Kingswood H. Regulatory News (KWG)

5 May 2020

KINGSWOOD HOLDINGS LIMITED

("KWG", the "Company" or the "Group")

Formal Closing of Chalice Acquisition

 Heads of Terms signed to assume majority ownership in Manhattan Harbor Capital

Continuation of Kingswood US Growth Strategy

Kingswood Holdings Limited (AIM: KWG) is pleased to announce the formal closing of the Chalice acquisition and that it has signed conditional heads of terms to assume majority ownership in Manhattan Harbor Capital. These businesses will be rebranded Kingswood US and put the Company in a strong position to drive its US growth strategy. On completion, Kingswood will have circa 180 authorised representatives managing AUM of circa $2 billion (£1.6 billion) in the United States.

Formal Closing of Chalice Acquisition

Kingswood Holdings Limited (AIM: KWG), the integrated wealth management group, announces that, following its announcement on 20 December 2019 regarding the completion of the acquisition of an 85% interest in Chalice Capital Partners and Chalice Wealth Advisors (together "Chalice"), it has now received regulatory approval and formally closed the acquisition.

As permitted within the original Sale and Purchase agreement, the remaining Chalice shareholder has exercised their put option over the remaining 15% interest, so on closing Chalice is now wholly owned by Kingswood.

Chalice Capital Partners is an Independent Broker/Dealer and Chalice Wealth Advisors is a Registered Investment Advisor, both located in San Diego, California and provides full service securities brokerage, advisory and investment banking services to a broad-based group of individuals and corporate clients. Chalice currently has 96 authorised representatives managing assets of $1.1 billion (circa £0.9 billion).

As announced previously, the maximum consideration for 100% of Chalice is US$4.0 million (£3.2 million) and initial consideration of US$1.0 million (£0.8 million) was paid on exchange in December 2019. Following regulatory approval and closing, the second tranche of $1.0 million (£0.8 million) has now been paid by Kingswood. The maximum remaining balance of $2 million (£1.6 million) will be disbursed on a deferred basis in 2020 subject to Chalice meeting pre-agreed asset migration, revenue and EBITDA hurdles.

To finance the second tranche Kingswood has issued a total of 869,000 new convertible preference shares (the "New Convertible Preference Shares"), under the terms of its convertible preference share subscription agreement with HSQ INVESTMENT LIMITED, a wholly owned indirect subsidiary of funds managed and/or advised by Pollen Street Capital Limited ("Pollen Street").

The New Convertible Preference Shares represent the fifth tranche of irredeemable convertible preference shares issued pursuant to the subscription agreement and as such the total number of irredeemable Convertible Preference Shares held by Pollen Street has increased to 10,580,043 shares at an issue price of £1 each.

Heads of Terms signed to assume majority ownership in Manhattan Harbor Capital 

Key Highlights

Conditional on due diligence, regulatory approval and completion:

· Kingswood will exercise its existing option to increase its interest in Manhattan Harbor Capital ("MHC") from the existing 7% to 20%

· Chalice will be contemporaneously folded into MHC, increasing Kingswood's interest in MHC to a majority 50.2%

· MHC to be renamed Kingswood US

· Kingswood US will be the business that spearheads the Company's future US strategy

· On completion, Kingswood US is projected to have circa 180 Authorised Representatives, with key offices in New York, Atlanta and San Diego

· Further commitment of capital to fund future growth and recruitment

Derek Bruton joins Kingswood as part of the Chalice acquisition and will assume the role of CEO of Kingswood US and partner with Mike Nessim, the current majority owner and leader of MHC, combining their expertise and deep industry experience to further expand and consolidate Kingswood's ambitious US footprint.

Gary Wilder, Group CEO at Kingswood commented:

"We are delighted to welcome Derek Bruton and Mike Nessim along with their teams to the Kingswood group. The Heads of Terms to acquire a majority interest in MHC at an attractive discount relative to market reflects the desire of both parties to develop a highly accretive global platform providing clients access to investment product and services in major US and UK markets.

