Jtc Plc Regulatory News (JTC)

The information contained within this announcement is deemed by the Company to constitute inside information stipulated under the Market Abuse Regulation (EU) No. 596/2014 ("MAR"). Upon the publication of this announcement via the Regulatory Information Service, this inside information is now considered to be in the public domain.

JTC PLC

(the "Company" and together with its subsidiaries "JTC" or the "Group")

Acquisition of NES Financial ("NESF")

JTC, the award winning provider of fund, corporate and private client services, is pleased to announce it has agreed to acquire NES Financial, a US based, technology-enabled, market leading provider of specialist fund administration services for an initial consideration of £32.3m or US$40.0m to be satisfied via the issue of 7,453,178 ordinary shares in JTC and US$0.25m cash. The acquisition represents a key part of JTC's ongoing growth strategy and, in particular, its focus on developing its Institutional Client Services ("ICS") business in the United States and a commitment to acquire and develop technology capabilities that drive future growth and operating efficiency.

Background to NESF

Founded in 2005, NESF has 58 employees delivering services from Boston, Massachusetts, where its fund administration operation is based and San Jose, California, which is the company's corporate headquarters and technology development centre of excellence. NESF provides fund administration, treasury and related services to a broad client base including private equity, real estate and debt funds, delivering a combination of market-leading technology solutions and client service excellence. Through an innovative go-to-market strategy, NESF has also established itself as a leader in the provision of full-service fund administration solutions in the niche US markets of 1031 exchange funds (real estate linked capital gains deferral programmes), EB-5 funds (US investor visa programmes) and Qualified Opportunity Zone funds ("OZ") (US domestic economic development programmes).

More information about NESF, its specialist services and technology capabilities, including its proprietary eSTAC fund administration platform, can be found at https://nesfinancial.com 

In the year ended 31 December 2019 NESF recorded revenues of US$13.2m and broke even at a PBT level. Included in these results were investment costs relating to Harmonate, a software as a service (SaaS) business that was incubated within the NESF Group and became a standalone business from 31 March 2020. Adjusting for these, the underlying EBITDA of NESF was US$1.8m. NESF has also won work with a future annualised revenue value of at least US$8m in OZ and 1031 exchange funds. In addition, a further US$2.0m of work has been won pending finalisation and signing of client contracts. NESF management is in the process of onboarding the new funds and management forecasts that in 2020 underlying EBITDA will be c. US$3.2m. In addition to the work already won, NESF has an active new business pipeline with a potential annualised revenue value in excess of US$10m. NESF has historically achieved a success rate in excess of 50% in competitive pitches owing to the quality of service and high touch, leading edge technology solutions it provides.

As well as becoming the platform for JTC's presence in the fast-growing US fund administration market, the acquisition brings important technology capabilities to the Group. These will be leveraged to drive service innovation, organic growth and operating efficiencies, initially within the ICS Division and over time, across the Group.

The transaction

JTC is acquiring NESF from management and external shareholders (the "Sellers"). The principal managers of NESF, who also have ownership interests in NESF, Mr Michael Halloran, Mr Reid Thomas, Mr Izak Joubert, Mr Michael Richards, Mr John Hart and Ms Kelly Alton will join JTC at completion. All of NESF's other 52 employees will also join JTC and become part of the Group's global ICS Division. Michael Halloran will become the Global Head of Technology Strategy and join the JTC Group Holdings Board - the senior executive Board of the Company.

JTC will acquire 100% of the issued share capital of NESF through the issue of new ordinary shares in the Company (the "Consideration Shares") and US$0.25m. NESF shareholders will receive an initial consideration on closing of 7,453,178 shares (the "Initial Consideration") with the potential to receive an additional 14,253,070 shares based on achievement of underlying EBITDA targets over the following two years (the "Earn-Out Consideration"). Completion is expected to occur before the end of June 2020, following the grant of certain regulatory and vendor shareholder consents. The cash consideration will be funded through JTC's operating cash flows and existing facilities.

