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RNS Number : 5999Q
Panoply Holdings PLC (The)
01 March 2021
This announcement contains inside information
1 March 2021
The Panoply Holdings PLC
("The Panoply", or the "Group")
Acquisition of Keep IT Simple
Expands and strengthens capabilities, enabling the Group to bid
for larger contracts
The Panoply Holdings PLC (AIM: TPX), the technology-enabled
services group focused on digital transformation, announces the
acquisition of the entire issued and to be issued share capital of
Keep IT Simple LTD ("KITS"), a provider of high value IT support
and transformation services to public and private sector clients
(the "Acquisition") for GBP26m.
The Acquisition
KITS has built a reputation in the public sector for
transforming and running live and critical services such as
payments platforms on behalf of clients including the Rural
Payments Agency and the Department for Environment, Food and Rural
Affairs ("DEFRA"). KITS typically delivers managed services, with
market-leading expertise in service integration and management,
which is seen by large organisations as the highest value-added
layer in the technology services stack.
With a proven track record, the acquisition of KITS enables the
Group to bid for ever-larger contracts across both the public and
commercial sectors. KITS enters the Group having recorded unaudited
revenues for the full year ended 31 December 2020 of GBP9.7m (
audited 18 months to 31 Dec 2019: GBP10.9m), unaudited adjusted
EBITDA and adjusted net profit before tax of GBP2.7m (audited
EBITDA 18 months to 31 Dec 2019: GBP3.3m) and with GBP30.3m of
contract backlog to be recognised between 2021 and 2024. KITS will
be integrated into the Group's technology brand, Foundry4 and is
being acquired from its sole shareholder, Grant Harris.
Following the acquisition, the Directors now expect Revenue and
Adjusted EBITDA for the year ending 31 March 2021 of not less than
GBP48.5m and GBP6.6m respectively.
The key benefits of the Acquisition include:
-- Significant expansion of The Panoply's digital transformation
capabilities for the public sector, enabling the Group to provide
an ongoing managed support service to clients. While The Panoply's
strength in technology has previously been in the discovery, alpha
and beta (user research, design, prototyping and development)
stages, KITS adds the capability to secure additional contracts
running high value, high profile services to public sector
customers, providing a complete end-to-end offering.
-- Extension of the average length of client relationship and
generation of a greater proportion of recurring revenues.
-- The Acquisition will enable the Group to bid for multi-year
projects several multiples higher in value than it can
currently.
-- Bringing another purpose-driven organisation into the Group,
supporting The Panoply in its mission to deliver Sustainable
Futures through Digital Transformation.
-- The acquisition of KITS is expected to be immediately earnings enhancing for the Group.
Neal Gandhi, Chief Executive Officer of The Panoply said:
"Following a period of strong organic growth, I am delighted to
today announce continued execution on our acquisitive strategy with
the addition of Keep IT Simple into the Group. KITS's reputation
for delivering major service transformation programmes and for
service integration and management is unparalleled. Their work at
the Rural Payments Agency, after a series of well-documented
failures by larger monolithic providers, has contributed to KITS's
reputation as a credible modern alternative providing outcomes and
value that is orders of magnitude better than past options.
Importantly, their work complements the existing strengths of the
Group, and means we are now able to offer a truly end-to-end
service to public sector clients.
"In addition, the Board and I are delighted to have found
another ethical business to join our purpose-driven Group.
Together, I am confident we can drive positive change through
technology, in a responsible way, and I look forward to seeing what
we will achieve."
Grant Harris, Chief Executive Officer of Keep IT Simple
said:
"We are very proud of the business we have built, and the value
of our work to the Public Sector. This acquisition marks a
milestone in our growth journey, as we become part of a modern,
agile and rapidly scaling Group which is set to become a key player
in our field. The support of The Panoply will fuel our ambitious
plans for expansion, as we roll out our leading capabilities to a
wider set of clients."
Consideration
Given the strong contracted pipeline backlog of GBP30.3m to be
recognised between 2021 and 2024, The Panoply has agreed to pay a
total consideration of GBP26m for the Acquisition, satisfied
through the payment of GBP 7.5 m cash and the issue of 10,277,778
new ordinary shares in The Panoply (at a price of 180p) with up to
GBP7m of the share consideration subject to claw back. In addition,
it is expected that a further GBP4.9m will be paid to the vendor of
KITS from free cash on its balance sheet on completion representing
excess cash of its normalised working capital requirements . The
purchase price will be subject to a customary adjustment based on
completion accounts.
Up to GBP7.0m of shares will be subject to a clawback in the
event that KITS does not achieve a revenue target of GBP26.8m
either during the calendar year 2022 or the calendar year 2023.
Should the revenue target not be met in either of those years,
shares with a value of up to GBP7.0m can be clawed back from the
seller with a value equal to the amount by which the actual revenue
in the calendar year 2023 is less than the revenue target.
