9 Jun 2015 07:00
Castleton Technology Plc
("Castleton", the "Company" or the "Group")
Proposed Placing, Proposed Conversion of Loan Notes and Notice of General Meeting
Castleton, the software and managed services provider to the public and not for profit sectors, is pleased to announce a heavily oversubscribed placing of new ordinary shares of 0.1 pence each in the capital of the Company ("Ordinary Shares") at a price of 2.25 pence per Ordinary Share, raising gross proceeds of £2.2 million for the Company.
Highlights
· Heavily oversubscribed Placing with new and existing shareholders
· Proposed Placing of 97,777,776 new Ordinary Shares at a price of 2.25 pence per Ordinary Share raising gross proceeds of £2.2 million to strengthen the Company's balance sheet following the acquisitions of Brixx and Impact as announced on 1 June 2015
· Proposed conversion of £1.5 million loan facility with MXC Capital into new Ordinary Shares at 2 pence per Ordinary Share
· Proposed conversion of £1 million loan notes issued to vendors of Documotive into new Ordinary Shares at 1.1 pence per Ordinary Share
Ian Smith, CEO of Castleton, commented:
"We are delighted by the strong response from both new and existing institutional shareholders to the Placing. The recent acquisitions of Brixx and Impact have completed the initial stage of building our platform and the fundraising provides us with additional capital as we continue to integrate our products and services.
Trading across the Group is encouraging; Documotive has just signed its first five-year SaaS deal with a Yorkshire social housing association as well as an agreement with a Dutch reseller to distribute its solutions in the Netherlands, evidencing the strength of its offering and further adding to the Group's recurring revenue base.
We look forward to updating the market and our shareholders with further progress over the coming months."
A circular will be sent to shareholders (the "Circular") giving notice of a general meeting of Castleton to be held on 29 June 2015 at 11.00 a.m. at the offices of DAC Beachcroft LLP, 100 Fetter Lane, London EC4A 1BN. A copy of the Circular will be available on the Company's website www.castletonplc.com.
Unless otherwise defined herein, capitalised terms used in this announcement shall have the same meanings as defined in the Circular.
Contacts:
Castleton Technology PLC
Ian Smith, CEO
Haywood Chapman, Finance Director
+44 20 7965 8149
MXC Capital Advisory LLP (Financial Adviser)
Marc Young/ Charlotte Stranner
+44 20 7965 8149
finnCap Ltd (Nominated adviser and broker)
Geoff Nash/ Simon Hicks
+44 20 7220 0500
The following text has been extracted from the Circular:
1. Introduction and summary
The Company today announced that it has raised £2.2 million (before expenses) by way of an oversubscribed conditional share placing of 97,777,776 new Ordinary Shares, at 2.25 pence per Placing Share.
The Placing is conditional on, inter alia, the Company obtaining approval from its Shareholders to grant the Board authority to allot the Placing Shares and to dis-apply statutory pre-emption rights which would otherwise apply to the allotment of the Placing Shares. Accordingly, the General Meeting is being convened for the purpose of considering the Resolutions which will give the Directors the necessary authorities to allot, inter alia, the Placing Shares.
The purpose of this document is to provide you with information about the background to and the reasons for the Placing, to explain why the Board considers the Placing to be in the best interests of the Company and its Shareholders as a whole and why the Directors recommend that you vote in favour of the Resolutions to be proposed at the General Meeting, as they, the other Directors and their immediate families and connected persons (within the meaning of section 252 of the Act) intend to do in respect of their aggregate holdings of 273,690,962 Ordinary Shares representing approximately 22.3 per cent. of the Existing Share Capital of the Company, notice of which is set out at the end of this document.
2. Background and Reasons for the Placing
On 1 June 2015 Castleton announced the acquisitions of Impact and Brixx, for total consideration of £10 million, which represent the fifth and sixth acquisitions under the Group's strategy to build the pre-eminent IT business focussed on the public and not for profit sectors, in particular the social housing sector.
The Acquisitions further consolidate Castleton's strong position in its chosen markets and add to the group of complementary businesses focused on the social housing sector comprising Montal, Documotive, Keylogic and Opus.
