Disposal

RNS Number : 5504Q

Tribal Group PLC

01 March 2016

 

THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN IS RESTRICTED AND IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN, INTO OR FROM THE UNITED STATES, CANADA, AUSTRALIA, JAPAN, SOUTH AFRICA OR ANY OTHER JURISDICTION IN WHICH THE SAME WOULD BE UNLAWFUL. PLEASE SEE THE IMPORTANT NOTICE AT THE END OF THIS ANNOUNCEMENT.

Tribal Group plc

("Tribal" or the "Group")

 

Proposed Disposal of Synergy Business for £20.25 million

Highlights

·           Tribal Group plc, a leading provider of software and services to the education management market, is pleased to announce it has agreed to dispose of its Synergy children's services management information system business to Servelec Group plc (the "Disposal")

·           The consideration receivable for the Synergy business is £20.25m, payable in cash on completion

·           The net proceeds from the transaction will be applied in reducing Group net debt

·           The disposal of Synergy will strengthen Tribal's focus on its core business. Tribal provides software and services that support principally the management of universities, colleges and schools.  Synergy supplies management information system software to children's services departments of local authorities in the United Kingdom and, accordingly, is considered to be non-core

·           The unaudited adjusted EBITDA (see below) for Synergy for the year ended 31 December 2015 was £2.3m

·           The Disposal is conditional on the approval of Tribal Shareholders

·           In December 2015, the Board announced a proposed rights issue of up to £35m, in respect of which £30m was underwritten on a standby basis by Investec, the proceeds of which will be used primarily to reduce debt (the "Rights Issue"). Given the net proceeds of the Disposal the Board now anticipates that the required Rights Issue will be reduced and will now be up to £21m

·           A further announcement in respect of the Rights Issue is expected to be made on or about the announcement of the Company's financial results for the year ended 31 December 2015 later in March 2016

Ian Bowles, Chief Executive of Tribal, commented:

"The disposal represents an important step in focussing Tribal on its core activities.  This, together with the intended Rights Issue, will restore the Group's balance sheet, and enable the management team to take the business forward in its domestic and international markets."

END

Tribal Group plc                                                                                            Tel: [phone]

Ian Bowles, Chief Executive
Steve Breach, Group Finance Director

Investec Bank plc                                                                                          Tel [phone]

Rowena Murray

Sara Hale

Weber Shandwick Financial                                                                          Tel: [phone] 

Nick Oborne

Tom Jenkins

Cautionary statements

This announcement contains forward-looking statements that are based on current expectations or beliefs, as well as assumptions about future events. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements often use words such as anticipate, target, expect, estimate, intend, plan, goal, believe, will, may, should, would, could, is confident, or other words of similar meaning. Undue reliance should not be placed on any such statements because they speak only as at the date of this document and, by their very nature, they are subject to known and unknown risks and uncertainties and can be affected by other factors that could cause actual results, and Tribal's plans and objectives, to differ materially from those expressed or implied in the forward-looking statements.

There are a number of factors which could cause actual results to differ materially from those expressed or implied in forward-looking statements. Among the factors that could cause actual results to differ materially from those described in the forward-looking statements are; increased competition, the loss of or damage to one or more key customer relationships, changes to customer ordering patterns, delays in obtaining customer approvals for price level changes, the failure of one or more key suppliers, the outcome of business or industry restructuring, the outcome of any litigation, changes in economic conditions, currency fluctuations, changes in interest and tax rates, changes in raw material or energy market prices, changes in laws, regulations or regulatory policies, developments in legal or public policy doctrines, technological developments, the failure to retain key management, or the key timing and success of future acquisition opportunities or major investment projects.

Tribal undertakes no obligation to revise or update any forward-looking statement contained within this announcement, regardless of whether those statements are affected as a result of new information, future events or otherwise, save as required by law and regulation.

No statement in this announcement is intended as a profit forecast and no statement in this announcement should be interpreted to mean that underlying operating profit for the current or future financial years would necessarily be above a minimum level, or match or exceed the historical published underlying operating profit or set a minimum level of underlying operating profit.

Investec Bank plc ("Investec"), which is authorised by the Prudential Regulation Authority and authorised and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, is acting exclusively for Tribal and no-one else in connection with the Disposal and Rights Issue and will not regard any other person (whether or not a recipient of this document) as its client in relation to the Disposal and the Rights Issue and will not be responsible to anyone other than Tribal for providing the protections afforded to its clients nor for the giving of advice in relation to the Disposal or the Rights Issue or any other matter or arrangement referred to in this announcement.  Apart from the responsibilities and liabilities, if any, which may be imposed on Investec by the Financial Services and Markets Act 2000 or the regulatory regime established thereunder, Investec accepts no responsibility whatsoever for the contents of this announcement, including its accuracy, completeness or for any other statement made or purported to be made by it, or on its behalf, in connection with Tribal, the shares of Tribal, the Disposal or the Rights Issue.  Investec, its subsidiaries, branches and affiliates accordingly disclaim all and any liability whether arising in tort, contract or otherwise (save as referred to above) in respect of this announcement or any such statement.

