Lighthouse Regulatory News (LGT)

7 Nov 2005 15:36

LIGHTHOUSE GROUP PLC ACQUISITION OF CARRWOOD BARKER ANDSHARE PLACING For Immediate Release 7 November 2005Lighthouse Group plc ("Lighthouse" or "the Company") announces the acquisitionof Carrwood Barker Holdings Limited, an Independent Financial Adviser and SIPPadministration group, based in Manchester and Milton Keynes, whose advisers arebased in firms of chartered accountants throughout the UK.Lighthouse also announces that it is simultaneously raising approximately ‚£3million in new ordinary shares from institutional and other investors.A shareholders circular will be posted later today and will include a Notice ofan Extraordinary General Meeting of the Company to be held on 30 November 2005.HighlightsCarrwood Barker * Carrwood Barker was founded some 13 years ago and currently employs over 40 IFAs. The average annual turnover of the Carrwood IFAs is in excess of ‚£ 160,000. Carrwood Barker has introducer arrangements with approximately 100 firms of chartered accountants and solicitors across the UK and most of Carrwood Barker's advisers are physically based in many of these firms. * Carrwood Barker annual revenues are currently approximately ‚£8 million. Of this, approximately ‚£2.8 million is recurring, being derived from renewal income, recurring fees and income from funds under management. * As part of the transaction, Lighthouse will also acquire ownership of City Pensions Limited, which is a SIPP and SSAS business administering 1,000 SIPPs and SASSs, with an aggregate funds value of approximately ‚£260 million. Terms of the acquisition * Lighthouse will acquire the entire issued share capital of Carrwood Barker for an initial consideration of approximately ‚£3.3 million, payable (as to all bar approximately ‚£100,000 which is in cash) in new Lighthouse shares. In addition, deferred consideration of up to ‚£1.2 million is payable in two tranches in the event that turnover of Carrwood Barker is not less than ‚£ 9.5 million in the calendar year 2006, and ‚£5.5 million in the six months to 30 June 2007. * At completion, John Stevenson, the principal founder of Carrwood Barker, will join the Board of Lighthouse as an executive director. Fund RaisingLighthouse has conditionally raised approximately ‚£3.1 million through aplacing of new ordinary shares, of which ‚£2.3 million is from institutional andother investors, and the balance is from certain Carrwood Barker guarantors,all at a price of 13.5 pence per share. The funds raised will be used: * to finance the repayment of existing Carrwood Barker indebtedness; * to pay the expenses of the transaction; * to pay expected integration costs; and * to increase the working capital of the Enlarged Group. At completion, the enlarged Lighthouse group is expected to have approximately‚£3 million in cash, with no debt.Lighthouse chairman David Hickey commented:"Carrwood Barker has an excellent market position, through its businessrelationships with a significant number of firms of chartered accountantsthroughout the UK. Like Lighthouse, it has a strong compliance culture, derivedin part from using only seasoned advisers skilled in providing independentadvice to corporate and personal clients. The provision of IFA advice alongsideaccountancy firms is an ambition that many have attempted in the IFA sector,but at which John Stevenson and his team have been particularly successful.Accordingly I am delighted to welcome John to the Lighthouse Board.The recurring annual income from Carrwood Barker comprises over 85 percent ofthe initial share consideration payable and increases the predictability of theenlarged Group's turnover. When added to the significant cost savings expectedfrom the transaction, and in light of the strong recent interim resultspublished by Lighthouse, this transaction reinforces the Board's expectation ofcontinued financial progress for Lighthouse." ENDS For further information:LIGHTHOUSEGROUP PLC Tel: 020 7065 5640David Hickey, Executive ChairmanMalcolm Streatfield, Chief ExecutiveDaniel Stewart & Co Tel: 020 7776 6550Lindsay MairWaughton Tel: 020 7796 9999Robin HepburnBackground to the GroupLighthouse has approximately 500 IFAs operating throughout the UK. TheLighthouse offering principally includes the provision of new clientintroductions, marketing assistance, IT facilities, professional training,commission handling, FSA regulatory requirements and professional indemnitycover. IFAs operate within the Group's four brands which were rebranded on 1November 2005 and comprise