TIDMINSE
RNS Number : 1127A
Inspired PLC
22 May 2023
22 May 2023
Inspired PLC
("Inspired" or the "Company" or the "Group")
Deed of Variation - Ignite Energy LTD
Maximising our Optimisation Services opportunities
Inspired (AIM: INSE), a leading technology enabled service
provider supporting businesses in their drive to net-zero and
controlling energy costs, announces that it has entered into a deed
of variation (the "Deed") to the share purchase agreement dated 9
July 2020 (the "SPA") between the Company and vendors of Ignite
Energy LTD ("Ignite") being Benjamin Higgins, David Higgins,
Vanessa Higgins and Ethan Higgins (the "Vendors").
Summary
-- Over the past year the Group's Optimisation Services Division
has gained significant traction and this agreement is designed to
further incentivise the Ignite Vendors for the long term so they
can continue to add substantial value to the Group.
-- The Deed provides the opportunity for the Vendors to secure
up to GBP9.25 million of additional earn out consideration (the
"Additional Contingent Consideration") subject to challenging
performance thresholds.
-- To secure the entire Additional Contingent Consideration,
Ignite will be required to deliver year on year EBITDA growth in
excess of Group management's current expectations from FY24 until
H1 2027 and generate cumulative EBITDA (before deduction of central
overheads) of c.GBP64.1 million including in excess of GBP20.4
million of EBITDA (before deduction of central overheads) in FY26.
[1]
-- The Additional Contingent Consideration is entirely
self-funding and payment is subject to an 80% cash conversion
hurdle, to ensure alignment to the Group's focus on cash
generation.
Mark Dickinson, CEO of Inspired PLC commented : "The
Optimisation Division delivered significant growth in FY22, driven
by an increase in demand as the ongoing energy crisis sharpened
clients' focus on the economics of investment in energy reductions,
combined with the drive for delivering net-zero. With national
Covid restrictions behind us we are able to deliver on-site
services once again, a material factor which is driving strong
demand for our Optimisation Services. Now is the right time to
incentivise the Ignite Vendors to deliver for the long term for
Inspired PLC."
Background to and rationale for the Deed
The Company announced the acquisition of the outstanding 60% of
Ignite on 10 July 2020 pursuant to the SPA (the "Ignite
Acquisition"). The consideration paid by the Company for the Ignite
Acquisition was an initial consideration of GBP11.0 million and
further performance related consideration of up to a maximum of
GBP19.0 million in cash and shares in the Company ("Original
Earn-out Consideration"), dependent on the achievement of certain
financial performance criteria for the period to 31 December 2023
("Earn-out Period"). To date, GBP6.0 million of the GBP19.0 million
of the Original Earn-out Consideration has been paid in cash.
The Deed, alongside the final payments due and potentially
payable under the SPA, increases the maximum contingent
consideration which could currently still be payable to GBP22.5
million [2] should the Vendors achieve the challenging performance
thresholds set. The maximum Earn-out Consideration that could be
earned by the Vendors in relation to FY23 EBITDA performance
(before deduction of central overheads), to be paid in cash and
shares, totals GBP5.2 million. In respect of FY22 EBITDA
performance, GBP2.6 million in shares remains due to the Vendors
under the Original Earn-Out Consideration and these will be issued
shortly. The table in the Appendix sets out the current status of
the Original Earn-out Consideration.
As outlined in the Company's FY22 results, there is a
substantial growth opportunity for Optimisation Services,
underpinned by a strong current pipeline and growing d emand for
solutions to deliver net-zero and reduce costs, accelerated further
by the current energy crisis. The Board believes that the Vendors
are highly talented individuals and have a strong track record of
growing the Ignite business. The Board has therefore concluded it
is appropriate to enter into the Deed in order to maximise the
current opportunity. This Deed will re-incentivise the Vendors, as
management recognise that the Vendors have only had one full year
of the three to demonstrate the full scale of the opportunity due
to Covid-19 disruption.