The Acquisitions were funded by a combination of its existing cash resources and a new bank facility with Barclays Bank Plc comprising a term loan of £5 million together with an overdraft of up to £2 million. The Company has also drawn down £1.5 million under the MXC Capital Loan Agreement and has entered into a further loan facility with MXC Capital to provide up to £1 million.
The proceeds of the Placing will be used to strengthen the balance sheet of the Group as well as to fund the costs associated with the Acquisitions and the Placing.
3. Information on Castleton
The Directors' believe that Castleton's range of solutions provides its customers with significant improvements in service, performance and insight. The Group has now made six acquisitions of complementary businesses focused on the social housing sector leading to Castleton being increasingly recognised as a market leading supplier. Castleton supports approximately 400 of the UK's total 1,700 social housing associations with approximately 70 per cent. of its customers only taking one product or service which provides significant cross-selling opportunities. Programmes are under development to expose all customers to the full suite of Castleton's products and services.
Software Services
Software services comprises Documotive and Opus and now Brixx and Impact. Together they offer solutions specifically tailored to the social housing sector, with very high levels of customer retention evidencing the quality of offering.
· Documotive provides tailor made solutions for the social housing sector including electronic document and records management, CRM, business intelligence, purchase to pay solutions and Agile, a mobile working solution.
· Opus' principal proprietary software, Ensemble, breaks down service charges to give a detailed account of actual costs vs. budget, streaming the budgeting process.
· Impact is a provider of business critical repairs management and scheduling tools to the social housing sector.
· Brixx provides software that enables users to produce financial models and long-term forecasts. It has a specific solution, HousingBrixx, which has been developed to meet the needs of the social housing sector.
Infrastructure Services
Infrastructure services comprises Keylogic and Montal which offer managed services providing outsourced IT support services ranging from complete IT management to infrastructure upgrades and general consultancy. Keylogic and Montal have accreditations and approvals from leading technology vendors including Citrix, VMware, Cisco and Microsoft.
4. Public Sector Opportunity
The Directors' believe that the public and not for profit sector is a fragmented market due to its niche requirements and therefore a significant opportunity exists to capitalise on the ability to address historic under-investment in IT infrastructure. The focus of Castleton is on the social housing sector for the following reasons:
· It is a well-funded, large addressable market with a requirement to use technology to improve working practices and deliver cost savings;
· The social housing sector is under increasing pressure to improve customer service, reduce operational costs and streamline service delivery; and
· Organisations face challenges with disparate legacy systems, data and documents to deliver customer and property functions.
Castleton is well positioned to provide an eco-system of integrated solutions, helping organisations operate more effectively and achieve their goals. The Group brings together trusted brands with a pedigree of delivering solutions that meet customer needs whilst offering a refreshing change of culture and approach, focusing on customer collaboration using modern technology.
5. Current Trading and Financial Position
The Group is building momentum with average year-on-year revenue growth of 27 per cent. Current run rate revenues are approximately £18 million of which over 50 per cent. are recurring, which the Directors expect will increase.
Annualised synergies across the Group of approximately £0.5 million have been identified and these will be achieved by outsourcing the field service and service desk as well as senior staff savings.
Castleton has entered into new bank facilities with Barclays Bank Plc, comprising of a £5 million term loan and a £2 million overdraft. The Company has also drawn down £1.5 million under the MXC Capital Loan Agreement and has entered into a further loan facility with MXC Capital to provide up to £1 million. Interest is payable on amounts drawn down under this facility at a rate of 10 per cent. per annum, with a commitment fee of 4 per cent. payable on amounts undrawn. The facility has a term of six months.
The Company has an outstanding interest rate swap liability of £0.3 million which will unwind by September 2015.
Loan Notes
As stated above, in order to help finance the Acquisitions, the Company has drawn down £1.5 million under the MXC Capital Loan Agreement. Amounts drawn down under the MXC Capital Loan Agreement are capable of being converted into new Ordinary Shares at 2 pence per Ordinary Share. MXC Capital intends to convert the £1.5 million drawn down under the MXC Capital Loan Agreement alongside the Placing which will result in the issue of 75,000,000 new Ordinary Shares to MXC Capital, which, together with its existing holding, will mean that MXC Capital will hold 344,956,989 Ordinary Shares, representing 23.1 per cent. of the Enlarged Share Capital. Ian Smith, Chief Executive Officer of the Company, is a substantial shareholder in MXC Capital by virtue of his interest in MXC Holdings, which is interested in 53.4 per cent. of the share capital of MXC Capital.
