PINNACLE TECHNOLOGY GROUP PLC 22 January 2016
(the "Company" or "Pinnacle")
Pinnacle Technology Group plc, the AIM listed provider of converged technology solutions, is pleased to announce it has conditionally agreed to acquire Ancar-B Technologies Ltd ("Ancar-B") and Weston Communications Limited ("Weston") for a total consideration in cash and shares of
£5 million (the "Acquisitions") and an intention to raise approximately £4.55 million before expenses by way of a placing of new Ordinary Shares via an accelerated bookbuild (the "Placing"). Should the Placing conclude successfully the Company will proceed with an open offer to raise up to a further £0.25 million through the issue of 5,918,256 new Ordinary Shares from existing shareholders at the Placing Price ("Open Offer").
Acquisition of Ancar-B for a consideration of £3.5 million to be satisfied as to £2.75 million in cash and £0.75 million in new Ordinary Shares at the Placing Price
Ancar-B is a provider of IT support services to SMEs
Circa 315 customers generated revenues of £2.2m (59% recurring) to 31 July 2015 and an EBITDA of £0.58m (unaudited)
Based in Leeds
Acquisition of Weston for a consideration of £1.5 million to be satisfied in new Ordinary Shares at the Placing Price
Weston is a provider of telecoms and IT support services to SMEs, councils and universities
Circa 225 customers generated revenues of £2.8m (59% recurring) to 31 March 2015 and EBITDA of £0.22m (unaudited)
Based in Leeds
Acquisitions create the hub for centralised support functions
Opportunity exists to consolidate a highly fragmented market of smaller IT services companies to become a provider of 'IT as a service' to the SME market in the UK
Longer-term strategy to complete further acquisitions and drive synergies
Ian Winn to join Board as Chief Operating Officer and Finance Director with effect from 1 February 2016 (the same role he held at Accumuli Plc where he worked with Gavin Lyons as CEO)
Nicholas Scallan to step down from the Board with effect from the forthcoming AGM
Final results for the year ended 30 September 2015 announced today
Summary of PlacingProposed placing to raise approximately £4.55 million of up to 108,392,857new ordinary shares of 1 penny each ("Placing Shares") at a price of 4.2 pence per share (the "Placing Price") with new and existing shareholders
Proceeds will be used, inter alia, to fund the cash consideration in respect of the acquisition of Ancar-B and provide working capital
Placing to be conducted by way of an accelerated bookbuild process by N+1 Singer Advisory LLP ("N+1 Singer" or the "Bookrunner") which will be launched immediately following this announcement and conditional on shareholder approval at a general meeting
Books are open with immediate effect
Gavin Lyons, Executive Chairman, commented:
"We believe that strategically there is a market opportunity for Pinnacle to become the leading provider of 'IT as a service' to the UK SME market, despite a number of operating challenges to address, by embarking on a buy and build strategy and focusing on higher margin services. The acquisitions of Ancar-B and Weston are the first steps in consolidating a highly fragmented market and I look forward to ensuring the organisation is focused on creating both customer and shareholder value".
For further information please contact: | |
Pinnacle Technology Group plc Gavin Lyons, Executive Chairman Nicholas Scallan, Chief Executive | 0208 185 6393 |
N+1 Singer (Nominated Adviser and Broker) Shaun Dobson Jen Boorer | 020 7496 3000 |
MXC Capital Markets LLP Marc Young Charlotte Stranner | 020 7965 8149 |
Beattie Communications Chris Gilmour David Walker | 0844 842 5490 |
The Company this morning announced its results for the year ended 30 September 2015 which show that the business continues to be loss making at both an operational and EBITDA level. As previously stated, turning the Pinnacle business around will take time and although some progress has been made with reducing costs and becoming more focussed both in terms of Pinnacle's target customer markets and operational focus, this has not yet been sufficient to bring the business back to profitability.
The ongoing cash requirements of the business mean that Pinnacle will require further funding in the short-term. However, the Board believes that an opportunity exists to re-focus the business on higher margin services through a buy and build strategy. The market of smaller, sub-scale IT services providers is highly fragmented, providing ample consolidation opportunities in order to become a provider of 'IT as a service' to the SME market in the UK. The Board believes that anticipated multiples payable for these smaller companies will typically be lower than those that tend to be paid for larger, more established businesses that have scale and brand awareness. The Acquisitions are the first step in this strategy and create a hub in the North of England which can be utilised for centralised support and other back office functions.
Ancar-B is a provider of IT support services to small and medium-sized enterprises ("SME"), schools and other public sector and charitable organisations in West Yorkshire. The business provides IT support, hosted cloud computing solutions and online management including web and domain hosting, remote backup, anti-spam and disaster recovery. Ancar-B currently has around 315 customers with 59% of revenues recurring.
For the year ended 31 July 2015, Ancar-B's unaudited revenues amounted to £2.2 million with a profit before tax of £0.56 million. At 31 July 2015 Ancar-B's gross assets amounted to £2.2 million. EBITDA for the year to 31 July 2015 amounted £0.58 million.
