TIDMEIT
RNS Number : 1480S
Enables IT Group PLC
04 November 2013
Enables IT Group plc
("Enables IT", "the Group" or "the Company")
Placing and Acquisition
Highlights
-- Strategic acquisition of US based IT services provider, Know
Technology, LLC for US$1.5 million
-- Placing to raise gross proceeds of approximately GBP2.5 million
-- Expansion of HAVEN cloud infrastructure and further investment in existing facilities
-- Strengthened balance sheet
Introduction
The Company is pleased to announce that Enables IT, Inc., a
wholly owned subsidiary of the Company, has today entered into an
acquisition agreement for the purpose of acquiring the business and
assets of Know Technology, LLC for a total consideration of US$1.5
million payable in cash and Ordinary Shares. Know Technology's
business is delivering information technology, professional
services and managed services. The Directors believe that the
Acquisition will assist in generating growth for the Group as a
whole once the business and assets are embedded into the Group's
wider operations.
The Company also announces today that it has conditionally
raised approximately GBP2.5 million (before expenses) through the
proposed Placing of 6,835,000 new Ordinary Shares at 36p per
ordinary share.
It is proposed that the net proceeds of the Placing
(approximately GBP2.3 million) will be used to finance the cash
portion of the purchase price of the Acquisition (US$1.0 million),
and for further investment as set out below. The Placing is
conditional (among other things) upon the Acquisition Agreement not
being terminated prior to Admission. The Acquisition is due to
complete on or about 2 December 2013. If the Acquisition does not
proceed, the balance of the net proceeds of the Placing will be
used for funding future acquisitions and for ongoing working
capital requirements.
Background to, and reasons for, the Placing and Acquisition
The Placing will provide funding for the US$1.0 million cash
consideration relating to the Acquisition. The Company plans to
continue to strengthen its operations both in the UK and US and to
continue to invest and grow its support desk operations which
currently operates out of Cape Town, South Africa and the U.S.. To
achieve these aims, the Acquisition is seen as a key opportunity,
providing an expansion of existing business operations within its
U.S. support desk facility.
In addition the Acquisition offers the opportunity to add to the
Group's existing business in the UK. The acquired business should
benefit from the Group's experienced management team, who will work
to enhance customer service levels and improve operational
efficiency. The Acquisition, will provide the Group with a stronger
market position in the area of New England strengthening its
position within data centre cloud services, complimenting its
capabilities to offer IT professional and managed services to
existing and new customers.
The Board believes that the Acquisition is consistent with the
Group's aim to become a technology and service leader in its chosen
markets. The Board further believes that, if the Acquisition is
completed, the Group will be in an even stronger position to
benefit from both the US and UK economic recovery.
The Acquisition is a strategic purchase based upon "Professional
Services" capabilities and business synergies with Enables IT, Inc.
The Acquisition will strengthen the Company's market position in
the New England area and will help facilitate US growth plans in
strengthening its existing offering of cloud services, managed
services and high level IT consultation, design and deploy IT
infrastructure projects. The main strategy in the US will be to
attract new and existing customers to the Company's data centre
facility using its cost effective cloud platforms that offers IAAS
("Infrastructure as a Service") and SAAS ("Software as a Service")
complemented with our managed service offerings.
Know Technology had revenue of approximately US$2.8m with
adjusted net profits of US$300k for the period ended 30 June 2013.
The current business model of Know Technology is in line with the
Company's target revenue model of 50 per cent. annual recurring, 30
per cent. project delivery and 20 per cent. to support mainly
project work. Additional synergies in the acquisition come from the
relocation of the smaller data centre into the Company's data
centre facility, the relocation of staff into the Company's
facility resulting in cost savings from not having to renew three
existing office leases due to expire.
Additionally, it has been agreed that certain members of the
existing management team of Know Technology, will join the combined
business and manage Enables IT, Inc., which the Directors believe
will enhance the current Enables IT, Inc. management team and grow
the US business. Profits due to the Group going forward will be
subject to service contracts with senior management as more fully
described below in the Acquisition Agreement.