The vendors of Documotive, including Davinder Sanghera, Chief Operating Officer of the Company, also intend to convert the £1 million of loan notes held by them alongside the Placing. These loan notes are convertible into new Ordinary Shares at a price of 1.1 pence per Ordinary Share hence this will result in the issue of 90,909,090 new Ordinary Shares of which 30,303,030 will be held by Davinder, representing 2.03 per cent. of the Enlarged Share Capital.
The Group also has further loan notes in issue to the value of £0.9 million which were issued as part of the acquisitions of Keylogic and Opus and are convertible into new Ordinary Shares at 2 pence per Ordinary Share.
6. The Placing
The Company has conditionally raised £2.2 million (before expenses) through the proposed issue of the Placing Shares at the Placing Price, which represents a discount of approximately 43.3 per cent. to the closing middle market price of 3.225 pence per Ordinary Share on 8 June 2015, being the last practicable date prior to the publication of this document. The Placing Shares will represent 6.5 per cent. of the Company's Enlarged Issued Share Capital immediately following completion of the Placing and the issue of the MXC Loan Shares and Documotive Loan Note Shares. The net proceeds of the Placing (after costs associated with the Placing and Acquisitions) are expected to be approximately £1.7 million.
The Placing Agreement
Pursuant to the terms of the Placing Agreement, finnCap has conditionally agreed to use its reasonable endeavours, as agent for the Company, to place the Placing Shares with certain institutional and other investors at the Placing Price. The Placing Agreement is conditional upon, inter alia, the Resolutions being duly passed at the General Meeting and Admission becoming effective on or before 8.00 a.m. on 30 June 2015 (or such later time and/or date as the Company and finnCap may agree, but in any event by no later than 8.00 a.m. on 17 July 2015). The Placing is not being underwritten.
7. Board Incentivisation
The Board intends to put in place a Long Term Incentive Plan for the benefit of both the management team (from time to time) and MXC Guernsey to incentivise them as well as align their interests with those of the Shareholders.
The arrangements will only reward the participants if shareholder value is created. Further details of the plan will be given when awards are made but the total awards under the plan will not exceed 10 per cent. of the share capital of the Company at any time. The plan will be an evergreen plan. The allocation of awards under the plan is as follows:
Executive Management Non-Executive Directors MXC Guernsey | 3.0 per cent. 0.6 per cent. 5.0 per cent. |
8. Related Party Transactions
The participation of Kestrel Partners LLP, as a substantial shareholder in the Company, in the Placing also constitutes a related party transaction under the AIM Rules (the "Related Party Transaction"). The Directors consider, having consulted with finnCap, the Company's nominated adviser, that the terms of the Related Party Transaction are fair and reasonable insofar as Shareholders are concerned.
9. Settlement and dealings
Application will be made to the London Stock Exchange for the Placing Shares, the MXC Loan Shares and the Documotive Loan Note Shares to be admitted to trading on AIM. It is expected that Admission of the Placing Shares, the MXC Loan Shares and the Documotive Loan Note Shares will occur at 8.00 a.m. on 30 June 2015.
The Placing Shares, the MXC Loan Shares and the Documotive Loan Note Shares will rank pari passu in all respects with the Existing Ordinary Shares, including the right to receive all dividends and other distributions declared, made or paid on the Existing Ordinary Shares on or after Admission. Following the issue of the Placing Shares, the MXC Loan Shares and the Documotive Loan Note Shares, the total number of issued Ordinary Shares in the Company will be 1,493,311,292.
10. General Meeting
The Directors do not currently have sufficient authority to allot all of the Placing Shares. Accordingly, the Directors are seeking the approval of Shareholders at the General Meeting to allot the Placing Shares. You will find set out at the end of this document a Notice of General Meeting of the Company to be held at the offices of DAC Beachcroft LLP, 100 Fetter Lane, London EC4A 1BN on 29 June at 11.00 a.m. at which the Resolutions will be proposed.
