ARE.L Regulatory News (ARE)

15 August 2018

Arena Events Group plc

Proposed Placing; Acquisition of Stuart Rentals and TGP; and Notice of General Meeting

Arena Events Group plc (AIM: ARE, "Arena", the "Company" or the "Group"), would like to draw investors' attention to the announcement that it made after market close on Tuesday 14th August 2018 regarding conditionally raising up to £20 million (before expenses) by way of a placing of up to 33,333,334 new Ordinary Shares at a price of 60 pence per share (the "Placing"). The net proceeds of the Placing will be used to fund the initial consideration due for the conditional acquisitions of the business and assets of Stuart Rentals and, separately, the entire issued share capital of TGP (the "Acquisitions").

Highlights:

· The Acquisitions are being made in accordance with the Company's strategy of expanding its

geographical reach, extending its range of products and reducing the impact of seasonality

· Stuart Rentals

o is a California based supplier of under-the-tent rental supplies, as well as tents, staging equipment and flooring. The acquisition will provide Arena with an immediate entry point into the west coast US market, bolstering the Group's existing Americas national tenting business

o for the 12 months ended 31 December 2017, Stuart Rentals achieved unaudited revenues of $14.6 million and EBITDA of $2.6 million

o initial consideration of $10.6 million, on a debt free basis, (subject to adjustment for working capital) is payable in cash to the vendors of Stuart Rentals, plus additional earn-out consideration of up to a maximum of $6.4 million, subject to EBITDA performance following Completion over the next 3 years

· TGP

o is an exhibition stand design and build company based in Dubai. The acquisition will offer diversification into exhibition services and is profitable for at least 9 months per year, thus improving the seasonal profile of the Group's Middle East business

o for the 12 months ended 31 December 2017, TGP achieved unaudited adjusted revenues of £13.4 million and EBITDA of £1.0 million

o initial consideration of $7.2 million is payable in cash to the vendors of TGP, including the repayment of debt and working capital, plus additional earn-out consideration of up to a maximum of $10.7 million, subject to EBITDA performance following Completion. Immediately after Completion, one of the vendors of TGP will use $284,455 of its proceeds to subscribe for 364,685 new Ordinary Shares at the Issue Price

· Both Acquisitions are expected to be earnings enhancing in the first full year post Completion

· Initial consideration and associated expenses for both Acquisitions will be satisfied by the Placing to raise gross proceeds of up to £20 million

· The Placing comprises the issue of up to 33,333,334 new Ordinary Shares at a price of 60 pence per share

· The Placing and the Acquisitions are conditional, inter alia, on the passing by the Shareholders of certain Resolutions at a General Meeting to be held on 4 September 2018 and the other conditions set out in the Placing Agreement entered into between Cenkos and the Company being satisfied

Greg Lawless, Chief Executive Officer of Arena commented:

"These acquisitions will significantly broaden our global operations whilst complementing our existing product range and fit our stated strategy of increasing our comprehensive suite of products over a broader geographic reach. Stuart Rentals will allow us to further penetrate the US event rental sector while TGP will add another arm to the Group's Middle East business. These acquisitions are designed to deliver top line revenue growth, an improvement in EBITDA margins and will assist in reducing the overall seasonality of the business.

We believe these acquisitions will create shareholder value over the coming years.

We are delighted with the support that we have received from existing and new shareholders and continue to look forward to the future with confidence."

Enquiries:

About Arena Events Group

Arena Events Group plc (www.arenagroup.com) is a provider of temporary physical structures, seating, ice rinks, furniture and interiors. The Group has operations across Europe, the US, the Middle East and Asia, and current clients include Wimbledon Tennis, The Open, PGA European Tour and Ryder Cup.

The Group services major sporting, outdoor and leisure events, providing a managed solution from concept and design through to the construction and integration of the final structure and interior. Contracts range in size and complexity from a simple equipment rental for a local outdoor event, to an integrated solution of multiple structures and interiors for a major international sporting event.

Introduction and Summary

The Company announces today that it has conditionally raised up to £20 million (before expenses) by way of a placing of up to 33,333,334 new Ordinary Shares at a price of 60 pence per share. The net proceeds of the Placing will be used to fund the initial consideration due for the conditional acquisitions of the business and assets of Stuart Rentals and, separately, the entire issued share capital of TGP.

