2 Mar 2015 07:00
Castleton Technology Plc
("Castleton" or "the Group")
Two Acquisitions and a Disposal
· £3.8 million acquisition of social housing managed services provider Keylogic Limited ("Keylogic"), with expected sales of £3.8 million and EBITDA of £1.1 million for the year to 30 April 2015
· Acquisition of Opus Information Technology Limited ("Opus"), software provider to social housing market for initial £0.5 million, maximum payable £1.5 million dependent on performance
· Sale of Montal consultancy business to management for £0.6 million
· Acquisitions complementary to Castleton's existing business, and provide new customers and services
· Transactions expected to accelerate pace of growth at Castleton
Castleton, the software and managed services provider to the public and not for profit sectorannounces two acquisitions for a total consideration of £5.5 million (including maximum performance related payments) (the "Acquisitions") together with the disposal of the consultancy division of Montal Computer Services for £600,000 to its management.
Keylogic, an infrastructure managed services provider with a focus on the social housing sector, is being acquired for an enterprise value of £3.8 million. The business comes with a strong reputation in its market and a track record of profitable growth. The company expects to deliver revenues of £3.8 million for the year to 30 April 2015 and normalised EBITDA of £1.1 million. Keylogic already has more than 80 existing customers in Castleton's core market and is complementary to Castleton's existing infrastructure and managed services offering.
Castleton is also acquiring Opus, a specialist software provider to the social housing sector, for an initial £0.5 million, up to a maximum of £1.5 million, dependent on performance. Opus brings 16 housing association customers to the Group. The social housing sector is an important market to Castleton and the addition of Opus' proprietary software solutions will significantly enhance Castleton's software offering, building out a bank of unique public sector focused IP.
Castleton also announces the disposal of the consultancy division of Montal Computer Services Limited to its management for a total consideration of £600,000 in order to focus on its portfolio of specialist software solutions.
Castleton was advised on these transactions by MXC Capital Advisory LLP, a subsidiary of MXC Capital Limited (AIM: MXCP). MXC Capital Limited is a core investor in Castleton, owning 23.4 per cent. of the issued share capital.
Ian Smith, Chief Executive of Castleton, said, "These two acquisitions give a real boost to Castleton's offering to its existing customers and opens up many more potential customers to us. Castleton is a fast growing company and I expect these two new additions to accelerate that pace. We shall continue to seek opportunities to further build out our strong position in the public and not for profit sector. I wish the management of our disposed consultancy business very well."
Contacts:
Castleton Technology PLC
Ian Smith, CEO
+44 20 7965 8149
MXC Capital Advisory LLP
Marc Young
+44 20 7965 8149
finnCap Limited (Nominated adviser and broker)
Charlotte Stranner
+44 20 7220 0500
Alma PR
Josh Royston
+44 (0) 7780 901 979
Further details on the acquisition of Keylogic
Keylogic provides professional IT services to SMEs and the social housing sector, ranging from complete IT management to infrastructure upgrades and general consultancy. The business was formed in 2001 by Sean Moseby and Antony Anderson with the objective of delivering technically advanced ICT infrastructure and services solutions to its clients. This approach has led to sustained growth via existing customer referral and a strong track record. The business delivered turnover of £3.3 million and EBITDA of £0.9 million in the year to 30 April 2014. Gross assets as at 30 April 2014 were £1.4 million. Keylogic has accreditations and approvals from leading technology vendors including Citrix, VMware, Cisco and Microsoft. Sean Moseby and Antony Anderson are remaining with the business post acquisition, along with Gareth Pierce who has been Keylogic's technical director for many years.
Total consideration for the acquisition of Keylogic is up to £4.8 million, assuming free cash of £800,000 and working capital of £200,000, and is subject to a £ for £ adjustment on any increase or decrease in these balances. Of the net £4.0 million consideration, £3.4 million will be payable in cash and £0.6 million will be satisfied by convertible loan notes. The loan notes are repayable in 12 months, carry nil coupon and are convertible into new ordinary shares of 0.1 pence each in Castleton ("Ordinary Shares") at a price of 2 pence per Ordinary Share.
Further details on the acquisition of Opus
Opus provides software solutions to the social housing sector, from initial scoping to licence sales, implementation and software support. The principle proprietary software, Ensemble, was developed in-house and the business commenced generating revenue in 2012. Ensemble breaks down service charges to give a detailed account of actual costs against budgets, saving time and money in the budget-setting process. In addition, Opus provides consultancy and support services alongside bespoke solutions. In the six months to 31 December 2015, Opus generated revenue of £265,000 and EBITDA of £51,000. For the 15 months ended 30 June 2014, the business generated revenues of £432,000 and EBITDA of £49,000.
Total consideration for the acquisition of Opus is £0.5 million, payable as to £0.4 million in cash and £0.1 million in loan notes. The loan notes are repayable in 12 months, carry nil coupon and are convertible into new Ordinary Shares at a price of 2 pence per Ordinary Share. In addition, there is a potential earn out payment of up to £1 million, dependent on Opus' EBITDA for the 12 months to 30 September 2015..
Financing of the Acquisitions
The Acquisitions will be financed by the Company's existing cash resources and an overdraft facility of up to £1.5 million from the Company's existing bankers, Barclays Plc.
In addition, the Company has entered into a loan agreement with MXC Capital Limited ("MXC Capital") for up to £1.5 million (the "Loan Agreement"). Interest is payable on amounts drawn down under the Loan Agreement at a rate of 10 per cent. per annum, with a commitment fee of 4 per cent. payable on amounts undrawn. The Loan Agreement has a term of 18 months and includes an arrangement fee of £25,000, payable to MXC Capital. Amounts drawn down under the Loan Agreement are capable of being converted into new Ordinary Shares at a price of 2 pence per Ordinary Share at any time at MXC Capital's option.
Further details on the Disposal
Castleton has entered into an agreement to sell the consultancy division of Montal Computer Services Limited to its management team for a total consideration of £0.6 million (the "Disposal"). The initial cash consideration receivable by Castleton is £0.28 million with the remaining £0.32 million to be paid to Castleton in 60 monthly instalments with interest accruing on outstanding amounts at a rate of 9 per cent. per annum. The division is not considered to be core to the business and the Disposal will enable Montal to concentrate on its portfolio of software solutions and avoids any potential conflicts of interest that might have occurred in consulting on potential software solutions to be recommended to clients.
Related party transactions
The entering into of the Loan Agreement is considered a related party transaction under the AIM Rules for Companies on the basis that MXC Capital is a substantial shareholder in the Company and Ian Smith, CEO of Castleton, is a substantial shareholder of MXC Capital by virtue of his interest in MXC Holdings Limited (which is interested in 53 per cent. of the share capital of MXC Capital Limited). In addition, the Company is paying corporate finance advisory fees of £122,500 to MXC Capital Advisory LLP ("MXCA") for advisory services in relation to the Acquisitions and the Disposal (the "Advisory Fees") under an existing engagement with MXCA which is retained as corporate finance adviser to the Company. The payment of the Advisory Fees is considered to be a related party transaction under the AIM Rules for Companies on the basis that MXC Capital is the ultimate controlling party of MXC Capital Advisory LLP.
The independent directors (being David Payne, Phil Kelly and Haywood Chapman) consider, having consulted with finnCap Limited, that the terms of the Loan Agreement and the Advisory Fees are fair and reasonable insofar as shareholders of the Company are concerned.