broad range of cyber security consulting and managed services directly to the same client base of the IPM Business. The Directors believe that providing a holistic service offering which covers some of the most pressing corporate cyber and security requirements represents an attractive proposition for US customers and therefore creates new growth opportunities for the Assurance Division.

Strong financial rationale for shareholders

The Directors have thoroughly reviewed and considered the prospects of the Enlarged Group, as well as the expected revenue synergy benefits and associated costs of achieving them, and believe that the financial rationale for the combination is strong.

The Enlarged Group, and more specifically the Software Resilience division, will be of considerably greater scale than today, which the Directors believe will give rise to improved growth prospects as described above. NCC's current management team has good relevant experience in integrating acquisitions, delivering revenue synergies and driving new monetisation models. These factors give the Directors confidence that this Acquisition will have a positive impact on the Enlarged Group's financial profile.

The Directors believe that the notable financial consequences of the deal are:

· The Acquisition will be significantly accretive to earnings per share from Completion¹, even without factoring in revenue synergies;

· The Acquisition will be immediately accretive to margins¹;

· The Group will have an enlarged recurring revenue base, with 80% of IPM's revenues being recurring (against 60% of NCC's Software Resilience division's revenues being recurring);

· The Acquisition will strengthen the Group's cash generation owing to IPM's cash conversion ratio² of over 90% over the last three years which, following cash interest and tax deductions, should provide a rapid de-leveraging profile and enable further organic and inorganic investment in the near term;

· Material tax savings which the Directors believe will be created over a 15 year period as a result of intangible assets created by the Acquisition that can be amortised for tax purposes; and

· The provision of material additional scale to the Group - the IPM Business reported revenue of $32.9 million (£23.3 million) and EBITDA of $21.6 million (£15.4 million) for the 12 months ended 31 December 2020 (audited).

The IPM Business has historically relied upon Iron Mountain and its affiliates to provide certain key services via its central operations. A certain number of these services, such as accounting, legal, risk and security, IT, HR and facilities, will continue to be supported under the terms of the Master Services Agreements and the Transition Services Agreement, while others will be integrated with NCC's own central corporate functions. The team that will transfer with the IPM Business is already relatively streamlined and is expected to be retained as part of the Acquisition. As a result, the cost synergies arising from the Acquisition are anticipated to be minimal. NCC has developed a detailed integration plan for the Acquisition to ensure the continuity of NCC and the IPM Business' day-to-day operations which is estimated to involve one-off costs of approximately £2 million.

Proven leadership team with significant industry experience

The IPM Business has a strong, established team, led by Mr. John Boruvka and Ms. Joy Egerton, which is expected to be retained as part of the Acquisition. Mr. John Boruvka is the Vice President of Sales for the IPM Business and has been part of a software escrow business since 1987, which was subsequently acquired by Iron Mountain. Ms. Joy Egerton is Director, Operations for the IPM Business. Mr. Boruvka, Ms. Egerton and the senior members of the IPM Business team have agreed to continue in their roles following Completion.

The IPM Business is well known to the NCC management team, having been identified as a strategic fit in recent years, which the Directors believe will help in facilitating the integration process.

Currently the IPM Business primarily operates from its headquarters in Boston, Massachusetts, and its premises in North Atlanta, Georgia employing approximately 50 employees as of 30 April 2021. Given the highly complementary nature of the IPM Business to NCC's existing Software Resilience division, NCC intends to operate the IPM Business as part of an enlarged US Software Resilience business within the global NCC Software Resilience operation.

Future investment optionality and strategic strength

Following the Acquisition and combination with the IPM Business, the Software Resilience business will have expanded its global presence and is expected to achieve a scale that provides it with greater stability and strategic flexibility in the medium-term.

The Directors believe that the enlarged recurring revenue profile and enhanced cash generation will provide the Group with a platform to make further strategic investments, if deemed appropriate and value-accretive to the Group. Such investments could take the form of organic initiatives, inorganic opportunities in line with the Group's strategy or a complementary mix across both divisions.  