Stuart Rentals is a California based supplier of under-the-tent rental equipment, as well as tents, staging equipment and flooring. An initial consideration of $10.6 million, on a debt free basis, (subject to adjustment for working capital) is payable in cash to the vendors of Stuart Rentals, plus additional earn-out consideration of up to a maximum of $6.4 million, subject to EBITDA performance following Completion.

TGP is an exhibition stand design and build company based in Dubai. Initial consideration of $7.2 million is payable in cash to the vendors of TGP, including the repayment of debt and working capital, plus additional earn-out consideration of up to a maximum of $10.7 million, subject to EBITDA performance of TGP following Completion. Immediately after Completion, one of the vendors of TGP will use $284,455 of its proceeds to subscribe for 364,685 new Ordinary Shares (the "Subscription Shares") at the Issue Price.

These acquisitions are being made in accordance with the Company's strategy of expanding its geographical reach, extending its range of products and reducing the impact of seasonality. Both Acquisitions are expected to be earnings enhancing in the first full year post Completion. Further details of the reasons for the Placing, the use of proceeds and the Acquisitions are set out below.

The Placing Shares have been conditionally placed with certain institutional and other investors by Cenkos in accordance with the terms and conditions of the Placing Agreement. The Placing and the Acquisitions are conditional, inter alia, on the passing by the Shareholders of the Resolutions at the General Meeting, including a special resolution which, if passed, will give the Directors the required authority to disapply statutory pre-emption rights in respect of the allotment of the Placing Shares and the Subscription Shares and the other conditions set out in the placing agreement entered into between Cenkos and the Company being satisfied. Subject to all relevant conditions being satisfied (or, if applicable, waived), it is expected that the Placing Shares will be admitted to trading, and dealings in the Placing Shares will commence, on AIM on or around 5 September 2018 and the Subscription Shares will be admitted to trading, and dealings in the Subscription Shares will commence, on AIM shortly following the completion of the acquisition of TGP.

Background to and reasons for the Acquisitions

The Group's strategic plan has four key components:

• geographic expansion;

• product extension;

• reduction in seasonality; and

• vertical integration.

This strategic plan is designed to deliver top line revenue growth and improvement in EBITDA margins on a more consistent basis throughout the year, that the Directors believe will continue to create shareholder value over the coming years. These acquisitions are being made in accordance with the Company's strategy of expanding its geographical reach, extending its range of products and reducing seasonality.

The proposed acquisition of Stuart Rentals will achieve geographic expansion and product extension for the Group. It will provide the Group with an immediate entry point into the west coast US market and will bolster the Group's existing Americas national tenting reach, thus allowing the servicing of national customers across the entire North American continent on a more economic basis.

The proposed acquisition of TGP will provide the Group with product extension and a reduction in seasonality. TGP offers diversification into exhibition services and is profitable for at least 9 months per year, and would thus improve the seasonal profile of the Group's Middle East business. The acquisition is expected to generate synergies through the combination of TGP's exhibition business and the Group's interiors business.

Information on the Acquisitions

Stuart Rentals Acquisition

Background information on Stuart Rentals

Stuart Rentals is a California based supplier of under-the-tent rental equipment (such as tables, chairs, linen, cutlery, crockery and glassware), as well as tents, staging equipment and flooring. The business primarily operates across the Bay Area of San Francisco, Oakland and San Jose, with its main HQ, warehouse and sales office in Milpitas, San Jose. The business has approximately 240 employees (comprised of both salaried and hourly).

Stuart Rentals is owned and managed by Michael Berman (CEO) and Andrew Sutton (Head of Sales), both of whom are expected to remain with the business post Completion.

Financial information on Stuart Rentals

Stuart Rental's trading record for the two financial years ended 31 December 2016 and 31 December 2017, as well as the unaudited Last Twelve Months ("LTM") ended 31 March 2018, is summarised below:

Source: Stuart Rentals management accounts

In the year ended 31 December 2017, Stuart Rentals generated profit before tax of $1.5 million and as at 31 December 2017 had gross assets of $6.4 million.

Stuart Rentals currently delivers c. 50% of revenues from under-the-tent products and services, with tenting currently representing 45%. This focus on under-the-tent contributes to the business having a large and diverse customer base (providing to over >10,000 events per year), whilst also contributing to strong EBITDA margin. The diverse customer base results in no one customer contributing over 5% of total annual revenue.

Stuart Rentals has an EBITDA margin in excess of the current Group's Americas business, and is expected to be earnings enhancing to the Group following completion.