The Board believes that the Acquisition will enhance the
Company's ability to cross-sell products and services across the
Group, allowing lower barriers to new sales opportunities,
therefore enhancing revenue growth.
The Board expects that the Company will make further
acquisitions in the future to broaden its services offered to
clients, including those where the Board believes that it can be
cross-sold to the Company.
Acquisition Agreement
Enables IT, Inc., a wholly owned subsidiary of the Company,
today entered into an Acquisition Agreement with Know Technology,
LLC amongst others pursuant to which Enables IT, Inc. agreed to
conditionally acquire the business and assets of Know
Technology.
The aggregate consideration payable by Enables IT, Inc. in
respect of the Acquisition is US$1,500,000 comprising US$1,000,000
in cash and the allotment and issue of 738,757 new Ordinary Shares
credited as fully paid being equivalent to approximately US$500,000
on Completion.
The cash consideration may be adjusted by an amount equal to the
value of the Working Capital (as defined in the Acquisition
Agreement, being cash and cash equivalent less deferred revenue)
less $70,000, where such amount is negative.
The Company has obtained an independent valuation of the assets
the subject of the Acquisition in connection with the issue of the
Consideration Shares, which confirms that the value of the total
consideration is not less than the aggregate of the nominal value
and share premium to be treated as paid up by the
consideration.
Completion of the Acquisition Agreement is conditional, amongst
other things, upon:
-- the Resolutions being duly passed at the General Meeting;
-- the Company receiving net proceeds pursuant to the Placing of not less than US$1.1 million;
-- Enables IT, Inc. paying US$1.0 million in cash to Know Technology; and
-- Know Technology performing and complying with certain
covenants and conditions, including, but not limited to, (i)
continuing to operate its business in its ordinary course of
business, (ii) maintaining the assets being acquired by Enables IT,
Inc. in good operating condition and repair, (iii) no event
occurring which could reasonably be expected to have a material
adverse effect on its business or the value of the assets being
acquired by Enables IT, Inc., and (iv) providing Enables IT, Inc.
access to certain information concerning its business.
Know Technology has given certain customary warranties to
Enables IT, Inc. and Know Technology and Patrick Jones and Stephen
Hand ("Senior Management") have agreed on a joint and several basis
to indemnify Enables IT, Inc. against any warranty claims. All
representations and warranties last for 18 months from Completion
and are limited to a maximum aggregate liability of US$1.5
million.
Know Technology has given an undertaking to refrain from any
involvement in a business which competes with that of Enables IT,
Inc. within North America, and not to solicit orders from customers
or suppliers or entice away any of the employees of Enables IT,
Inc. in each case, during the period of three years following
Completion.
Know Technology leases three offices in New England and has
fifteen (15) days from Completion to obtain consent from the
respective landlords to assign such leases to Enables IT, Inc.
pursuant to an assignment and assumption agreement satisfactory to
Enables IT, Inc. in its reasonable discretion, otherwise such lease
will remain with Know Technology.
In connection with the Acquisition, if (i) certain current
contracts of Know Technology are not validly assigned to Enables
IT, Inc. and Enables IT, Inc. does not receive specific cash
payments during the 90 days following Completion pursuant to such
contracts; or if (ii) Enables IT, Inc. does not receive certain
specified cash payments from certain other key monthly contracts of
Know Technology during the 90 days following Completion; then Know
Technology and the Covenantors have agreed to pay specific damages
to Enables IT, Inc. as its exclusive remedy in respect of such
contracts.
The Consideration Shares to be issued to Know Technology, will
rank pari passu with all other Ordinary Shares. Know Technology and
the Covenantors have given certain undertakings in relation to
restrictions on the transfer of the Consideration Shares such that
for the 12 month period following Completion, no such party may
dispose of the Consideration Shares unless to an affiliate of Know
Technology, or family member of the Covenantors and provided
Enables IT, Inc. consents to such transfer. In addition, Know
Technology and the Covenantors have granted Enables IT, Inc. a
'right of first refusal' to designate a transferee, such that
following the first anniversary of Completion, Know Technology and
the Covenantors must give written notice to Enables IT, Inc of
their intention to transfer the Consideration Shares to enable
Enables IT, Inc's designee to elect to purchase such shares.