LighthouseTemple, LighthouseWealth,LighthouseCorporate, and LighthouseXpress. The precise offering provided variesdepending on the brand used by the IFA.In all cases the IFAs operate independently, in that they are both selfemployed and offer a whole of market range of financial advice and retailfinancial products to clients. They are authorised and regulated by the FSA, asappointed representatives of Lighthouse. Lighthouse charges commission and feesfor work undertaken.In the six months to 30 June 2005, Lighthouse recorded turnover of ‚£15 million,gross profit of ‚£3.8 million, administration costs of ‚£3.7 million and theGroup made a maiden profit before amortisation of ‚£71,000. Turnover per IFA wasequivalent to an annualised ‚£59,000 and annualised recurring income wasapproximately ‚£4 million. Each of these figures represented a significantimprovement over the corresponding previous period. At 30 June 2005, the Grouphad net assets of ‚£3.4 million, including cash of ‚£2.2 million, with no debt.Information on Carrwood BarkerCarrwood Barker's IFAs are employees of Carrwood Barker and are offered fullsupport services. These are similar to those offered by Lighthouse to theirself-employed advisers. In addition, most of Carrwood Barker's IFAs arephysically based in firms of chartered accountants located throughout the UK,which gives them wide-ranging access to high net worth and corporate clients.Carrwood Barker has introducer agreements with approximately 100 firms ofchartered accountants and solicitors and intends to increase significantly thenumber of its advisers within these firms, as well as forging links with newaccountancy practices.Carrwood Group Limited was formed in 2002 by the merger of Carrwood FinancialPlanning Limited, a company in which John Stevenson was a major shareholder andthe managing director, and Barker Pensions & Investments Limited, a company inwhich John Wilkinson was a 50 per cent. shareholder and the managing director.Carrwood Financial Planning Limited focused on providing independent financialadvice to private and corporate clients of the firms of chartered accountantsand Barker Pensions & Investments Ltd also concentrated on charteredaccountants. In 2003, Carrwood Barker acquired the business and certain assetsof Moorgate House Limited. The enlarged group traded as Carrwood Barker andremained focused on the clients of chartered accountants.The acquisition of Moorgate House Limited introduced a significant number ofnew relationships and advisers, as well as a new business, City PensionsLimited, which principally administers services to self invested privatepension funds ("SIPPs"). The acquisition resulted in a substantial expansion ofthe Carrwood Barker business which over-stretched its management and financialresources. Accordingly the enlarged business recorded significant tradinglosses until December 2004.Since 31 December 2004 however, Carrwood Barker's earnings before interest,taxation, depreciation and amortisation have been positive and for the sixmonths to 30 June 2005, it recorded an unaudited EBITDA of ‚£185,000. Turnoverper adviser for the six month period to 30 June 2005 was equivalent to anannualised ‚£160,000 and is equivalent to an annualised ‚£8 million for CarrwoodBarker as a whole, including City Pensions Limited and recurring income.On completion of the Acquisition, John Stevenson will join the Board ofLighthouse and John Wilkinson will join the Group's executive managementcommittee.Details of the AcquisitionPursuant to the Acquisition Agreements, Lighthouse has conditionally agreed toacquire the entire issued share capital of Carrwood Barker and all of theminority interests in its subsidiaries, the shareholders of whom have agreed tosell their shareholdings. The vendors include certain existing lenders andguarantors of loans to Carrwood Barker who have agreed immediately prior tocompletion of the Acquisition to assign their outstanding loans and guaranteesto Lighthouse in consideration for the issue of new Ordinary Shares byLighthouse. The aggregate initial consideration for these interests is11,808,051 Initial Consideration Shares and ‚£1,671,125 cash, of which ‚£1,583,000 in cash will be paid to certain existing lenders to Carrwood Barker(being equivalent to ‚£3.3 million at the Placing Price).In addition, deferred consideration of up to ‚£1.2 million (to be satisfied bythe issue to certain of the vendors of Deferred Consideration Shares) ispayable in the event that the turnover of Carrwood Barker is not less than ‚£9.5million in the calendar year 2006 and