TGP Acquisition

Background information on TGP

TGP is an exhibition stand design and build company operating in Dubai. The business operates out of a new head office and warehouse (moved in to during 2017) in South Dubai, and employs approximately 140 people. Revenues are primarily generated in the United Arab Emirates, however, the business does operate across the Middle East region. Following the restrictions imposed on trade with Qatar, the business has been unable to serve a key client in Qatar, Qatar Airways, which impacted revenue and profit during 2017 and 2018 as detailed below.

TGP, which was set up in 1995, is owned and managed by founders Omar Rahman and Alex Maddock, with Alex Maddock remaining with TGP post Completion. 

Financial information on TGP

The trading record for the two financial years ended 31 December 2016 and 31 December 2017, as well as the unaudited Last Twelve Months ("LTM") ended 31 May 2018, is summarised below:

Source: TGP management accounts with adjustments described below.

US$ figures are converted at $1.32 to £

In the year ended 31 December 2017, TGP generated adjusted profit before tax of £0.6 million and as at 31 December 2017 had gross assets of £10.2 million.

The numbers presented above are on an adjusted basis, with the principal adjustment representing the removal of Qatar Airways' revenue and margin in both 2016 and 2017, which in 2017 (all in Q1) represented revenue of £1.1 million and margin of £0.4 million. Other adjustments are the inclusion of a CEO salary (currently paid as dividends) and adjustment to reflect current rental costs following the move into a new warehouse in 2017. On an adjusted basis the business has delivered EBITDA growth from £0.7 million in 2016 to £1.1 million in the LTM ended 31 May 2018.

TGP's core product offering is the design, build and installation of exhibition stands and this represents over 50% of revenues. The reliance on exhibition revenues has been reduced by the growth in the graphics and signage division, which has grown strongly in recent years.

Details of the Acquisitions

Stuart Rentals Acquisition

The Company's subsidiary, Arena Stuart Rentals, Inc., has entered into the Stuart Rentals Acquisition Agreement for the acquisition of the business, contracts and certain assumed liabilities of Stuart Rentals for an initial cash consideration of $10,570,000. The Stuart Rentals Acquisition Agreement is conditional upon, amongst other things, the passing of the Resolutions and the other conditions set out in the placing agreement entered into between Cenkos and the Company being satisfied. Subject to the satisfaction of these conditions, Completion is expected to take place on 5 September 2018.

Consideration and Earn-out

The initial consideration payable under the Stuart Rentals Acquisition Agreement is $10,570,000 to be satisfied in cash on Completion and the assumption by Arena Stuart Rentals, Inc. of certain assumed liabilities in respect of trade accounts payable and on-going contracts. The initial consideration is subject to a working capital adjustment, post completion if actual delivered working capital is higher or lower than an agreed target.

The earn-out mechanism under the Stuart Rentals Acquisition (the "Earn-out") provides for further consideration to be paid to the Owners (on behalf of the Vendor) based on multiples of future EBITDA of Arena Stuart Rentals, Inc. as if it were being operated as a separated and independent corporation. The amount payable under the Earn-out, subject to certain limitations, is a sum equal to (i) 5.9 times ten per cent. (10%) of EBITDA for the periods 1 January 2018 to 31 December 2018, 1 January 2019 to 31 December 2019, and 1 January 2020 to 31 December 2020 (each an "Earn-Out Period"). An unaudited statement setting out the calculation of the Earn-Out for each Earn-Out Period shall be prepared within 90 days of the end of the applicable Earn-Out Period. The Earn-out is payable five (5) business days after being finally determined. Maximum aggregate consideration payable over the Earn-Out Period and including the initial consideration is up to $17.0 million in cash.

Further Terms of the Stuart Rentals Acquisition

Completion of the Stuart Rentals Acquisition is conditional upon, inter alia:

· the passing of the Resolutions;

· the Placing Agreement becoming unconditional in accordance with its terms (other than in respect of Admission) and not having been terminated;

· the warranties and representations given by the Vendor and the Owners being true and correct in all material respects; and

· there not having been a material adverse effect on the business, value of the purchased assets or the ability of the Vendor to complete the transaction on a timely basis and perform its obligations under the Stuart Rentals Acquisition Agreement,

prior to the long stop date of 30 September 2018.