Each of the Senior Management will enter into contracts of
employment with Enables IT, Inc (the "Service Contracts") on
Completion pursuant to which they will be entitled to receive
bonuses in certain circumstances (relating to the achievement of
prescribed profit and revenue amounts of the combined business)
payable by way of cash and Ordinary Shares in the capital of the
Company with 50 per cent. of such bonus becoming due at the expiry
of the third anniversary of Completion. In addition, assuming
certain other performance criteria are met throughout the three
year period from Completion an additional US$250,000 bonus is
payable to be satisfied by the issue of Ordinary Shares in the
Company. The Service Contracts are for a 3 year term which can be
terminated by either party at any time. The Board believes such
bonus structure will incentivise the Senior Management to grow the
enlarged business of Enables IT, Inc.
Senior Management have also agreed to give non-compete and
solicitation undertakings which are for a duration of three years
following Completion, if they leave in the first year, and for a
duration of two years if they leave within the second or third
anniversary of Completion.
The due completion date for the Acquisition is on or about 2
December 2013 due to operational issues and to permit an orderly
handover of the business and assets and assignment of certain
contracts.
Current Trading and Outlook
Current Trading
The Company announced its trading update for the year ended 30
September 2013 on 17 October 2013, an excerpt from which is
below:
"The Board is pleased to confirm that revenues and profits are
in line with current market expectations. Additionally, the Company
has managed to strengthen its balance sheet by settling an
outstanding convertible loan note before the expiry date in 2015
which had been put in place by the previous management team.
Customer demand for Enables IT services remains strong and our
pipeline is growing as the market increasingly shifts toward the
provision of flexible and robust solutions around cloud solutions
and backend network infrastructure.
The Group continues to successfully execute on its focused
growth strategy of providing high quality Cloud, managed and
professional services to its customers. With an expanding range of
services, through both organic and acquisitive means, we continue
to offer our customers flexible and cost effective solutions
providing their Cloud infrastructure, Networking and Security with
24/7 global support."
Outlook
The outlook for the Group remains positive with good indication
from the sales pipeline. The Group continues to remain committed to
invest in skills, product sets and data centre infrastructure both
in the UK and US operations. The Board remains confident in its
current execution plans in growing the business and believes
trading will remain strong into 2014.
Placing
The Placing Shares have been conditionally placed by Cenkos
Securities plc, as agent for the Company, with institutional and
other investors in accordance with the terms of the Placing
Agreement.
Subject to Admission, the Company will issue 6,835,000 new
Ordinary Shares which will raise approximately GBP2.5 million,
before expenses, and GBP2.3 million, after the expenses of the
Placing (which are estimated to be GBP0.2 million (excluding VAT)
in total).
To enable certain investors to take advantage of VCT/EIS tax
treatment, the Placing will comprise three separate allotments.
The Placing Shares issued pursuant to the Placing will represent
approximately 26.2 per cent. of the Enlarged Share Capital
(assuming the Consideration Shares are issued on Completion). The
Placing Shares will, following Admission, rank in full for all
dividends and distributions declared, made or paid in respect of
the issued Ordinary Share capital of the Company and otherwise rank
pari passu in all other respects with the Existing Ordinary Shares.
The Placing Price represents a discount to the closing mid-market
price of 15.3 per cent. per Ordinary Share as at 1 November 2013
(being the latest practicable date prior to the date of this
announcement).
The Placing Agreement
Pursuant to the terms of the Placing Agreement, Cenkos
Securities plc, as agent for the Company, has agreed to use its
reasonable endeavours to procure subscribers for the Placing Shares
at the Placing Price. The Placing Agreement is conditional upon,
inter alia:
-- the Resolutions being duly passed at the General Meeting;
-- the Acquisition Agreement not having been terminated or rescinded before Admission;
-- none of the warranties or undertakings given to Cenkos
Securities plc prior to Admission being or becoming untrue,
inaccurate or misleading in any material respect; and
-- Admission becoming effective on or before 8.00 a.m. on 21
November 2013 (or such later time and/or date as the Company and
Cenkos Securities may agree, but in any event by no later than 8.00
a.m. on 30 November 2013).
