Mears Regulatory News (MER)

8 November 2012

Mears Group PLC

("Mears" or "the Group")

Acquisition of Morrison Facilities Services Limited

Mears, the support services group to the Social Housing and Care sectors in the UK, is pleased to announce the acquisition of Morrison Facilities Services Limited ("Morrison") from Morrison plc, a subsidiary of Anglian Water Group Limited ("AWG") ("Acquisition"), for a total consideration of £24 million. Morrison provides repairs and maintenance services to social housing clients in England and Scotland.

Significant benefits

·; Reinforces Mears' position as the leading Social Housing repairs and maintenance provider in the UK

·; The acquisition is expected to be earnings enhancing in 2013 and materially earnings enhancing from 2014, before the expected costs of restructuring

·; Strengthens Mears' ability to secure larger tenders

·; Enhances Mears' order book in terms of both volume and contract profile

·; Augments our medium term growth strategy

Rationale for the acquisition

Mears has identified significant strategic and operational synergy benefits from combining with Morrison. Whilst Morrison is currently loss making, Mears has an excellent track record in terms of service delivery and profitability and a strong track record of turning around, integrating and extracting substantial value from acquired businesses. Morrison's contract base fits well with Mears' structure and service delivery ethos and has a greater focus on higher revenue contracts (those being more than £1m of revenues a month). Increasingly, clients are actively forming broader relationships with fewer, larger operators and the combination of Mears and Morrison strengthens Mears' depth and breadth of relationships with both smaller and larger clients and will thereby further step-change Mears' sector leadership position.

Key financial information

For the year ended 31 March 2012, Morrison reported turnover of £290.9 million and an operating loss, before exceptional items, of £7.6 million. Gross assets at 31 March 2012 were £70.5 million. During the 2012 financial year and subsequently, Morrison has restructured or exited a number of mainly loss making contracts, reducing the pro forma annualised loss to approximately £5.3 million. Mears has identified a total of £8.0 million of synergies, the majority of which it would expect to achieve during the 2013 financial year and the balance during 2014. In order to achieve these synergies, it is expected that £8.0 million of one-off restructuring costs will be incurred, half of which are likely to be recognised in the current financial year and the other half during 2013. These synergies are largely derived from overlapping operations.

In addition to the synergies identified above, Mears expects it will be able to achieve additional trading enhancements of approximately £1.0 million in both 2013 and 2014. Overall, the Acquisition is expected to be dilutive in 2012, earnings enhancing for 2013 before the expected costs of restructuring and materially earnings enhancing for 2014. Morrison's site and branch management will benefit from the Mears' customer service approach and working with the Group's senior management. In addition, the pooling of resources will deliver important knowledge transfer benefits. Synergy benefits from increased purchasing and restructuring of local operations provide for further upsides. The Board of Mears believe that over time they can move Morrison's operating margin towards those achieved by Mears' in its social housing business.

Under the terms of the acquisition, it has been agreed between the parties that they will seek to procure that one contract currently being performed by Morrison will be novated from Morrison to another company owned by AWG (the "Third Party") and will not form part of the business being acquired by Mears on an on-going basis. In order to effect the novation, the contract is initially being assigned to the Third Party and the relevant employees will TUPE across. The Third Party will operate the contract, receiving the benefit and incurring the operating costs associated with its operation. Shortly after completion of the acquisition, AWG and Mears will jointly approach the customer of the contract with a view to obtaining consent to the novation. Until such consent has been given, Mears remains the ultimate contracting party. To eliminate any risk to Mears, the parent company of the Third Party, Osprey Holdco Limited ("Osprey"), has provided a full indemnity in favour of Mears. In addition, Osprey has put in place a bank guarantee from Barclays Bank of £10 million, in the unlikely event that Osprey is unable to meet its obligations under the indemnity.

Acquisition consideration

The total consideration for the Acquisition is £24.0 million of which £16.0 million is in cash, to be funded from Mears' existing banking facilities, and the balance of £8.0 million is through the issue of 2,833,489 new Mears shares ("New Mears Shares"), which have been issued to AWG at a price of 282.3 pence per share. AWG has undertaken not to dispose of the New Mears Shares for a period of 12 months following the completion of the Acquisition. The New Mears Shares will rank pari passu with the Mears ordinary shares currently in issue.

Application will be made to the Financial Services Authority, to the London Stock Exchange and PLUS respectively for admission of the New Mears Shares to: (i) the premium segment of the Official List; (ii) to trading on the London Stock Exchange's market for listed securities; and (iii) to trading on the PLUS-Listed Market (together "Admission"). It is expected that Admission will become effective and that dealings on the London Stock Exchange and PLUS in the New Mears Shares will commence at 8.00 a.m. on 13 November 2012. The Acquisition is not conditional upon the admission of the New Mears Shares. If Admission has not occurred within six months of completion, Mears is required to pay £8.0 million in cash.

Following Admission, the Company's issued share capital will consist of 91,790,125 1p ordinary shares with voting rights ("Ordinary Shares"). The Company does not hold any Ordinary Shares in Treasury. Therefore the total number of Ordinary Shares in the Company with voting rights will be 91,790,125. The figure of 91,790,125 Ordinary Shares may be used by shareholders in the Company as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change to their interest in, the share capital of the Company under the FSA's Disclosure and Transparency Rules.

Commenting on the Acquisition, David Miles, Chief Executive of Mears, said:

"I am delighted to have completed the acquisition of Morrison at a price which fairly reflects its current profitability. This deal further strengthens Mears' market leadership and contract profile in Social Housing. Given our strong operational platform and differentiated service delivery ethos, together with our ability to turn around businesses, I am confident that we will deliver significant improvements to Morrison's contracts, customers, tenants and employees."

Note: Nothing in this announcement is intended to be, or is to be construed as, a profit forecast or to be interpreted to mean that earnings per Mears share for the current or future financial years, or those of Mears following the Acquisition, will necessarily match or exceed the historical earnings per Mears share.

-ENDS-

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Notes for editors

Mears is a leading social housing repairs and maintenance service provider to Local Authorities and Registered Social Landlords in the UK and, following the acquisition of Careforce, Supporta and Choices, now commands a leading position in the UK Local Authorities' outsourced care market, providing personal care services to people in their own homes. Mears, post the acquisition of Morrison, employs in excess of 15,000 people and provides maintenance and repairs services to in excess of 15% of the UK social housing stock. Mears also provides over 160,000 hours of care to 20,000 service users each week.