Acquisition of Avanta Enterprise Limited

RNS Number : 1646H

Staffline Group PLC

15 May 2014

 



For Immediate Release

15 May 2014

Staffline Group PLC

("Staffline" or the "Company")

Acquisition of Avanta Enterprise Limited

Placing of 2,000,000 new ordinary shares at £8.00 each to raise £16 million

Staffline, the national recruitment and outsourcing organisation providing people and operational expertise to industry, is pleased to announce that it has conditionally agreed to acquire Avanta Enterprise Limited ("Avanta"), a leading provider of Welfare to Work and skills training services across the UK, for £65.45 million (the "Acquisition"). Staffline also announces an associated conditional placing of 2,000,000 new ordinary shares (the "Placing Shares") at £8.00 per Placing Share (the "Placing Price") to raise £16 million (the "Placing").

After accounting for £18 million of cash in Avanta representing retained earnings (the "Avanta Retained Earnings") and the repayment by two sellers of a £2.45 million debt due to a non-trading associated company of Avanta, Broomco (4198) Limited, which will also be acquired as part of the Acquisition ("Sellers' Debt"), the net consideration paid equates to £45 million, comprising an initial consideration of £25 million payable in cash on completion (in addition to the amount attributable to the Avanta Retained Earnings and Sellers' Debt), with the remaining £20 million payable in the form of non-contingent deferred consideration.

Avanta is one of the UK's leading Welfare to Work and training providers led by a management team with over 30 years' experience, employing approximately 600 staff and operating through 43 sites.  Avanta is a profitable, cash generative business delivering (unaudited) revenues of £70 million and the Acquisition is expected to be significantly earnings enhancing from day one.

Rationale for the Acquisition

The acquisition of Avanta is an important strategic step for Staffline, which will position the business as a top three provider in the Welfare to Work arena (based on referral numbers), a key long term growth initiative for the Company.

Key strategic drivers for the Acquisition include:

·      The creation of the UK's third largest Welfare to Work provider which the Directors believe will greatly enhance Staffline's position for bidding future contracts

·      The enlarged Welfare to Work division will provide complimentary scale and cross selling opportunities to Staffline's existing Onsite operations, which are particularly strong in the East Midlands and North-West of England

·      Profits of the enlarged group will become more evenly balanced between Welfare to Work and Staffline's broader recruitment services on completion of the Acquisition

·      Bringing Avanta's experienced management team into Staffline, alongside EOS' existing team, to accelerate the Company's strategic goal of becoming the leading Welfare to Work provider

The acquisition of Avanta will offer shareholders a profitable cash generative business which is expected to be significantly earnings enhancing.  The Board also believes that the deal terms are very attractive, at 5x prospective EBIT, given Avanta's contracted revenues in place.

Andy Hogarth, Chief Executive of Staffline commented:

"We are delighted to be announcing the conditional acquisition of Avanta today, which will represent a new and exciting chapter in the ongoing development of our business.  Welfare to Work has become an important growth driver for the Company and the opportunity to accelerate and expand our ongoing activities signals a significant step change for Staffline.

"The combination of Avanta and EOS, our top performing Welfare to Work operation, will create a significant opportunity from which to deliver outstanding service to our clients whilst leveraging the competences and skillsets from our core recruitment services.

"Finally, I'd like to personally welcome Avanta's employees into Staffline and look forward to updating the market as we continue to grow and enhance our business."

For further information, please contact:
Staffline Group plc	0115 950 0885
Andy Hogarth, Chief Executive Phillip Ledgard, Finance Director www.staffline.co.uk	07931 175775 07432  554437
Liberum Capital
Chris Bowman / Richard Bootle	0203 100 2222
http://www.liberum.com
Buchanan
Jeremy Garcia / Gabriella Clinkard	020 7466 5000

www.buchanan.uk.com 

Additional Information

Additional information on Avanta

Avanta is a leading provider of employability and vocational skills training services across the UK.

Avanta currently holds long term contracts on behalf of the UK government, and in addition to its Work Programme contracts Avanta also has several additional local and national employability and vocational skills contracts. Avanta's strategy is to deliver from larger centres located in major urban areas, with smaller centres located and embedded within local communities. Avanta's delivery centres are well invested and equipped with high specification training environments to enable efficient, high quality on-site training.

In the year to 31 March 2013, Avanta delivered revenues of £53 million and profit before tax of £2.4 million and in the year to 31 March 2014 Avanta has delivered unaudited revenues of £70 million and EBITDA of approximately £12 million.