Kingswood's enhanced investment in MHC will cement a key, strategic foothold in the largest global wealth and investment management market, differentiate us from our peers and support our aspirations of asset linking and cross-selling services. The investment will provide a significant base to potential further integration and a valuable support to Kingswood's US expansion plans. This puts us in a strong position to execute our robust US acquisition pipeline and Mike and his team will oversee acquired entities and focus on delivering Kingswood's full service brokerage and banking proposition to clients.

The partnership also helps MHC achieve its goal of formalising a strategic allegiance with the Kingswood listed entity that brings a number of benefits including boosting AUM and accelerating adviser recruitment and a significant foothold in the largest wealth management market globally, providing the springboard and best in class infrastructure to exponentially grow the business."

Overview

Kingswood has signed detailed Heads of Terms with MHC, which will lead to the business increasing its current 7% stake to 50.2% (the "Conditional Transaction").

MHC is the owner of Benchmark Investments ("Benchmark"), a FINRA-registered Independent Broker/Dealer based in New York and Atlanta, run by Mike Nessim who is also the current controlling shareholder, providing full service securities brokerage and investment banking services to a broad-based group of individuals and corporate clients. For the nine months ended 31 December 2019 MHC reported EBITDA of $1.1 million (£0.9 million), total assets of $1.3 million (£1.1 million) and AUM of circa $350 million (£280 million)

Following completion of the Conditional Transaction, MHC will be renamed Kingswood US.

Key Terms of the Conditional Transaction

When Kingswood originally purchased their current stake of 7% in MHC they also entered into a call option agreement allowing Kingswood to acquire a further 13% in MHC.

In addition, MHC will issue ordinary shares representing 30.2 per cent of the share capital in consideration for Chalice. Chalice is wholly owned by the Company and acquired for a total consideration of $4.0 million (£3.2 million). Kingswood's interest in MHC is expected to further increase as it subscribes for additional capital to fund growth.

The Conditional Transaction outlined above is dependent on, inter alia, satisfactory due diligence, the negotiation of a sale and purchase agreement to the satisfaction of all parties and regulatory approval.

Rationale for the Conditional Transaction

As the largest global wealth management market, estimated to be worth $32 trillion (£26.2 trillion) as at 2018*, Kingswood sees the US as a major growth opportunity. The market is still growing significantly year on year, with 9% compound historical annual growth. By the end of 2025, it is estimated the North American market will be worth in excess of $70 trillion (£57 trillion). Kingswood has been keen to expand investment in that market for some time.

Kingswood's intention is to drive its US growth strategy through the rebranded merged company (Kingswood US). The growth strategy envisages organic growth, significant recruitment of Registered Advisors and acquisitions and a substantial build out of its investment banking franchise. The Kingswood US client offering is expected to be attractive to Registered Advisors.

Benchmark is in the process of substantially expanding its platform including the addition of a dedicated investment banking team, and anticipates significant AUM and EBITDA growth once various investment acquisitions are formalised.

With the combination of Chalice, MHC will have circa 180 authorised representatives managing AUM of circa $2 billion (£1.6 billion) operating in a re-branded Kingswood US enterprise.

ENDS

For further details, please contact:

 About Kingswood

Kingswood Holdings Limited (trading as Kingswood) is an AIM-listed (AIM: KWG) integrated wealth management group, with around 7,000 active clients and c. £2.5 billion of Assets under Management and Advice. It has a growing network of offices in the UK including Abingdon, Beverley, Derby, Lincoln, London, Maidstone, Sheffield and Worcester, and offices in Johannesburg, South Africa and New York, USA.

Kingswood offers a range of trusted investment solutions to its clients, which range from private individuals to some of the UK's largest universities and institutions, including investment advice and management, personal and company pensions and wealth planning. Kingswood is focused on becoming a leading player in the wealth management market through targeted acquisitions in the UK, with the ultimate goal of creating a global business through strategic partnerships.

The information communicated in this announcement is inside information for the purposes of Article 7 of Regulation 596/2014