This announcement has been issued by Tribal and is the sole responsibility of Tribal. No representation or warranty, express or implied, is or will be made as to, or in relation to, and no responsibility or liability is or will be accepted by Investec or by any of its affiliates or agents as to, or in relation to, the accuracy or completeness of this announcement or any other written or oral information made available to or publicly available to any interested party or its advisers, and any liability therefore is expressly disclaimed.

Important notice

This announcement does not constitute or form part of, and should not be construed as, any offer, invitation or recommendation to purchase, sell or subscribe for any securities in any jurisdiction and neither the issue of the information nor anything contained herein shall form the basis of or be relied upon in connection with, or act as an inducement to enter into, any investment activity. This announcement and the information contained herein do not constitute an offer of securities in the United States. The securities referred to in this announcement have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the "Securities Act"), and may not be offered or sold in the United States absent registration under the Securities Act or pursuant to an exemption from, or a transaction not subject to, such registration requirements. The Group has not registered and does not intend to register the offering of any securities in the United States or to conduct a public offering of any securities in the United States.

 

Tribal Group plc

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

Proposed Disposal of Synergy Business

1.         Introduction

The Board of directors of Tribal Group plc announces that it has agreed to dispose of its Synergy business to Servelec Group plc ("Servelec") for cash consideration of £20.25 million, payable on completion (the "Disposal").  The Disposal will strengthen Tribal's focus on its core business and the net proceeds of the Disposal will be applied in reducing Group net debt. 

2.         Background to and reasons for the Disposal

Tribal's business

The Tribal Group provides software and services that support principally the management of universities, colleges and schools.  Tribal mainly operates in the UK, Asia Pacific (Australia, New Zealand and South East Asia) and other countries in the English-speaking world.  It works with managers, administrators and senior academic staff to enhance the quality of education and experience their institutions offer to students.

Tribal is a leading provider of student management systems to universities, colleges and schools in its key markets of the UK, Australia and New Zealand. Tribal serves an excellent installed customer base including some of the world's leading universities, colleges and schools, from which recurring annual support revenues in excess of £30m were generated during the year ended 31 December 2015.

The Group's services include benchmarking and analytics services, advisory services and specialist support services to enhance the delivery of education and training. The Group's quality assurance solutions are used primarily by government agencies to review, measure and monitor the quality of education provision and associated activities by universities, colleges and schools, and where appropriate to inform and support improvement programmes in these settings.

Synergy's business

Synergy supplies management information system software to children's services departments of local authorities in the United Kingdom.  The Synergy software product enables managers in local authorities to support the education, safety and well-being of children, young people and families in their geographic area of responsibility.  Synergy software is installed in approximately 59% of local authorities in England, with a full suite deployed in approximately 29% of local authorities.

In recent years the Group has focused on management of students in universities, colleges and schools.  Accordingly, because the Synergy business is not focused on this market, it is considered to be non-core for the Group.

Need to reduce net indebtedness

2015 was a challenging year for Tribal, as set out in previous announcements made on 19 October 2015 and 14 December 2015. As a result, in early December 2015 the Board took the decision that it would be prudent to approach its lending banks to request a waiver of the covenants in the facility for the period ended 31 December 2015.  The lending banks agreed to this request, which was announced by the Company on 21 December 2015.

Given the increased volatility of Tribal's profitability and cashflow resulting from its increased exposure to larger contracts, together with tightened market conditions and the constraints of the financial covenant tests in the Group's bank facility, the Board considers that it is appropriate to reduce the Group's net debt.

On 14 December 2015, the Company announced that it planned to undertake a rights issue of up to £35m and had entered into a standby underwriting agreement pursuant to which Investec Bank plc ("Investec") had agreed to underwrite £30 million of that planned rights issue (the "Rights Issue").

If the lending banks under the Group's Facility Agreement had not waived the covenants in the facility for the period ended 31 December 2015, the Group would have breached the net debt to EBITDA covenant in the Facility Agreement.  The net debt to EBITDA covenant is next tested for the twelve months ending 30 June 2016 and every six months thereafter. There can be no guarantee that, without a significant reduction in the Group's level of net debt, the net debt to EBITDA covenant will not be breached at 30 June 2016, and there is no guarantee that the lending banks under the Facility Agreement would agree to a waiver or amendment of the covenants in future. 

Reason for disposal

Notwithstanding the planned Rights Issue, the Board has continued to investigate alternative options for raising additional capital and/or improving the Group's financial position.  As part of the investigation of alternative options, the Company considered the disposal of the Synergy business which had last year been identified by the Board as non-core to the Group, and subsequently entered into negotiations with Servelec.