The Placing Agreement is not conditional upon completion of the
Acquisition which is due to complete on 2 December 2013, after
Admission of the Placing Shares.
The Placing Agreement contains customary warranties given by the
Company and the Directors in favour of Cenkos Securities plc in
relation to, inter alia, the accuracy of the information in this
announcement and other matters relating to the Group and its
business. In addition, the Company has agreed to indemnify Cenkos
Securities plc in relation to certain liabilities which it may
incur in respect of the Placing.
Cenkos Securities plc has the right to terminate the Placing
Agreement in certain circumstances prior to Admission, in
particular, in the event of a breach of the warranties or a
material adverse change.
Use of Proceeds
The Board intends to use the net proceeds of the Placing to:
-- fund the cash consideration portion of the purchase price of the Acquisition;
-- invest in and expand the HAVEN cloud infrastructure;
-- sales and marketing;
-- further investment into the Company's facilities; and
-- to strengthen the balance sheet.
The Placing is not conditional upon the completion of the
Acquisition. In the event that the Acquisition does not complete,
the Group would retain the net proceeds of the Placing, for the
purpose of funding future acquisitions and the ongoing working
capital requirements of the Group.
Section 656 of the Companies Act 2006
Section 656 of the Companies Act 2006 (the "Act") requires a
public limited company whose net assets have fallen to less than
half the amount of its called up share capital to call a general
meeting to consider whether any, and if so what, steps should be
taken to deal with the situation.
Following the finalisation of its trading statement released on
17 October 2013, it became clear that the Company's net assets are
less than half of its called up share capital and have been for
some time. As such, the directors are required by section 656 of
the Act to call a general meeting as described above. The General
Meeting has therefore been convened partly to comply with this
statutory requirement. It is the Directors view that the most
appropriate course of action to deal with this situation is the
raising of new funds pursuant to the Placing.
General Meeting
A notice convening the General Meeting, to be held at the
offices of Brown Rudnick LLP, 8 Clifford Street, London W1S 2LQ on
20 November 2013 at 10.00 a.m. was posted to Shareholders today
along with an explanatory circular on the Proposed Placing and
Acquisition (the "Circular").
PLACING STATISTICS
Placing Price 36p
Number of Placing Shares 6,835,000
Number of Existing Ordinary Shares 18,492,101
Number of Ordinary Shares in issue following
Admission* 25,327,101
Number of Consideration Shares ** 738,757
Number of Ordinary Shares in issue following
Completion of the Acquisition 26,065,858
Percentage of the Enlarged Share Capital
represented by the Placing Shares 26.2%
Gross Proceeds of the Placing Approximately GBP2.5 million
Estimated net proceeds of the Placing Approximately GBP2.3 million
EXPECTED TIMETABLE OF PRINCIPAL EVENTS
This document posted to Shareholders (by 4 November 2013
first class post)
Latest time and date for receipt of Form 10.00 a.m. on 18 November
of Proxy 2013
General Meeting 10.00 a.m. on 20 November
2013
Admission and dealings in the Placing Shares
expected to commence on AIM 21 November 2013
CREST accounts to be credited in respect 8.00 a.m. on 21 November
of VCT/EIS Placing Shares 2013
CREST accounts to be credited with Placing 9.00 a.m. on 21 November
Shares (excluding the VCT/EIS Placing Shares) 2013
2 December 2013
Admission of the Consideration Shares
Despatch of definitive share certificates
in respect of the Placing Shares in be 4 December 2013
held in certificated form
Definitions
The following words and expressions shall have the following
meanings in this announcement unless the context otherwise
requires:
"Acquisition" the proposed acquisition, by
Enables IT, Inc., of the business
and assets of Know Technology,
LLC
"Acquisition Agreement" the conditional asset purchase
agreement entered into on 4
November 2013 between Know Technology,
Enables IT, Inc., the Company,