5.  Principal Terms of the Acquisition

On 13 May 2021, NCC Group Software Resilience (NA) LLC, a subsidiary of NCC, (the "Purchaser"), NCC Services Limited, a subsidiary of NCC (the "UK Purchaser"), NCC Group (Solutions) Limited (as guarantor) (solely with respect to the guarantee therein), the Company (solely with respect to the Resolution and the financing provisions therein), IPM, Iron Mountain UK plc ("UK Iron Mountain" and together with IPM, the "Sellers"), Iron Mountain Information Management LLC ("Iron Mountain IM") and Iron Mountain (solely with respect to the confidentiality and restrictive covenant provisions therein), entered into an asset purchase agreement (the "Purchase Agreement") pursuant to which the Purchaser and the UK Purchaser have agreed to acquire the IPM Business, comprising of substantially all of the assets of IPM, together with certain other assets of affiliates of Iron Mountain exclusively related to the IPM Business. The total consideration for the acquisition of the IPM Business on a cash-free and debt-free basis with a normalised level of working capital is $220 million, subject to adjustment.

Under the Purchase Agreement, Iron Mountain IM and the Sellers have made customary representations and warranties to the Company, and Purchasers have made customary representations and warranties to the Sellers. All of the representations and warranties of Iron Mountain IM and, the Sellers survive until the earlier of (a)  the date of Completion (the "Completion Date") and (b) the termination of the Purchase Agreement; provided that certain fundamental representations will survive for six years following the Completion Date.  The representations and warranties of the Purchasers survive until the earlier of (a) one year after the Date of Completion and (b) the termination of the Purchase Agreement.  The Purchaser has obtained a buy-side representation and warranty insurance policy with coverage of up to $22 million (the "R&W Insurance Policy") in respect of Iron Mountain IM and the Seller's representations and warranties contained in the Purchase Agreement, subject to certain specified retention, exclusions and limitations agreed with the insurer.

Completion of the Acquisition is subject to the approval (as a Class 1 transaction under the Listing Rules) by Shareholders passing an ordinary resolution (the "Resolution") without amendment at the General Meeting or any adjournment thereof by the Outside Date and other customary conditions. Subject to satisfaction of the conditions, Completion is expected to occur on 7 June 2021.

Under the Purchase Agreement, the Purchaser is required to pay a termination fee of $10 million, equal to one per cent of the market capitalisation of the Company as at the close of business of the Business Day prior to the date of this Announcement, to Iron Mountain if the Purchase Agreement is terminated (i) as a result of the Company failing to obtain financing sufficient to consummate the Acquisition prior to the Outside Date while all other conditions to the Completion of the Acquisition have been satisfied; (ii) due to the Board changing its recommendation that Shareholders vote in favour of the Resolution; (iii) as a result of the Resolution not being passed by the Shareholders prior to the Outside Date; or (iv) due to the Company not issuing this document to its Shareholders within seven days of the date of the Purchase Agreement.

The Acquisition is subject to the requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the related rules and regulations (the "HSR Act"), which provide that certain transactions may not be completed until required information has been furnished to the US Federal Trade Commission Bureau of Competition ("FTC") and the US Department of Justice Antitrust Division ("DOJ") and until certain waiting periods have been terminated or have expired or approval has been obtained. The HSR Act requires the Company and Iron Mountain to observe a 30-day waiting period after the submission of their filings under the HSR Act before consummating the Acquisition, unless the waiting period is terminated early, or unless it is extended by a request for additional information or documentary material from the FTC or the DOJ.  Each of the Company and Iron Mountain filed a Pre-Merger Notification and Report Form under the HSR Act with the FTC and the DOJ in connection with the Acquisition, and on 21 December 2020, the waiting period under the HSR Act expired.

6.  Financial impact of the Acquisition

The Board believes that the Acquisition will generate considerable value for Shareholders. The key financial implications of the Acquisition are expected to be:

· Significantly accretive to earnings per share from Completion¹, even without factoring in revenue synergies;

· Immediate accretion to Group EBITDA margins¹;

· Strong cash generation owing to IPM's cash conversion ratio² of over 90% over the last three years which, following cash interest and tax deductions, should provide a rapid de-leveraging profile and enable further organic and inorganic investment in the near term;

· The Directors expect leverage to be approximately 1.5x net debt to Enlarged Group EBITDA immediately following the Acquisition; and

· Provision of material additional scale to the Group - the IPM Business reported revenue of $32.9 million (£23.3 million) and EBITDA of $21.6 million (£15.4 million) for the 12 months ended 31 December 2020 (audited).