The Vendor and the Owners have entered into certain business conduct obligations, including an undertaking to conduct the business in the ordinary course of business consistent with past practice and use reasonable best efforts to maintain and preserve intact its current business organisation, operations and franchise and to preserve the rights, franchises, goodwill and relationships of its employees, customers, lenders, suppliers, regulators and others having relationships with the business.

The Vendor has provided customary fundamental and commercial warranties to Arena Stuart Rentals, Inc., as at the date of the Acquisition Agreement, which are also repeated as at Completion.

Either party may elect to terminate the Stuart Rentals Acquisition Agreement in the event that, inter alia, at any time prior to Completion (i) there is a material breach of any of the representations, warranties, agreement of covenants given by either party to the other (so long as the terminating party is not itself in breach of the Stuart Rentals Acquisition Agreement), (ii) any of the conditions are not satisfied by the long stop date, or (iii) any law has been enacted which will prevent any of the conditions being satisfied by the long stop date or which would make the transactions contemplated by the Stuart Rentals Acquisition Agreement illegal or otherwise prohibited. The Vendor may terminate the Stuart Rentals Acquisition Agreement in the event Completion has not occurred by 30 September 2018.

TGP Acquisition

The Company and its subsidiary, AESG, have entered into the TGP Acquisition Agreement for the acquisition of the entire issued share capital of TGP. The TGP Acquisition Agreement is conditional upon, amongst other things:

· the passing of the Resolutions;

· completion of a pre-sale reorganisation in accordance with the TGP Acquisition Agreement which will require the approval of governmental authorities; and

· the Placing Agreement becoming unconditional in accordance with its terms and not having been terminated.

Subject to the satisfaction of the conditions under the TGP Acquisition Agreement, Completion is expected to take place prior to the long stop date of 30 September 2018.

Consideration and Earn-out

The initial consideration payable under the TGP Acquisition Agreement is $3.2 million, to be satisfied in cash on Completion of the TGP Acquisition Agreement, plus the assumption of debt and working capital liabilities estimated at $4 million. The consideration has been agreed on the basis of a consolidated balance sheet of TGP dated 31 May 2018 and is subject to adjustment if and to the extent that there has been any return of value outside of the ordinary course of business to the Vendors since that date.

The earn-out mechanism under the TGP Acquisition (the "Earn-out") provides for further consideration of up to a maximum of $2.7 million to be paid in cash to one Vendor based on multiples of TGP's actual earnings before interest, tax, depreciation and amortisation ("Normalised EBITDA") for the period 1 January 2018 to 31 December 2018, provided that Normalised EBITDA exceeds $1,500,000.

The second deferred consideration payable under the Earn-out is a sum equal to: (i) five per cent (5%) of 5.4 times Normalised EBITDA for the period 1 January 2018 to 31 December 2018, less long term debt plus cash as at 31 December 2018; and (ii) ten per cent (10%) of 5.4 times Normalised EBITDA, for the period 1 January 2019 to 31 December 2019, less long term debt plus cash as at 31 December 2019; and (iii) ten per cent (10%) of 5.4 times Normalised EBITDA for the period 1 January 2020 to 31 December 2020, less long term debt plus cash as at 31 December 2020; and (iv) ten per cent (10%) of 5.4 times Normalised EBITDA for the period 1 January 2021 to 31 December 2021, less long term debt plus cash as at 31 December 2021. The second deferred consideration is payable 30 days after the accounts for the relevant period are agreed. Maximum aggregate consideration payable in respect of the second deferred consideration is a maximum of $8 million in cash.

Further Terms of the TGP Acquisition

Completion of the Acquisition is conditional upon, inter alia, those conditions as listed above.

The Vendors have entered into certain business conduct obligations, including an undertaking to procure that the business of TGP and its subsidiaries is conducted in the ordinary and usual course and to take all such steps as are necessary to protect and preserve the business and assets of TGP and its subsidiaries and to maintain the business as a going concern with a view to a profit pending Completion.

The Vendors have provided customary fundamental warranties to AESG as to title and capacity on a several basis as well as certain customary commercial warranties to AESG on a joint and several basis, as at the date of the Acquisition Agreement, which are also repeated as at Completion.

AESG may elect to terminate the TGP Acquisition Agreement in the event that, inter alia, at any time prior to Completion (i) there is a breach of any of the fundamental warranties, or a material breach of any of the commercial warranties, given by the Vendors, (ii) any event occurs which (in the reasonable opinion of AESG) affects or is likely to affect materially and adversely the financial position of TGP or any of its subsidiaries, or (iii) there is a material breach of any of the business conduct obligations given by the Vendors.