The Company has entered into a conditional acquisition agreement to acquire the entire issued share capital of Ancar-B for a total consideration of £5.0 million which includes a cash for cash payment of £1.5 million resulting in net consideration of £3.5 million. The consideration is to be satisfied as to £2.75 million in cash and £0.75 million in new Ordinary Shares at the Placing Price. The acquisition of Ancar-B is conditional, inter alia, on the Placing being completed.
Weston provides installation, service and support across IT, telecoms and mobile technologies from its head office in Leeds to local businesses and organisations. Weston currently has around 225 customers with 59% of revenues recurring.
The management accounts for the year to 31 March 2015, show unaudited revenue of £2.87 million and a profit before tax of £0.18 million. At 31 March 2015 Weston's gross assets amounted to £1.03 million. EBITDA for the year to 31 March 2015 amounted £0.22 million.
The Company has entered into a conditional acquisition agreement to acquire the entire issued share capital of Weston for a total consideration of £1.5 million to be satisfied in new Ordinary Shares at the Placing Price. The acquisition of Weston is conditional, inter alia, on the Placing being completed.
The vendors of Weston and Ancar-B have undertaken to the Company and N+1 Singer that, subject to certain exceptions, they will not sell or otherwise dispose of, or agree to sell or dispose of, any of their respective interests in the Ordinary Shares held by them and their connected persons at any time during the period of 12 months following Admission. In addition, certain orderly market provisions will apply for a further period of 12 months after expiry of the 12 month lock-in period.
The net proceeds of the Placing are expected to be used to satisfy the cash consideration of Ancar-B, for general working capital purposes and towards potential future acquisition opportunities. Any additional proceeds raised under the Open Offer are also expected be applied for working capital purposes. The net proceeds of the Placing will, in the opinion of the Directors, provide the Company with sufficient working capital for at least the next 12 months.
The Company's strategy is to become a single trusted partner to its customers with outstanding local support and account management. The plan is to use standardisation and self service automation so that customers can select the right solutions and services for them, whilst remaining profitable for Pinnacle. The overall aim is to provide solutions that are deployed either on premise or in hosted and cloud environments without the need to own infrastructure. Pinnacle's value proposition therefore will be focused on aggregated solutions with a single trusted partner managing the customer experience and support.
As part of the integration process following the Acquisitions the Board intends to perform a full review of the business including the possibility of making disposals and potential acquisitions of joint ventures already within the Pinnacle business.
The Board will continue to review future acquisition opportunities in line with its strategy. Particular focus will be given to acquisitions opportunities with £2-5m revenue, 50-60% recurring revenues and local office and support centres that can be streamlined. Opportunities in the North of England will be viewed favourably in the short-term because of labour costs and geographical spread of existing business, although in time the aim is to have a national presence.
The Company has today announced its full year results for the year ended 30 September 2015 which show an overall loss from operating activities of £1.3 million and resulted in net cash outflow of £747,000 during the year. The Group's balance sheet continues to show the impact of a number of poor acquisitions made in prior years, where loss making businesses were acquired for relatively small consideration but with significant liabilities. The acquisitions have not delivered the returns anticipated at the time of purchase and have consumed funds to repay the inherited net liabilities of the businesses. The work undertaken to rectify these problems has produced a much cleaner and more stable business but one which is currently below critical mass for profitability. Therefore, the Board is firmly of the view that growth by selective acquisition is the correct course of action moving forwards.
The Directors believe that the future success of the Company will depend largely on the management and other staff being appropriately motivated and rewarded. An employee share scheme ("ESS") for key management will therefore be put in place post the General Meeting.
Participants in the ESS will be entitled in aggregate to 10 per cent. of future shareholder value generated, which will be calculated by reference to the growth in the market capitalisation of the Company following the General Meeting over a period of 5 years, subject to vesting criteria of a minimum of 40% shareholder return created, as adjusted for the issue of new Ordinary Shares (but excluding any new Ordinary Shares issued pursuant to the ESS) and taking into account dividends and capital returns, if any.
Nicholas Scallan, Chief Executive Officer, intends to step down from the Board at this year's Annual General Meeting proposed to be held on 23 March 2016. He will remain as Chief Executive Officer until this time. As announced on 7 December 2015, James Dodd will also step down as a non-executive director at the time of the AGM.
Ian Winn has been appointed to the Board as Chief Financial Officer and Chief Operating Officer, effective as of 1 February 2016.
Ian (aged 47) joins from Mobica Limited, a software development and integration services company where he was Finance Director. From 2007 to 2015, Ian was at Accumuli plc, one of the UK's leading independent providers of IT Security and risk management, where he was Finance Director and Chief Operating Officer. Prior to this he held a number of senior financial board positions in a number of service and finance related businesses. Ian is a Chartered Accountant qualifying with KPMG LLP in 1993. Further information in respect of Ian's appointment can be found in can be found at Appendix II of this announcement.
Pinnacle Technology Group plc issued this content on 2016-01-22 and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on 2016-01-22 10:09:19 UTC
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