not less than ‚£5.5 million in the sixmonths ending 30 June 2007.The Initial Consideration Shares and Deferred Consideration Shares will, whenissued, rank pari passu with the Existing Ordinary Shares, including the rightto receive all dividends and other distributions thereafter declared, made orpaid.The Acquisition Agreements include customary warranties and indemnities fromcertain vendors relating to the legal, commercial and trading condition ofCarrwood Barker. No significant warranties are being given by Carrwood Barker'sexisting lenders and loan guarantors.All current Carrwood Barker shareholders and Carrwood Barker subsidiaryshareholders, and those Carrwood Barker lenders and guarantors acceptingOrdinary Shares, have agreed not to sell any Ordinary Shares for a period of atleast one year after completion, except in certain limited definedcircumstances, and thereafter for a further period of one year to sell onlythrough Daniel Stewart, or Lighthouse's broker from time to time.Reasons for the AcquisitionIn order to augment its organic growth, Lighthouse has for some time beenseeking opportunities to accelerate its expansion, and has examined a number ofpossibilities. The criteria it has applied to potential acquisitions hasincluded the requirement for high quality advisers, recurring income, and astrong compliance culture. Discussions with Carrwood Barker have been on-goingfor a number of months, and the Company has spent considerable time gainingfamiliarity with the operations of Carrwood Barker. The Board now believes thatCarrwood Barker satisfies its acquisition criteria, that the operationalculture within Carrwood Barker is akin to that of Lighthouse and thatconsequently the two organisations are expected to fit well together.The acquisition of Carrwood Barker by Lighthouse is expected to bring thefollowing benefits to Lighthouse:1. recurring revenues of approximately ‚£2.8 million derived principally fromrenewal income, recurring fees and income from funds under management(representing approximately 85 per cent. of the Initial Consideration);2. over 40 skilled advisers whose average annual turnover equates to ‚£160,000without any significant quality issues;3. strong trading relationships with a large number of chartered accountancyfirms nationwide;4. expertise in the management of SIPPs, which is particularly attractive inview of the imminent changes in SIPP related legislation;5. approximately ‚£260 million under administration within City PensionsLimited; and6. a strong compliance culture mirroring that of Lighthouse.Use of proceedsThe funds raised from the Placing will be applied as follows:‚£'000Repayment of existing Carrwood Barker indebtedness 1,671and cash consideration Expenses of the transaction 325 Expected integration costs 250 Surplus capital available for additional expansion 921by the Enlarged Group Total 3,167Financial record of Carrwood BarkerThe table below is a summary of the financial information relating to CarrwoodBarker: Period from Six months Year ended 31 Unaudited six 25 April 2002 ended 31 December 2004 months ended to June 2003 December 2003 30 June 2005 ‚£ ‚£ ‚£ ‚£ Turnover 1,684,230 2,560,635 7,187,508 3,728,000 Administrative 1,625,843 2,540,639 8,554,706 3,644,308expenses Gross Profit/(Loss) 58,387 19,996 (1,367,198) 83,692 Interest (payable) (11,694) (43,459) (167,970) (106,362) Profit/(loss) before 46,693 (23,463) (1,535,168) (22,670)tax on ordinary activities Current trading and prospects of the Enlarged GroupIn the accompanying statement to the interim results for the six month periodto 30 June 2005, released on 27 September 2005, David Hickey, Chairman ofLighthouse said that Lighthouse had come to the end of its early stage cashoutflow period and that the Board is now focused on seeking to ensure that theGroup would create significant profits in future periods. The addition ofCarrwood Barker to the Group will, in the view of the Directors, assistsignificantly in the achievement of that objective.With recurring annual income of approximately ‚£2.8 million out of a currentannualised turnover of approximately ‚£8 million, it brings the recurring incomeof the Enlarged Group to approximately ‚£7 million and hence, the Directorsbelieve, significantly increases the forward visibility and thus predictabilityof the Group's turnover. The Acquisition is also expected to bring significantcost savings to the Enlarged Group and to expand considerably the Group'saccess to corporate clients. Accordingly the Board believes that continuedfinancial progress may be expected.Details