Acquisition of Pipeshield International Ltd

RNS Number : 3657P

Tekmar Group PLC

10 October 2019

 

The information communicated within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.

10 October 2019

Tekmar Group plc

("Tekmar", the "Group" or the "Company")

Acquisition of Pipeshield International Ltd

("Pipeshield" or the "business")

Tekmar (AIM: TGP), a market-leading technology provider of subsea protection systems is pleased to announce that it has today signed a sale and purchase agreement for the acquisition of Pipeshield (the "Acquisition") for a consideration of £6.5 million (the "Consideration") from its founder Steven Howlett (the "Seller"). 

Acquisition highlights:

•	Pipeshield is a global market leader in the provision of patented subsea concrete mattress protection systems;
•	Revenue and profit before tax of £6.6m and £0.8m respectively in the year ended 31 December 2018 ("FY18");
•	As at 31 August 2019, Pipeshield had net assets of c.£3.1m, including c.£1.1m cash, c.£3.0m trade debtors and c.£1.3m trade creditors;
•	Consideration of £6.5m, payable in cash and new ordinary shares in the Company;
•	Founder, Steven Howlett, will remain as Managing Director of Pipeshield;
•	Increases the Group's cross-selling opportunities; and
•	Opportunity for Tekmar Energy to extend the number of protection products it offers to existing customers for offshore projects.

The Consideration will be satisfied via £3.0m in cash and £0.75m through the issue of 573,833 new ordinary shares in Tekmar (the "Consideration Shares") to the Seller on completion; plus deferred cash payments of £1.5m on 9 April 2020 and £1.25m on 9 October 2020.

This is the Group's third acquisition since its admission to AIM in June 2018 and continues our strategy to acquire synergistic offshore energy engineering businesses with a clear focus on subsea technology and complementary customer bases, which will benefit from being part of a wider group. Pipeshield broadens our portfolio of complementary technologies, allowing the seamless supply of subsea protection products across the lifecycle of a project, and takes us closer to our vision of being the partner of choice for the supply and installation support of subsea protection equipment to global offshore energy markets.

Background on Pipeshield

Pipeshield is a world leading technology provider of subsea concrete mattresses. These mattresses are used in the protection of subsea equipment such as pipelines and power cables within all marine environments, including offshore wind, marine renewables, oil and gas and marine civil engineering.

Concrete mattresses and associated products are used for the stabilisation and impact protection of subsea equipment in areas where they cannot be buried. They are also used to limit the development of localised scour (seabed erosion) on foundations, pipelines or in marine ports. The technology is highly complementary to Tekmar's and has frequently been used in conjunction on past projects.

The business, which is headquartered in Lowestoft, has manufacturing operations local to its primary markets, including Aberdeen, UAE, Saudi Arabia and Singapore. The majority of Pipeshield's production activity is undertaken at its new leased facility at Blyth in Northumberland, a major hub for offshore renewables activity in the UK.

Pipeshield currently employs 25 full time staff, most of whom are technically focused, plus circa 15 contractors supporting the manufacturing process at any one time. The business has four patents, protecting its core technology, and is fully accredited and independently certified including:

•	Full ISO 14001, 19001 and 18001 for Health, Safety, Quality and Environmental (HSQE);
•	Dual Queens awards for International Trade and Enterprise Innovation; and
•	Investor in People Gold standard.

The business has a strong history in the provision of equipment to the major operators within the marine sector including, most recently, Technip, Van Oord, DeepOcean, NPCC, Saipem and Allseas.

Pipeshield provided its patented mattress protection technology to the first commercial wind farms, including E.on's Scroby Sands in 2004. Most recently the business was awarded the prestigious East Anglia scope for Scottish Power's project, which is currently under construction. Further, Pipeshield has a significant track record in the oil and gas and marine civil engineering markets, in which it has most recently supplied multiple contracts in the Middle East, including a multi-million-pound scope for the Dubai Marina Masterplan project in the UAE. 

Financial Information

As at 31 August 2019, Pipeshield had approximately £3.1m in net assets, including approximately £1.1m of cash, £3.0m trade debtors and £1.3m trade creditors which will all be acquired by Tekmar.

Pipeshield recorded revenue of £6.6m and profit before tax of £0.8m in FY18 and £3.4m and £0.1m respectively in FY17. Tekmar currently expects Pipeshield's results for the year ending 31 December 2019 to be slightly ahead of the prior year. The majority of revenue in FY19, however, was generated pre-Acquisition, as performance is heavily H1 weighted in the business. Consequently, Tekmar does not expect any material uplift in the Group's full year results in the current financial year to 31 March 2020. IFRS 15 will be applied to Pipeshield post Acquisition, to align with the Group's existing accounting policies.

Pipeshield currently has a strong enquiry book which stands at around £45m of live tenders. During FY18, the business achieved a 65% bid to win ratio. A typical split of annual Pipeshield revenue is 35% marine civil engineering, 35% oil and gas, 30% offshore wind.

Integration and Synergies  

Following the Acquisition, Pipeshield will continue to trade under its own name from its leased headquarters in Lowestoft and it will remain a separate legal entity within the Group. The business will, however, benefit from the Group's shared group services. No disruption or change for customers or employees is expected.

Pipeshield Board and Management

Steven Howlett will remain as Managing Director of Pipeshield and has signed a new service agreement, which provides for a minimum one-year service and contains appropriate restrictive covenants for a period of six months following termination of employment. Steven will report to the Board of the Group. All other management and employees will remain with the business.