The payment of the Additional Contingent Consideration is
conditional upon the achievement of challenging financial
performance targets relating to the growth of EBITDA in Ignite
(before deduction of central overheads) against the prior year's
performance and is subject to an 80 per cent cash conversion
hurdle. The H1 2027 element is designed to ensure the Vendors are
incentivised to build a strong pipeline to underpin sustained
growth into 2027 and beyond.
To earn the entire Additional Contingent Consideration, under
the terms of the Deed, Ignite would be required to deliver year on
year EBITDA growth in excess of current management expectations
from FY24 to H127 and generate, as a minimum, in excess of GBP20.4
million of EBITDA before central overheads in FY26. This would
result in a cumulative EBITDA (before deduction of central
overheads) of c.GBP64.1 million between FY24 and H127. [1] The
Additional Contingent Consideration is structured to be entirely
self-funding given the criteria as set out in Table 1 below. As the
Additional Contingent Consideration is payable for year on year
EBITDA performance in excess of current management expectations,
the contingent consideration liability on the balance sheet in
relation to FY24 to H127 will remain unchanged at this time.
Summary of the key changes pursuant to the Deed
Further detail on the Additional Contingent Consideration is set
out below. All Additional Contingent Consideration will be settled
in cash and is subject to cash generation from operations of Ignite
being in excess of 80% of the EBITDA generated in each period
tested.
Table 1: Details of the Additional Contingent Consideration
Tranche Additional
Contingent
Consideration
Cash Test Period Criteria Minimum required See through
EBITDA before EBITDA multiple
central overheads ***
to maximise
Additional
Contingent
Consideration*
----------------- ------------- ---------------------- ------------------- -----------------
Tranche Up to a Financial GBP0.85 consideration c.GBP14.9m c.2.70x
1 maximum Year ending for every GBP1.00
of GBP2,337,500 31 December growth in EBITDA
2024 before deduction
of central overheads
in FY24 over FY23
----------------- ------------- ---------------------- ------------------- -----------------
Tranche Up to a Financial GBP0.85 consideration c.GBP17.7m c.2.45x
2 maximum Year ending for every GBP1.00
of GBP2,337,500 31 December growth in EBITDA
2025 before deduction
of central overheads
in FY25 over FY24
----------------- ------------- ---------------------- ------------------- -----------------
Tranche Up to a Financial GBP0.85 consideration c.GBP20.4m c.2.28x
3 maximum Year ending for every GBP1.00
of GBP2,337,500 31 December growth in EBITDA
2026 before deduction
of central overheads
in FY26 over FY25
----------------- ------------- ---------------------- ------------------- -----------------
Tranche Up to a 6 months Payable if EBITDA c.GBP22.4m**
4 maximum ending 30 before deduction
of GBP2,237,500 June 2027 of central overheads
2027 is 10% or
more higher than
the aggregate
of the Gross Margin
for the highest
two Quarters in
the year ending
31 December 2026.
----------------- ------------- ---------------------- ------------------- -----------------
Total Up to
a maximum
of GBP9,250,00
----------------- ------------- ---------------------- ------------------- -----------------
*Assumes that Ignite generates GBP12.1m in FY23 as per the
maximum Original Earnout Consideration for that year and achieves
the maximum Additional Contingent Consideration each year
previously.
**H1 2027 on a 12m proforma basis.
*** Calculated from the total consideration which could be
payable for Ignite and the maximum EBITDA before overheads as set
out in the table.
Note: A table which sets out the details of the Original
Earn-out Consideration, as already disclosed by the Company on 10
July 2020, and includes the current payment status, is set out in
the appendix to this announcement.
Management have agreed with the Vendors that the Additional
Contingent Consideration calculation excludes any EBITDA (before
deduction of central overheads) contribution from a major public
sector optimisation customer (the "Specific Optimisation Customer
"), who impacted the Group's aged trade receivables position in
FY21 and FY22.
Noting that the Deed contains an acknowledgement between the
parties that no Original Earn Out Consideration is due in relation
to FY21, which was in part due to the Specific Optimisation
Customer being an aged debtor, the Company has agreed a separate
incentivisation with the Vendors in relation to this customer. The
Vendors will have the opportunity to recover up to GBP2.75 million
of the earn out consideration foregone in relation to cash
collected and generated (rather than profit generation) from the
Specific Optimisation Customer from FY23 and up to an additional
GBP2.75 million in relation to additional revenue and cash
collected from FY24 to FY26.