The Combined Entity

On completion of the Acquisition, Staffline's existing Welfare to Work business, EOS, will be merged with Avanta. Peter Brooks, currently Avanta's managing director, will lead the combined Avanta/EOS business. The combined entity will automatically become the third largest Work Programme provider with 4 prime Work Programme contracts and 5 Work Programme sub-contracts.  In addition to the Work Programme contracts, the combined entity will have a number of other contracts within the Welfare to Work and Employability arena, including:

·      European Social Fund contracts in Yorkshire and West Midlands, presently existing within the EOS business

·      A new Enterprise Allowance Contract, ending in March 2015

·      A prospective contract in the Kingdom of Saudi Arabia (in which Avanta expects to have a 50 per cent. interest)

The Board believes that the combined entity will be in a strong position for success in tendering future contracts.

Acquisition and Consideration

The Acquisition is conditional on receipt by Avanta of formal change of control consent from the Department for Work Pensions by 6 June 2014 or such later date as may be agreed between Staffline and the sellers. The Acquisition is also conditional upon a facilities agreement for the £10 million term loan becoming unconditional in all respects (save for any condition relating to completion).

The consideration for the acquisition of Avanta will be £65.45 million which, after accounting for payment of the Avanta Retained Earnings and Sellers' Debt, equates to a net consideration of £45 million. The net consideration will comprise the initial consideration of £25 million in cash, with the balance as deferred consideration.

The initial consideration of £25 million for the Acquisition will be partly satisfied through the net proceeds of the Placing of £15.35 million, with the balance being financed by a £10 million, 4 year term loan. The term loan will be repayable in equal instalments of £625,000 over 16 quarters from completion.

The deferred consideration will be satisfied by the issue of £20 million bank guaranteed loan notes to the sellers, repayable in tranches of £11 million on the first anniversary of completion, and £9 million, 19 months after completion.

The Placing

Liberum has conditionally placed the Placing Shares with institutional and other investors pursuant to the terms of a placing agreement entered into between Liberum and the Company (the "Placing Agreement"). The following directors of the Company are subscribing for shares in the Placing:

Director	No. of Placing Shares	Placing Amount (£)	Shareholding Pre-Admission(1)	Shareholding Post-Admission
Andy Hogarth	46,875	£375,000	1,568,629	1,615,504
Diane Martyn	3,750	£30,000	Nil	3,750
John Crabtree	1,500	£12,000	18,750	20,250
Nicholas Keegan & connected persons	3,000	£24,000	33,750	36,750

⁽¹⁾ Excludes interest of Andy Hogarth in relation to 656,863 shares and interest of Diane Martyn in relation to 350,000 shares pursuant to the Company's Joint Share Ownership Plan. 

The Placing Shares will, when issued, represent approximately 7.8 per cent. of the Company's existing issued share capital.

The Placing is conditional on the Placing Agreement not being terminated in accordance with its terms and Admission occurring no later than 16 May 2014 (or such later date as Liberum may agree, being no later than 23 May 2014). The Placing is not conditional on the completion of the Acquisition.

The Placing Price represents a premium of 3.6 per cent. to the mid-market closing price of an ordinary share on 14 May 2014.

On Admission, the Placing Shares will rank pari passu in all respects with the Company's existing ordinary shares, including the entitlement to the final dividend of 6.2p declared in the Company's preliminary results and payable on 4 July 2014 to shareholders on the register on 6 June 2014.

Members of the public are not eligible to take part in the Placing. The Placing is only being made to persons falling within articles 19 or 49 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended) who are also qualified investors for the purposes of section 86 of the Financial Services and Markets Act 2000 and no other person may participate in the Placing or rely on any communication relating to it.

Application has been made to the London Stock Exchange for the Placing Shares to be admitted to trading on AIM. It is expected that Admission will occur on 16 May 2014 at which time is it also expected that the Placing Shares will be enabled for settlement in CREST. Immediately following Admission, the Company is expected to have 27,687,551 ordinary shares issued and fully paid.

Important Notice

Neither the content of the Company's website nor any website accessible by hyperlinks to the Company's website is incorporated in, or forms part of, this announcement.  The distribution of this announcement and any other documentation associated with the Placing into jurisdictions other than the United Kingdom may be restricted by law.  Persons into whose possession these documents come should inform themselves about and observe any such restrictions.  Any failure to comply with these restrictions may constitute a violation of the securities laws or regulations of any such jurisdiction.  In particular, such documents should not be distributed, forwarded to or transmitted, directly or indirectly, in whole or in part, in, into or from the United States, Australia, Canada, Japan or the Republic of South Africa or any other jurisdiction where to do so may constitute a violation of the securities laws or regulations of any such jurisdiction (each a "Restricted Jurisdiction").