The Opportunity

The Board of Tekmar believes that the Acquisition will increase the Group's cross-selling opportunities. While retaining its own identity, Pipeshield will be able to draw on other Group businesses to enhance its customer offering, utilising, for example, Agiletek and Ryder's analytical skills and Subsea Innovation's mechanical engineering skills for installation equipment. Pipeshield has the opportunity to work on the same offshore projects as Tekmar Energy, allowing Tekmar Energy the opportunity to offer additional protection products to its existing customers.

Further details of the Acquisition

The Consideration will be satisfied via £3.0m in cash and £0.75m through the issue of 573,833 new ordinary shares in Tekmar (the "Consideration Shares") to the Seller on completion; plus two deferred cash payments of £1.5m on 9 April 2020 and £1.25m on 9 October 2020. The consideration is fixed and not subject to any working capital adjustments.

The Consideration Shares will rank pari passu with existing ordinary shares and will be subject to a lock-in period of 12 months followed by orderly market provisions for 12 months. Application will be made for the Consideration Shares to be admitted to trading on AIM at 8.00 a.m. on or around 15 October 2019.

Following the issue of Consideration Shares, the Company will have 51,261,685 ordinary shares in issue and the total number of voting shares in Tekmar will be 51,261,685.

The above figure of 51,261,685 should be used by shareholders as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change to their interest in the share capital of Tekmar under the Financial Conduct Authority's Disclosure and Transparency Rules.

In addition, Pipeshield will transfer certain non-core assets to Mr Howlett pre-completion which will leave an amount owing to Pipeshield of approximately £0.7 million. Under the SPA, on settlement of this amount then Tekmar will make an additional deferred settlement of an equivalent amount. Consequently, this does not affect the cash consideration.

The transferred assets principally consist of Pipeshield's head office freehold property in Lowestoft, which is being transferred to Mr Howlet's personal business, Bulldog International Limited, on a leaseback arrangement to Pipeshield at normal market rates and terms.

James Ritchie, Chief Executive Officer of Tekmar, said: 

"Pipeshield is a perfect fit for Tekmar. Its products are complementary, allowing us to upsell and expand our offering to clients, realising our Group vision. The business has many similarities with Tekmar from both end customers to markets but also most importantly it fits culturally. The business focuses on technology, as its key differentiator, and Pipeshield has outstanding credentials, which demonstrate its commitment to safety, quality and, above all, its people; these are key values which we embrace across all Group companies. I am truly excited by the prospect of adding the Pipeshield offering to Tekmar's portfolio and I welcome Steve and his team to the family."

Steven Howlett, Founder and Managing Director of Pipeshield, said: 

"Tekmar and Pipeshield have many similarities. We are industry-leading technology providers within subsea protection and share a similar history and culture. I am keen to see the business progress and believe that being part of Tekmar will accelerate the achievement of our long-held growth aspirations.  I want to thank the Pipeshield team for all its hard work, getting us to this point, and highlight, to my staff and customers, that this change in ownership will only increase the opportunities for the business and our passion for delivering outstanding technical solutions. Other than that, it's very much business as usual."

 For further information contact:

Tekmar Group plc James Ritchie, Chief Executive Officer Sue Hurst, Chief Financial Officer	Tel: [phone]
Grant Thornton UK LLP (Nominated Adviser) Philip Secrett / Samantha Harrison	Tel: [phone]
Berenberg (Broker) Chris Bowman / Ben Wright	Tel:  [phone]
Belvedere Communications (Financial PR) Cat Valentine ([e-mail]) Llew Angus ([e-mail]) Keeley Clarke ([e-mail])	Tel: [phone] Tel: [phone] Tel: [phone]

About Tekmar - https://investors.tekmar.co.uk/

Tekmar's vision is to be the partner of choice for the supply and installation support of subsea protection equipment to the global offshore energy markets. The Group has five primary operating companies; these are Tekmar Energy Limited, Subsea Innovation Limited, AgileTek Engineering Limited, Ryder Geotechnical Limited and Pipeshield International limited.

Tekmar Energy is a global market leader in protection systems for subsea cable, umbilical and flexible pipe. Tekmar has been trusted to protect billions of Euros worth of assets in the offshore wind, oil and gas, wave, tidal and interconnector markets since 1985: https://www.tekmar.co.uk/

Subsea Innovation is a global leader in the design, manufacture and supply of complex engineered equipment and technology used in the offshore energy market. Its products include large equipment handling systems which operate on the back of pipelay installation vessels; emergency pipeline repair clamps (EPRC) which protect major oil and gas pipelines, and bespoke equipment for use in the construction of offshore energy projects: https://www.subsea.co.uk/

AgileTek Engineering is an award-winning subsea engineering consultancy for offshore energy projects. AgileTek helps its clients de-risk projects through advanced computer simulation and analysis. https://agiletek.co.uk/.  AgileDat, a division of AgileTek, provides software development, cloud architecture and data analytics services. https://agiledat.co.uk/

Ryder Geotechnical provides expert geotechnical design and consulting services to the offshore wind and subsea oil and gas sectors. Services include offshore structure foundation design, geohazard assessment and subsea cable routing and burial assessment.  https://www.rydergeotechnical.com/

Pipeshield is a market leading provider of specialised subsea protection solutions in the form of concrete mattresses used for the stabilisation and impact protection of subsea equipment in areas where they cannot be buried and further to limit the development of scour (seabed erosion) particularly local to that of a foundation, pipeline or in marine ports. http://www.pipeshield.com/.

Tekmar Energy and Tekmar are headquartered in Newton Aycliffe in the United Kingdom; AgileTek operates from an office in London; Subsea Innovation has its head office and manufacturing centre in Darlington, United Kingdom. Ryder operates in Newcastle and within Agiletek London, Pipeshield's headquarters are in Lowestoft with manufacturing in Blyth, Northumberland, Tekmar also has representation in South Korea, USA, China and across the Middle East.

 

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