Related Party Transaction
The Vendors are directors of Ignite which is a wholly owned
subsidiary of the Company and therefore are deemed to be related
parties of the Company under the AIM Rules for Companies ("AIM
Rules"). Accordingly, the entering into the Deed by the Company
with the Vendors constitutes a related party transaction under the
AIM Rules (the "Related Party Transaction"). The directors of the
Company consider, having consulted with S hore Capital and
Corporate Limited ("Shore Capital"), the Company's nominated
adviser, that the terms of the Related Party Transaction are fair
and reasonable insofar as shareholders of the Company are
concerned.
Enquiries please contact:
Inspired PLC www.inspiredplc.co.uk
Mark Dickinson, Chief Executive Officer +44 (0) 1772 689250
Paul Connor, Chief Financial Officer
David Cockshott, Chief Commercial Officer
Shore Capital (Nominated Adviser and
Joint Broker)
Patrick Castle
James Thomas
Rachel Goldstein +44 (0) 20 7408 4090
Liberum (Joint Broker)
Edward Mansfield
Will Hall +44 (0) 20 3100 2000
Alma PR +44 (0) 20 3405 0205
Justine James inspired@almapr.co.uk
Hannah Campbell
Will Ellis Hancock
Appendix - Original Earn-Out Consideration schedule in
accordance with the SPA
Tranche Earn-out
Consideration
Cash Contingent Test Period Criteria Current status
Consideration
Shares*
------------------- ------------------- ---------------- ----------------------- -----------------
Tranche GBP3,400,000 Nil From Completion Payable on delivery Paid in FY2022
1 to Financial of GBP5.22m of
Year ending EBITDA before
31 December deduction for
2023 central overheads.
------------------- ------------------- ---------------- ----------------------- -----------------
Tranche Up to GBP2,600,000 Up to GBP2,600,000 Financial GBP1.50 consideration Nothing paid
2 Year ending for every GBP1.00 due to Covid
31 December growth in EBITDA impact and
2021 before deduction reflecting
of central overheads an outstanding
FY21 over FY19. aged debtor
Therefore, full who is a major
earn out payable public sector
on delivery of Optimisation
GBP8.9m of EBITDA client.
before deduction
of central overheads.
------------------- ------------------- ---------------- ----------------------- -----------------
Tranche Up to GBP2,600,000 Up to GBP2,600,000 Financial GBP1.50 consideration Cash element
3 Year ending for every GBP1.00 paid in respect
31 December growth in EBITDA of FY22.Share
2022 before deduction element to
of central overheads be issued
of FY22 over FY21. imminently.
------------------- ------------------- ---------------- ----------------------- -----------------
Tranche Up to GBP2,600,000 Up to GBP2,600,000 Financial GBP1.50 consideration To be determined
4 Year ending for every GBP1.00
31 December growth in EBITDA
2023 before deduction
of central overheads
of FY23 over FY22.
------------------- ------------------- ---------------- ----------------------- -----------------
Total Up to Up to GBP7,800,000
GBP11,200,000
------------------- ------------------- ---------------- ----------------------- -----------------
[1] Assumes that Ignite generates GBP12.1m of EBITDA (before
deduction of central overheads) in FY23 as per the maximum Original
Earn-Out Consideration for that year and achieves the minimum
EBITDA (before deduction of central overheads) to secure the
maximum Additional Contingent Consideration between FY24 and H127
as per the criteria in Table 1.
[2] Consisting of: (1) Up to GBP9.25m of Additional Contingent
Consideration (on the terms as set out in Table 1); (2) the GBP2.6m
of shares in respect of FY22, which are due to be issued shortly;
(3) Up to GBP5.2m in respect of FY23 from the Original Earn Out
Consideration; and (4) Up to c.GBP5.5m in respect of the Specific
Optimisation Customer (as set out below).
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END
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