B.p Marsh Regulatory News (BPM)

7 December 2023

B.P. Marsh & Partners Plc

("B.P. Marsh", "the Company" or "the Group")

Realisation of investment

 Sale of Paladin Holdings Limited, parent company of CBC UK Limited

B.P. Marsh and Partners Plc (AIM:BPM), the specialist private equity investor in early stage financial services businesses, is pleased to announce the sale of its entire shareholding in Paladin Holdings Limited ("Paladin"), the holding company of CBC UK Limited ("CBC"), subject to certain conditions including regulatory approval being granted.

Highlights:

· £41.8m (net of all transaction costs) initial cash consideration expected to be received from the disposal of the Group's 43.8% holding in Paladin on completion, subject to regulatory approval

· Internal rate of return to B.P. Marsh of 45% (inclusive of all income and fees) based on initial consideration

· Repayment to the Group of £5.9m outstanding loans to Paladin

· £11.3m uplift from £30.53m valuation as at 31 July 2023

· Potential for £17.8m further consideration if Paladin achieves defined hurdles

· Initial equity investment of £3.5k

Sale of Shareholding in Paladin

B.P. Marsh has agreed to sell its shareholding in Paladin, the parent company of CBC, the London-based Insurance Broker, to Specialist Risk Group Limited ("SRG"), one of the fastest growing groups of insurance intermediaries in the UK, subject to regulatory approval. SRG is backed by HGGC, the Californian based mid-market private equity firm.

Background to the Investment

B.P. Marsh originally invested in Paladin as part of a Management Buy-Out in February 2017, with an initial equity investment of £3.5k for a 35% shareholding. The Company has also supported Paladin with loan funding during this time, and currently has outstanding debt of £5.9m. Since B.P. Marsh's investment, Paladin's EBITDA has grown from a loss of £(50)k in 2016 to a forecast adjusted EBITDA of £10m in FY23. In the year ended 31 January 2023, Paladin contributed £0.9m to the Group's total income from investments.

The Transaction

Upon completion, the Group expects to receive at least £41.8m in cash (net of all transaction costs) plus repayment in full of its £5.9m loans to Paladin, an aggregate cash receipt of £47.7m. The equity proportion of the initial consideration alone represents an £11.3m uplift (or 37%) on the Group's most recent £30.53m valuation of the investment as at 31 July 2023, underlining our valuation methodology.

As well as the initial consideration on completion, the Company will also be entitled to receive its proportion of any net working capital adjustment, expected to be finalised within three months of completion.

The Company will then be entitled to receive deferred consideration of up to £17.8m in cash based upon 20% EBITDA growth targets above Paladin's current EBITDA in FY24 and FY25, payable in 2025 and 2026. There is the possibility of further consideration in FY25 should Paladin outperform these growth targets.

Jon Newman, the Company's Finance Director and Nominee Director on the Boards of Paladin and CBC, will resign from his roles at Paladin and CBC on completion of the sale.

The investment, development and subsequent sale of the Group's holding in Paladin demonstrates B.P. Marsh's established strategy of partnering with entrepreneurial management teams to assist their growth prior to reaching a management-led exit in a time frame that suits all parties.

Jon Newman, the Group's Finance Director, commented:

"The sale of our stake in Paladin at an expected IRR of 45% at completion with the potential for significant further consideration over the next two years, is testament to our investment strategy and ability to identify opportunities to back successful management teams and to successfully realise value for our shareholders. We believe that there are few, if any, UK investors that could have made this investment, demonstrating the specialist position that B.P. Marsh occupies in the marketplace and the opportunities that this can provide our investors.

"It has been an absolute pleasure to work with Andrew Wallas, Rob Cottingham and the whole team at CBC and be a part of the transformational growth since the MBO almost seven years ago. This deal offers an exciting future for both SRG and CBC, and the whole of B.P. Marsh wishes everyone at CBC every success in the future."

Andrew Wallas, Chairman of CBC, said:

"When Rob Cottingham called me in 2016 to explain the opportunity for a Management Buyout of independent Lloyd's Broker CBC, I contacted B.P. Marsh, who agreed to partner with us very readily. This year is the 50th anniversary of me commencing my career within the Lloyd's market as a junior administrator with Nelson Hurst under the tutelage of Brian Marsh. B.P. Marsh has provided follow on funding and supported us to expand the business by attracting highly experienced, talented and dedicated practitioners.

"The B.P. Marsh nominee director on our board, Jon Newman, has provided us with insight, inspiration, wise council and a calming influence which has been invaluable to us as we have developed the business under the leadership of Rob Cottingham. The role and expertise of B.P. Marsh and in particular Jon Newman in helping us to navigate this transaction has been deeply appreciated by both Rob Cottingham and myself."

Use of Proceeds

Subject to completion, this transaction would increase the Group's current funds to approximately £93.7m after transaction costs and tax. Following the receipt of the Sales proceeds, the Directors will present their plans for the utilisation of this cash to Shareholders.

Note

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018.

For further information:

Notes to Editors:

B.P. Marsh's current portfolio contains fourteen companies. More detailed descriptions of the portfolio can be found at www.bpmarsh.co.uk.

Since formation over 30 years ago, the Company has assembled a management team with considerable experience both in the financial services sector and in managing private equity investments. Many of the directors have worked with each other in previous roles, and all have worked with each other for approaching ten years.

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