In order to help fund the acquisition and to provide the Group
with additional resources for further acquisitions, The Panoply has
extended its revolving credit facility with HSBC (which reaches
maturity in June 2023) from GBP7.0m to GBP20.0m (the "RCF
Facility"). GBP6.0m will be drawn down at completion to fund the
acquisition, leaving a further GBP7.0m available for future
acquisitions. Within the GBP20.0m facility The Panoply can draw
down up to GBP5.0m for working capital purposes with the remainder
set aside for acquisitions. As announced on 12 June 2019, HSBC has
taken security over The Panoply and all of the Group's material
subsidiaries and their assets in connection with the RCF Facility.
The RCF Facility contains customary terms and covenants, including
financial covenants.
As at 28 February 2021, assuming all payments in connection with
the Acquisition had been made as at that date, the Group retained
cash reserves of approximately GBP3.7m with a net debt position of
GBP9.3m, meaning that net debt remains below 1.0x EBITDA based on
pro forma results.
The combination of run rate revenue, forecast organic growth and
additional banking facilities now available for acquisition mean
that the Group is well placed to hit its stated commercial target
of GBP100m run rate revenue by 31 March 2023.
Integration and strategic outlook
Having joined the Group, K ITS will sit under the Foundry4 brand
as part of the deep tech, engineering focused division of the
Group. Foundry4 helps organisations in highly regulated sectors
harness technology to solve complex challenges, focusing on
CTO/CIOs looking to enable digital transformation through the
adoption of hyper scale cloud, data analytics, AI and machine
learning and automation.
Grant Harris, CEO of KITS, will become Managing Director of a
newly formed Managed Services Division within Foundry4. The
division will be provided with additional sales and bid management,
HR and recruitment as well as finance support to facilitate further
growth.
Additional information on the acquisition
The Panoply has acquired Keep IT Simple from Grant Harris.
The consideration payable under the share purchase agreement
relating to the Acquisition (the "SPA") is GBP26.0m (plus GBP4.9m
in respect of excess cash) and comprises the following on
Completion:
(a) the allotment and issue of 10,277,778 ordinary shares in The
Panoply, with a value of GBP18.5m, calculated by reference to a
price of 180 pence to Grant Harris (the "Consideration
Shares");
(b) a payment in cash of GBP7.5m; and
(c) a payment in cash of GBP4.9m in respect of the cash
currently held on KITS's balance sheet in excess of its normalised
working capital requirements, subject to adjustment following the
determination of the actual working capital in the completion
accounts
together (the "Consideration").
The Consideration referred to in (b) above is being funded
through a combination of the RCF Facility and the Group's existing
cash reserves. The Consideration referred to in (c) above is being
funded by cash on KITS's balance sheet at completion.
All shares in The Panoply allotted and issued under the SPA
(including the shares issued as part of the Consideration) are
subject to lock-in arrangements and shares with a value of up to
GBP7,0m are subject to claw-back by The Panoply if KITS' revenues
do not meet a target of GBP26.8m in either the calendar year 2022
or the calendar year 2023.
Following the issue of the Consideration Shares, Grant Harris
will hold 10,277,778 ordinary shares in The Panoply, representing
12.87% of the then issued share capital.
Admission and total voting rights
An application has been made for the admission of the
Consideration Shares to trading on AIM which is expected to take
place on or around 4 March 2021. Following this issue, the
Company's issued share capital will comprise 79,850,906 Ordinary
Shares and this is the total number of voting rights in the
Company. There are no shares held in treasury.
This figure may be used by shareholders as the denominator for
the calculation by which they may determine if they are required to
notify their interest in, or change to their interest in, the
Company under the FCA's Disclosure Guidance and Transparency
Rules.
The person responsible for this announcement is Oliver Rigby,
CFO.
Enquiries:
The Panoply Holdings
Neal Gandhi (CEO) Via Alma PR
Oliver Rigby (CFO)
Stifel Nicolaus Europe +44 (0)207 710 7600
Limited
(Nomad and Joint Broker)
Fred Walsh
Alex Price
Dowgate Capital Limited
(Joint Broker)
James Serjeant
David Poutney
Nicholas Chambers +44 (0)203 903 7715
Alma PR panoply@almapr.co.uk
(Financial PR) +44 (0)203 405 0209
Susie Hudson
Josh Royston
Harriet Jackson
About The Panoply
The Panoply is a technology-enabled services group, built to
service clients' digital transformation needs. Founded in 2016,
with the aim of identifying and acquiring best-of-breed specialist
information technology, design and innovation consulting
businesses, the Group collaborates with its clients to deliver the
technology outcomes they're looking for at the pace that they
expect and demand.
The Group is being increasingly recognised as a leading
alternative digital transformation provider to the UK public
services sector, with c.70% of its client base representing the
public sector and c.30% representing the commercial sector.
More information is available at www.thepanoply.com .
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