3.         Financial information on the Synergy business

During 2015, the Synergy business generated revenues of £6.3m (2014: £6.6m), of which £5.2m (2014: £5.6m) related to the business's Product Development and Customer Services segment, and included £4.1m (2014: £4.0m) of recurring software maintenance revenues.  Other revenue generated by the Synergy business of £1.1m (2014: £1.0m) related to the Implementation Services segment.

The Synergy business delivered an operating profit and a profit before tax of £2.7m in 2015 (2014: £3.2m) (stated before exceptional charges of £1.0m (2014: £nil) and before allocation of costs of central support services which will not transfer to Servelec).

On a consistent basis with the above, other than expensing all development expenditure incurred in the period, the Synergy business generated EBITDA of £2.9m (2014: £3.2m).

Non-transferring central support services include IT services, HR, finance, legal, marketing and head office costs.  Management estimates that the cost of these support services was approximately £0.6m in 2015 (2014: £0.6m).  When taking into account the cost of these central support services, the Synergy business generated an indicative standalone EBITDA of £2.3m (2014: £2.6m) (before exceptional charges referred to above).

As at 31 December 2015, the Synergy business had gross assets of £8.2m (including goodwill of £6.1m) and net assets of £4.9m.

4.         Financial effects of the Disposal and use of proceeds

The gross cash proceeds due at completion of the Disposal are £20.25m (£19.95m net of tax and transaction costs of approximately £0.3m).

The net proceeds of the Disposal will be applied in reducing the continuing group's net debt.

Given the net proceeds of the Disposal and the financial profile of the continuing group, the Board has determined that the appropriate size of the Rights Issue, anticipated to be launched alongside publication of the Group's results for the year ended 31 December 2015, will be less than previously announced.  Taking into account both the proceeds of the Disposal and the Rights Issue, in order to ensure adequate working capital, good financial stability and flexibility for the continuing group following the Disposal, it is now intended that the required Rights Issue will be up to £21m.

The Board is of the view that it is in the best interests of the Company for the Disposal to take place regardless of whether the intended Rights Issue takes place.  Accordingly, the Disposal will not be conditional on the approval of any Rights Issue.

As a result of the Disposal, the continuing group will have a substantially reduced interest charge for the year ending 31 December 2016. In addition, cost savings forming a part of a wider cost reduction programme being initiated by the Group will be implemented over the coming months in order to align overheads with the size of the continuing group.  Accordingly, the overall impact of the Disposal is expected to be earnings enhancing in the first full year following completion.

Based on the unaudited balance sheet of the Synergy business at 31 December 2015, the Disposal will increase the Group's net assets by £15.1m after receipt of net proceeds.  The extent of any goodwill impairment arising from this transaction will be assessed at 30 June 2016 in the light of progress in the Group's wider cost reduction measures.

5.         Further information on the Disposal

The terms of the Disposal are set out in a sale and purchase agreement dated 29 February 2016 between the Company, Tribal Education Limited, Servelec and Servelec Corelogic Limited, and an agreed form business transfer agreement to be entered into between Tribal Education Limited and Elise Newco Limited.

It has been agreed that £0.75m of net current liabilities will remain in the business on completion.  The consideration of £20.25m is subject to adjustment on a pound for pound basis to the extent that there is a working capital shortfall or excess at completion.

Given its size, the Disposal constitutes a class 1 transaction for the purposes of the Listing Rules and, accordingly, is conditional on the approval of shareholders of Tribal at a general meeting.  The Directors consider that the consideration to be paid for the Disposal represents fair value and recommend that Shareholders vote in favour of the Disposal.  Richard Last and Roger McDowell, Directors of Tribal, are also directors of Servelec.  As a result of these cross-directorships, these Directors are deemed to be conflicted in relation to the Disposal and so have not participated in assessment of the financial merits of the transaction, or negotiation of its terms.

There are no other conditions to the Disposal, save that Servelec has the right to terminate the sale and purchase agreement in the event of a material adverse change.

The Disposal is expected to complete shortly following the general meeting held to obtain shareholder approval.

The sale and purchase agreement includes customary warranties and indemnities given by Tribal to Servelec (including in relation to tax).

On completion Tribal will enter into a transitional services agreement to provide certain services to the Synergy business for a period following completion.

An explanatory circular setting out further detail of the Disposal and the Rights Issue and convening a general meeting for the purposes of proposing the resolution required to obtain shareholder approval of the Disposal will be sent to Shareholders later in March.  It is expected that, subject to shareholder approval, the Disposal will complete at the end of March 2016.

6.         Preliminary results

The year end audit remains in progress, and it is anticipated that the Group's results for 2015 will be published in mid March alongside the launch of the intended Rights Issue.  At that time, a current trading update will be given.

 

END

 

 

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