The Placing Shares have not been and will not be registered under the US Securities Act 1933 (as amended) (the "US Securities Act") or with any securities regulatory authority of any state or other jurisdiction of the United States and, accordingly, may not be offered, sold, resold, taken up, transferred, delivered or distributed, directly or indirectly, within the United States except in reliance on an exemption from the registration requirements of the US Securities Act and in compliance with any applicable securities laws of any state or other jurisdiction of the United States.

There will be no public offer of the Placing Shares in the United States.  The Placing Shares are being offered and sold outside the US in reliance on Regulation S under the US Securities Act.  The Placing Shares have not been approved or disapproved by the US Securities and Exchange Commission, any state securities commission in the US or any other US regulatory authority, nor have any of the foregoing authorities passed upon or endorsed the merits of the offering of the Placing Shares or the accuracy or adequacy of this announcement.  Any representation to the contrary is a criminal offence in the US.

The Placing Shares have not been and will not be registered under the relevant laws of any state, province or territory of any Restricted Jurisdiction and may not be offered, sold, resold, taken up, transferred, delivered or distributed, directly or indirectly, within any Restricted Jurisdiction except pursuant to an applicable exemption from registration requirements.  There will be no public offer of Placing Shares in Australia, Canada, Japan, or the Republic of South Africa.

This announcement is for information purposes only and does not constitute or form part of any offer to issue or sell, or the solicitation of an offer to acquire, purchase or subscribe for, any securities in any jurisdiction and should not be relied upon in connection with any decision to subscribe for or acquire any of the Placing Shares. In particular, this announcement does not constitute or form part of any offer to issue or sell, or the solicitation of an offer to acquire, purchase or subscribe for, any securities in the United States.

This announcement has been issued by, and is the sole responsibility of, the Company.  No person has been authorised to give any information or to make any representations other than those contained in this announcement and, if given or made, such information or representations must not be relied on as having been authorised by the Company or Liberum Capital.  Subject to the AIM Rules for Companies, the issue of this announcement shall not, in any circumstances, create any implication that there has been no change in the affairs of the Company since the date of this announcement or that the information contained in it is correct at any subsequent date.

Liberum Capital, which is authorised and regulated in the United Kingdom by the Financial Conduct Authority, is acting for the Company and no one else in connection with the Placing and will not regard any other person (whether or not a recipient of this announcement) as a client in relation to the Placing and will not be responsible to anyone other than the Company for providing the protections afforded to its clients or for providing advice in relation to the Acquisition, Placing or any other matters referred to in this announcement.

Apart from the responsibilities and liabilities, if any, which may be imposed on Liberum Capital by the Financial Services and Markets Act 2000 or the regulatory regime established thereunder, Liberum Capital does not accept any responsibility whatsoever for the contents of this announcement, and makes no representation or warranty, express or implied, for the contents of this announcement, including its accuracy, completeness or verification, or for any other statement made or purported to be made by it, or on its behalf, in connection with the Company or the Placing Shares or the Placing, and nothing in this announcement is or shall be relied upon as, a promise or representation in this respect whether as to the past or future.  Liberum Capital accordingly disclaims to the fullest extent permitted by law all and any 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 statement.

No statement in this announcement is intended to be a profit forecast or estimate and no statement in this announcement should be interpreted to mean that earnings per share of the Company for the current or future financial years would necessarily match or exceed the historical published earnings per share of the Company.

This announcement may include 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", "projects", "anticipates", "expects", "intends", "may", "will", or "should" or, in each case, their negative or other variations or comparable terminology.  These forward-looking statements include matters that are not historical facts.  They appear in a number of places throughout this announcement and include statements regarding the Directors' current intentions, beliefs or expectations concerning, among other things, the Company's results of operations, financial condition, liquidity, prospects, growth, strategies and the Company's markets.  By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances.  Actual results and developments could differ materially from those expressed or implied by the forward-looking statements.  Forward-looking statements may and often do differ materially from actual results.  Any forward-looking statements in this announcement are based on certain factors and assumptions, including the Directors' current view with respect to future events and are subject to risks relating to future events and other risks, uncertainties and assumptions relating to the Company's operations, results of operations, growth strategy and liquidity.  Whilst the Directors consider these assumptions to be reasonable based upon information currently available, they may prove to be incorrect.  Save as required by law or by the AIM Rules for Companies, the Company undertakes no obligation to release publicly the results of any revisions to any forward-looking statements in this announcement that may occur due to any change in the Directors' expectations or to reflect events or circumstances after the date of this announcement.

 

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