of the PlacingOn behalf of Lighthouse, Daniel Stewart has conditionally placed approximately‚£3.167 million before expenses with existing and new institutional investors,through the issue of 23,457,282 Placing Shares at a price of 13.5 pence perPlacing Share pursuant to the Placing Agreement. The Placing is conditional,inter alia, on Admission taking place by 1 December 2005, or such later time,being not later than 15 December 2005, as Daniel Stewart may agree.On Admission, the Directors (and persons associated with them in accordancewith the AIM Rules) will hold, in aggregate, approximately 1.7 per cent. of theEnlarged Share Capital.The Placing Shares will rank pari passu in all respects with the ExistingOrdinary Shares, including the right to receive all dividends and otherdistributions thereafter declared, made or paid. Dealings in the Placing Shareson AIM are expected to commence on 1 December 2005. It is expected that CRESTaccounts will be credited on the day of Admission and that certificates will bedispatched by first class post by 5 December 2005.Daniel Stewart & Co. plc, which is regulated by the Financial ServicesAuthority, is acting as nominated adviser and broker to the Company. It willnot be responsible to any person other than the Company for providing theprotections afforded to its customers or for advising any other person on thecontents of any part this announcement. The responsibilities of Daniel Stewart& Co. plc as the Company's nominated adviser under the AIM Rules are owedsolely to the London Stock Exchange and are not owed to the Company or anyDirector or Shareholder or to any other person, in respect of any decision toacquire Ordinary Shares in reliance on any part of this announcement orotherwise. Daniel Stewart & Co. plc is not making any representation orwarranty, express or implied, as to the contents of this announcement.DefinitionsThe following definitions apply throughout this announcement, expect where thecontext requires otherwise."Acquisition" the proposed purchase of the entire issued share capital of Carrwood Barker and of the minority interests in certain of its subsidiaries and certain debts of the Carrwood Barker Group pursuant to the Acquisition Agreements "Acquisition Agreements" the agreements dated 7 November 2005 between the Vendors and the Company relating to the Acquisition "Admission" the admission of the New Ordinary Shares to trading on AIM becoming effective in accordance with the AIM Rules "AIM" the AIM market operated by the London Stock Exchange "AIM Rules" the rules of the London Stock Exchange governing the admission of securities to AIM "Board" or "Directors" The board of directors of the Company "Daniel Stewart" Daniel Stewart & Company plc "Carrwood Barker" Carrwood Barker Holdings Limited "Carrwood Barker Group" Carrwood Barker and its subsidiaries "Companies Act" Companies Act 1985 (as amended) "Deferred Consideration Shares" Ordinary Shares to be issued to certain of the Vendors in connection with the Acquisition "Enlarged Group" the Company together with its subsidiaries following completion of the Acquisition "Existing Ordinary Shares" the 39,874,904 existing Ordinary Shares in issue at the date of this announcement "Enlarged Share Capital" the issued share capital of the Company following Admission, as enlarged by the issue of the New Ordinary Shares "Extraordinary General Meeting" or the extraordinary general meeting of "EGM" the Company convened for 30 November 2005 (or any adjournment thereof) "FSA" Financial Services Authority "Group" the Company and its subsidiaries as at the date of this document "IFA" independent financial adviser "Initial Consideration Shares" the 11,808,051 Ordinary Shares to be issued to the Vendors pursuant to the Acquisition Agreements, conditional on Admission "Lighthouse" or the "Company" Lighthouse Group plc "London Stock Exchange" London Stock Exchange plc "New Ordinary Shares" together, the Initial Consideration Shares and the Placing Shares "Ordinary Shares" ordinary shares of 1p each in the capital of the Company "Placing" the proposed issue of the Placing Shares at the Placing Price "Placing Agreement" the conditional placing agreement dated 7 November 2005 between Daniel Stewart (1), the Company (2) and the Directors (3) relating to the Placing "Placing Price" 13.5p per Placing Share "Placing Shares" the 23,457,282 new Ordinary Shares which are the subject of the Placing "Resolutions" the resolutions to be proposed at the EGM "Shareholders" holders of Ordinary Shares ENDLIGHTHOUSE GROUP PLC