Based upon JTC's share price on 1 April 2020, the value of the Initial Consideration shares is equivalent to £32.3m or US$40.0m. The combined maximum value of the Initial Consideration and Earn-Out Consideration shares based upon JTC's share price on 1 April 2020 is £93.5m or US$116.0m (subject to customary closing adjustments). The Earn-Out will be calculated over a two year period post closing. The target for achieving the maximum Earn-Out Consideration is underlying EBITDA of US$9.3m. This maximum value of US$116m would represent 12.5 times this underlying EBITDA target.

In addition, JTC has invested US$1.0m to acquire 20% of the issued share capital of Harmonate Corp. ("Harmonate"). Harmonate was incubated within the NESF Group and became a standalone business from 30 March 2020. Harmonate is a software as a service (SaaS) business and through its proprietary data operations technology, 'Conductor', delivers supervised machine learning for the consumption, contextualisation and delivery of data, replacing the need for costly labour resources within the middle and back office functions of funds and fund administrators. More information about Harmonate can be found at https://harmonate.com/ 

JTC expects the transaction to be immediately earnings enhancing.

Nigel Le Quesne, CEO of JTC, said:

"The US is a key growth market for the Group and we believe that NESF is the perfect partner and platform to drive the strategic expansion of our ICS Division and in particular our US fund administration business. We have been in dialogue with the NESF team for around a year as a potential partner and provider of technology services and we are delighted to welcome them to the Group. NESF is much more than just a US-based fund administrator; it brings to the Group world-class technology capabilities developed in Silicon Valley, a hugely experienced and talented management team and staff, and a high quality client book that encompasses private equity and real estate and market leading positions in several niche sectors. We are delighted to welcome our new colleagues, clients and partners to the Group and are excited for the future potential of this strategic acquisition."

Michael Halloran, the Founder and also Chairman & CEO of NESF, added:

"We believe that fund administration can be transformed through a combination of technology, domain expertise and business process. In JTC we have found a partner that shares this vision and has the experience, expertise and passion to pursue it. We are very excited to have become part of the JTC Group and as well as continuing to expand our successful US business, we are looking forward to applying our innovative approach and technology capabilities to help deliver JTC's ambitious long-term growth plans."

- Ends - 

2019 Full Year Results

JTC will announce its full year results for the year ending 31 December 2019 on 22 April 2020.

Enquiries:

JTC PLC +44 (0) 1534 700 000

Nigel Le Quesne, Chief Executive Officer

Martin Fotheringham, Chief Financial Officer

David Vieira, Chief Communications Officer

Camarco +44(0)20 3757 4999

Geoffrey Pelham-Lane

Kimberley Taylor

Monique Perks

Important Notices

The person arranging release of this announcement on behalf of the Company is David Vieira (Chief Communications Officer).

The release, publication or distribution of this announcement in jurisdictions other than the United Kingdom may be restricted by law and therefore any persons who are subject to the laws of any other jurisdiction should inform themselves about, and observe, any applicable requirements. This announcement has been prepared for the purposes of complying with the Listing Rules and MAR and the information disclosed may not be the same as that which would have been prepared in accordance with the laws and regulation of any jurisdiction outside of England.

This announcement contains forward looking statements. No forward looking statement is a guarantee of future performance and actual results or performance or other financial condition could differ materially from those contained in the forward looking statements. These forward looking statements can be identified by the fact they do not relate only to historical or current facts. They may contain words such as "may", "will", "seek", "continue", "aim", "anticipate", "target", "projected", "expect", "estimate", "intend", "plan", "goal", "believe", "achieve" or other words with similar meaning. By their nature forward looking statements involve risk and uncertainty because they relate to future events and circumstances. A number of these influences and factors are outside of the Company's control. As a result, actual results may differ materially from the plans, goals and expectations contained in this announcement. Any forward looking statements made in this announcement speak only as of the date they are made. Except as required by the FCA or any applicable law or regulation, the Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward looking statements contained in this announcement.

About JTC

JTC is an award-winning provider of fund, corporate and private client services.

Founded in 1987 we have over 900 people working across our global office network and are trusted to administer assets of more than US$130 billion.

The principle of making all our people owners of the business is fundamental to our culture and aligns us completely with the best interests of our clients.

www.jtcgroup.com