The Resolutions to be passed at the General Meeting are as follows:
(1) Allotment of Ordinary Shares
Resolution 1, which will be proposed as an ordinary resolution, is to authorise the Directors to allot the new Ordinary Shares in connection with the Placing and otherwise to allot relevant securities up to an aggregate nominal amount of £497,770.43 (representing approximately one third of the Enlarged Issued Share Capital) provided that such authority shall expire on the date being fifteen months from the date of the passing of the resolution or, if earlier, the conclusion of the next annual general meeting of the Company.
(2) Dis-application of pre-emption rights
Resolution 2, which will be proposed as a special resolution and which is conditional upon the passing of Resolution 1, dis-applies Shareholders' statutory pre-emption rights (which require a company to offer new shares for cash first to existing shareholders in proportion to their holdings) in relation to the allotment of the new Ordinary Shares in connection with the Placing and grants further authority to allot equity securities for cash on a non-pre-emptive basis up to an aggregate nominal amount of £223,996.69 (representing approximately 15 per cent. of the Enlarged Issued Share Capital) provided that such authority shall expire on the date being fifteen months from the date of the passing of the resolution or, if earlier, the conclusion of the next annual general meeting of the Company.
The majority required to pass resolution 2 above is not less than 75 per cent. of the votes cast. Resolution 1 above requires a simple majority.
Shareholders should read the Notice of General Meeting at the end of this document for the full text of the Resolutions and for further details about the General Meeting.
Forward Looking Statements
All statements other than statements of historical facts included in this announcement, including, without limitation, those regarding the Group's and/or the Enlarged Group's financial position, business strategy, plans and objectives of management for future operations or statements relating to expectations in relation to dividends or any statements preceded by, followed by or that include the words "targets", "believes", "expects", "aims", "intends", "plans", "will", "may", "anticipates", "would", "could" or similar expressions or the negative thereof, are forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors beyond the Group's and/or the Enlarged Group's control that could cause the actual results, performance, achievements of or dividends paid by, the Group and/or the Enlarged Group to be materially different from future results, performance or achievements, or dividend payments expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the Group's and/or the Enlarged Group's present and future business strategies and the environment in which the Group and/or the Enlarged Group will operate in the future. These forward-looking statements speak only as of the date of this announcement. The Company expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company's expectations with regard thereto or any change in events, conditions or circumstances on which any such statements are based unless required to do so by applicable law or the AIM Rules.
Important Notice
This announcement is for informational purposes only, does not constitute a prospectus or admission document and has not been approved by the Financial Conduct Authority or any other regulator. This announcement does not constitute or form part of, and should not be construed as, an offer, invitation or inducement to sell, purchase or subscribe for or a solicitation of an offer to sell, purchase or subscribe for any securities in the Company, or any other entity, nor shall it or any part of it form the basis of, or be relied upon in connection with, any contract or commitment by or with the Company, finnCap, or any of their respective directors, officers, partners, employees, agents, advisers or affiliates for any purpose. This announcement does not constitute a recommendation regarding any securities in the Company.
finnCap is the trading name of finnCap Ltd, which is a private company authorised and regulated by the Financial Conduct Authority. finnCap is acting as nominated and financial adviser to the Company in connection with the matters described in this announcement. finnCap is not responsible to anyone other than the Company for providing the protections afforded to customers of finnCap or for advising any other person on the arrangements described in this announcement. finnCap has not authorised the contents of, or any part of this announcement and no liability whatsoever is accepted by finnCap for the accuracy of any information or opinions contained in this announcement or for the admission of any information. No representation or warranty, express or implied, is made by finnCap as to, and no liability whatsoever is accepted by finnCap in respect of any of the contents of this announcement (without limiting the statutory rights of any person to whom this announcement is issued).
It is the responsibility of any person receiving a copy of this announcement outside the United Kingdom, to satisfy themselves as to the full observance of the laws and regulatory requirements of the relevant territory in connection therewith, including obtaining any governmental or other consents which may be required or observing any other formalities required to be observed in such territory and paying any other issue, transfer or other taxes due in such other territory. Persons (including, without limitation, nominees and trustees) receiving this announcement should not distribute or send this announcement into any jurisdiction when to do so would, or might contravene local securities laws or regulations.