and the Covenantors relating
to the Acquisition
"Admission" the admission to trading on
AIM of the Placing Shares becoming
effective in accordance with
Rule 6 of the AIM Rules
"AIM" the AIM market operated by the
London Stock Exchange
"AIM Rules" the rules for AIM companies
as published by the London Stock
Exchange from time to time
the "Articles" the articles of association
of the Company
"Board" or "Directors" the directors of the Company
"Cenkos Securities plc" Cenkos Securities plc (company
number: 05210733) whose registered
office is at 6.7.8 Tokenhouse
Yard, London EC2R 7AS
"certificated" or "in certificated a share or other security which
form" is not in uncertificated form
(that is, not in CREST)
"Company" or "Enables IT" Enables IT Group plc, a company
registered in England and Wales
with a registered number 3895363
"Completion" the completion of the Acquisition
Agreement on or about 2 December
2013
"Consideration Shares" the 738,757 new Ordinary Shares
to be issued to Know Technology
pursuant to the terms of the
Acquisition Agreement and to
be separately admitted to trading
on AIM
"Covenantors" Stephen Hand, Patrick Jones,
Tim Barthelman and all senior
employees of Know Technology
"CREST" the computerised settlement
system to facilitate transfer
of title to or interests in
securities in uncertificated
form operated by Euroclear UK
& Ireland Limited
"Enlarged Share Capital" the entire issued ordinary share
capital of the Company immediately
following and assuming Completion
of the Acquisition
"Existing Ordinary Shares" 18,492,101 Ordinary Shares currently
in issue at the date of this
announcement
"EIS" enterprise investment scheme
"General Meeting" the general meeting of the Company,
notice of which is set out in
the Circular
"Form of Proxy" the form of proxy for use at
the General Meeting which accompanies
the Circular
"Group" the Company and its subsidiary
undertakings prior to Completion
"Know Technology" Know Technology, LLC
"London Stock Exchange" London Stock Exchange plc
"Notice of General Meeting" the notice of the General Meeting,
which is set out at the end
of the Circular
"Ordinary Shares" ordinary shares of GBP0.01 pence
each in the share capital of
the Company
"Placing" the conditional placing of the
Placing Shares by Cenkos Securities
plc pursuant to the Placing
Agreement
"Placing Agreement" the conditional placing agreement
entered into between the Company,
the Directors and Cenkos Securities
plc on 4 November 2013
"Placing Price" 36 pence per Placing Share
"Placing Shares" up to 6,835,000 new Ordinary
Shares to be issued by the Company
pursuant to the Placing and
which shall include the VCT/EIS
Placing Shares;
"Registrars" Share Registrars Ltd
"Resolutions" the resolutions to be proposed
at the General Meeting, as set
out in the Notice of General
Meeting
"Shareholder(s)" holder(s) of Ordinary Shares
"UK" or "United Kingdom" the United Kingdom of Great
Britain and Northern Ireland
"uncertificated" or "in uncertificated a share or security recorded
form" in the Company's register of
members as being held in uncertificated
form, title to which may be
transferred by means of CREST
"US" or "United States" the United States of America
"VCT" a Venture Capital Trust as defined
in Part 6 of the Income Tax
Act 2007
"VCT/EIS Placing Shares" those new Ordinary Shares to
be issued to VCT's and under
EIS as part of the Placing
FURTHER ENQUIRIES
Enables IT Group plc
Michael Walliss Tel: 01372 455 970
Cenkos Securities plc (Nominated Adviser and Broker)
Max Hartley (Nomad) / Andy Roberts Tel: 020 7397 8900
(Sales)
Bishopsgate Communications
Nick Rome / Sam Allen Tel: 020 7562 3350
Enables IT Group PLC is a leading provider of cloud computing,
managed and professional services in the UK and North America. From
on-premise private cloud networks, our IAAS/SAAS platform HAVEN
within both our US and UK Data centres, to backend core network and
wireless solutions, Enables IT specialises in the delivery and
management of mission-critical services, enabling customers to
reduce the costs, complexity and risks associated with their IT
infrastructure.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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