7.  Financing of the Acquisition

The consideration for the Acquisition will be satisfied entirely in cash. The consideration of $220 million and all related transaction costs will be funded through a combination of:

· approximately $99 million (£70 million), being the estimated gross proceeds of the Placing announced on the date of this Announcement³;

· $70 million (£50 million) from a new three year Term Facility Agreement;

· existing cash balances of $10 million (£7 million); and

· the balance from the Company's existing Revolving Credit Facility Agreement.

As announced on the date of this Announcement, the Company intends to conduct a placing of up to 27,906,400 new Ordinary Shares (the "Placing Shares") which is estimated to realise gross proceeds of approximately £70 million³ for the purposes of funding the Acquisition. It is expected that results of the Placing will be announced later today, and that completion of the Placing and settlement of the Placing Shares is expected to take place on 17 May 2021. The Placing is not conditional on the completion of the Acquisition. In the unlikely event the Acquisition is not completed by the Outside Date, the Company may, at its option, decide to use the funds for alternative acquisitions or consider a tax efficient way to return capital to Shareholders.

8.  Current trading and prospects

The Group

The Directors reaffirm their current expectation that the Group's Pre-IFRS 16 Adjusted EBIT for the year ending 31 May 2021 will be no less than market consensus of £33 million⁴. Pre-IFRS 16 Adjusted EBIT is defined as the Group's operating profit before adjusting items to assist in the understanding of the Group's performance. Adjusting items represent amortisation of acquired intangibles, the impact of IFRS 16, share-based payments and individually significant items.

IPM Business

Since 31 December 2020, trading has been in line with expectations and there has been no significant change in the in the financial or trading position of the IPM Business since that date.

9.  Dividend policy

The Board's view on dividend policy remains unchanged as per the interim results statement released on 4 February 2021.  The Board is conscious of the need to invest in certain initiatives to support longer term growth and therefore the dividend policy will continue to remain under review.

10.  Publication of the Circular and General Meeting

The size of the Acquisition means that it constitutes a Class 1 transaction for the purposes of the Listing Rules and accordingly is conditional on the approval of the Shareholders at the General Meeting. The Circular containing further details of the Acquisition, the Directors' recommendation, the notice of the General Meeting and the Resolutions are expected to be sent to Shareholders on 14 May 2021.

APPENDIX I

Definitions

The definitions set out below apply through this Announcement, unless the context requires otherwise.