In the unlikely event that the TGP Acquisition does not complete, the Company will use the funds for other accretive acquisitions and general working capital.

Details of the Placing

The Company has conditionally raised gross proceeds of up to £20 million by way of a placing of up to 33,333,334 new Ordinary Shares at the Issue Price. The Placing Shares will represent approximately 21.94 per cent. of the Enlarged Issued Share Capital of the Company. The Issue Price represents a discount of 8.5 per cent. to the volume weighted average price per Ordinary Share over the last ten business days up to and including 13 August 2018 (being the latest practicable date prior to the publication of this announcement).

 Furthermore, the Directors intend to subscribe for such number of Placing Shares as is equal to, in aggregate, approximately £162,500 at a price per share to be agreed between the Company and Cenkos but being no less than the Issue Price.

The Placing Agreement

Pursuant to the terms of the Placing Agreement, Cenkos has agreed to use reasonable endeavours to procure subscribers for the Placing Shares at the Issue Price. The Placing has not been underwritten by Cenkos.

The Placing is conditional, inter alia, on:

· the passing of the Resolutions;

· the Stuart Rentals Acquisition Agreement having completed (subject to Admission)

· the conditions in the Placing Agreement being satisfied or (if applicable) waived and the Placing Agreement not having been terminated in accordance with its terms prior to Admission of the Placing Shares; and

· Admission of the Placing Shares becoming effective by no later than 8.00 a.m. on 5 September 2018 (or such later time and/or date, being no later than 8.00 a.m. on 30 September 2018 as the Company and Cenkos may agree).

The Placing Agreement is not conditional upon the completion of the TGP Acquisition Agreement.

The Placing Agreement contains customary warranties given by the Company to Cenkos as to matters relating to the Group and its business and a customary indemnity given by the Company to Cenkos in respect of liabilities arising out of or in connection with the Placing. Cenkos is entitled to terminate the Placing Agreement in certain circumstances prior to Admission of the Placing Shares including circumstances where any of the warranties are found not to be true or accurate or were misleading in any respect or the occurrence of certain force majeure events or a material adverse change condition.

Settlement and dealings

The Placing Shares will be issued credited as fully paid and will rank pari passu with the existing Ordinary Shares, including the right to receive all dividends and other distributions declared, made or paid in respect of Ordinary Shares after Admission of the Placing Shares. The Placing Shares are not being made available to the public and are not being offered or sold in any jurisdiction where it would be unlawful to do so.

Application will be made to the London Stock Exchange for the Placing Shares to be admitted to trading on AIM. On the assumption that, inter alia, the Resolutions are passed, it is expected that Admission of the Placing Shares will become effective on or around 5 September 2018.

Details of the Subscription

Following Completion of the TGP Acquisition, one of the Vendors of TGP will use $284,455 of its sale proceeds to subscribe for the Subscription Shares at the Issue Price. The Subscription Shares will be issued credited as fully paid and will rank pari passu with the existing Ordinary Shares in issue, including the right to receive all dividends and other distributions declared, made or paid in respect of Ordinary Shares after Completion. The Subscription Shares will represent approximately 0.24 per cent. of the Enlarged Issued Share Capital. 

Application will be made to the London Stock Exchange for the Subscription Shares to be admitted to trading on AIM. On the assumption that, inter alia, the Resolutions are passed, it is expected that Admission of the Subscription Shares will occur once the TGP Acquisition completes.

Use of proceeds

The net proceeds of the Placing (after deduction of the costs and expenses relating to the Placing) will be used by the Company to satisfy the initial cash consideration payable on Completion pursuant to the Acquisition Agreements (and other accretive acquisitions in the unlikely event that the TGP Acquisition does not complete) and for general working capital purposes. 

Current trading and prospects

On 2 August 2018, the Company issued a trading update noting that trading in the first half was in line with expectations with the Company delivering a number of major global events for both new and existing customers. The Company announces that the Company continues to trade in line with market expectations.

PLACING AND ACQUISITION STATISTICS

Note: these figures assume that the Placing is fully subscribed

EXPECTED TIMETABLE OF PRINCIPAL EVENTS

DEFINITIONS

The following definitions apply throughout this announcement unless the context requires otherwise:

In this announcement, references to "£", "pence" and "p" are to the lawful currency of the United Kingdom and references to "$", "dollar" and USD are to the lawful currency of the United States.