"Acquisition"	the acquisition of the Intellectual Property Management business of Iron Mountain on the terms and conditions set out in the Purchase Agreement
"Acquisition Agreements"	the Purchase Agreement, the Bill of Sale and Assignment and Assumption Agreement, the Transition Services Agreement and the Master Services Agreements
"Announcement"	this announcement
"Baird"	Robert W. Baird & Co., Incorporated
"Board" or "Directors"	the directors of NCC as at the date of this document
"Completion"	completion of the Acquisition pursuant to the terms of the Purchase Agreement
"Enlarged Group"	the Group as enlarged by the Acquisition
"FCA" or "Financial Conduct Authority"	the Financial Conduct Authority of the UK in its capacity as the competent authority for the purposes of Part VI of FSMA and in the exercise of its functions in respect of Admission to the Official List otherwise than in accordance with Part VI of FSMA
"FSMA"	the Financial Services and Markets Act 2000 (as amended)
"General Meeting"	the general meeting of NCC proposed to be held at 9:30 a.m. on 1 June 2021
"Group"	NCC and its subsidiary undertakings from time to time
"IPM Business"	the Intellectual Property Management business of Iron Mountain, comprising substantially all of the assets of IPM, together with certain other assets of affiliates of Iron Mountain exclusively related to such business
"Iron Mountain"	Iron Mountain Inc.
"Iron Mountain IM"	Iron Mountain Information Management LLC
"Lazard"	Lazard & Co., Limited
"Listing Rules"	the listing rules of the Financial Conduct Authority made pursuant to Part VI of FSMA
"London Stock Exchange"	London Stock Exchange plc
"Master Services Agreements"	collectively, (i) the master services agreement between Iron Mountain Information Management, LLC and the Purchaser; (ii) the global data center customer agreement between Iron Mountain Data Centers, LLC and the Purchaser; (iii) an e-vaulting-as-a-service agreement with Iron Mountain Information Management, LLC; and (iv) the lease agreement between Iron Mountain Information Management, LLC and the Purchaser to be entered into at Completion
"NCC" or "Company"	NCC Group plc (incorporated in England and Wales with registered number 04627044)
"Official List"	the Official List of the FCA
"Ordinary Shares"	the ordinary shares of £0.01 each in the capital of NCC
"Outside Date"	28 June 2021, or such other date as the parties to the Purchase Agreement may agree in writing
"Peel Hunt"	Peel Hunt LLP
"Placing"	the placing of up to 27,906,400 new Ordinary Shares in NCC with placees as announced on the date of this Announcement
"Placing Agreement"	the agreement among NCC, Jefferies International Limited, Jefferies GmbH and Peel Hunt and dated 13 May 2021 relating to the Placing
"Purchase Agreement"	the asset purchase agreement dated 13 May 2021 by and among the Purchaser, the UK Purchaser, NCC Group (Solutions) Limited (solely with respect to the guarantee therein), the Company (solely with respect to the Resolution and the financing provisions therein), Iron Mountain IM, the Sellers and Iron Mountain (solely with respect to the confidentiality and restrictive covenant provisions therein)
"Purchaser"	NCC Group Software Resilience (NA) LLC, as purchaser under the Purchase Agreement
"Resolution"	the ordinary resolution to approve the Acquisition as set out in the notice of General Meeting
"Revolving Credit Facility Agreement"	the £100 million revolving credit facility agreement entered into among National Westminster Bank Plc, HSBC UK Bank Plc, ING Bank N.V., NCC Group plc, NCC Group (Solutions) Limited, originally dated 10 June 2019 as amended and restated on 12 May 2021
"R&W Insurance Policy"	the representation and warranty and insurance policy issued to the Purchaser
"Sellers"	Iron Mountain Intellectual Property Management, Inc. and Iron Mountain UK plc, as sellers under the Purchase Agreement
"Shareholders"	the holder(s) of Ordinary Shares
"Target" or "IPM"	Iron Mountain Intellectual Property Management, Inc.
"Target Group"	Iron Mountain IM, the Sellers and its affiliates that hold assets comprising the IPM Business
"Term Facility Agreement"	the $70 million term loan facility agreement entered into among National Westminster Bank Plc, HSBC UK Bank plc, ING Bank N.V., NCC Group plc, and NCC Group (Solutions) Limited, dated 12 May 2021
"Transition Services Agreement"	the transition services agreement to be entered into at Completion between Iron Mountain Information Management, LLC and the Purchaser
"UK Purchaser"	NCC Services Limited, as purchaser of certain UK assets under the Purchase Agreement
"United Kingdom" or "UK"	the United Kingdom of Great Britain and Northern Ireland
"United States" or "US"	the United States of America, its territories and possessions, any state of the United States and the District of Columbia

APPENDIX II

Key Notes

1.  Based on reported results stated before the IFRS 3 and IFRS 13 impact of the fair value treatment of deferred revenue on acquisition.

2.  Cash conversion is calculated in line with NCC methodology of net cash flow from operating activities before interest and taxation divided by Adjusted EBITDA on a post IFRS16 basis.

3.  Assuming a placing of approximately 9.9% of the Company's current issued share capital at the mid-market closing price of NCC's shares as at the close of business on the date prior to the date of this Announcement.

4.  As outlined within the Consensus Forecasts 2021/22 as of 10 February 2021 that is available at www.nccgroupplc.com/investor-relations/results-media/

5.  As disclosed in Note 1 of the Target Group's historical financial information for the three years ended 31 December 2018, 2019 and 2020.

 

END

 

 

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