Marlowe Regulatory News (MRL)

13 July 2017

Marlowe plc

Acquisition of Ductclean (UK) Limited

Placing of new Ordinary Shares to raise approximately £10 million

Notice of General Meeting

Marlowe plc ("Marlowe", the "Company" or the "Group"), the support services group focused on acquiring and developing companies that provide critical asset maintenance services, announces that it has agreed to acquire Ductclean (UK) Limited ("DCUK") for a total enterprise value of up to £10.0 million (the "Acquisition").

DCUK is a UK market leader in ventilation maintenance, ductwork cleaning and management, kitchen extract cleaning and contamination remediation services, including asbestos remediation. Established in 1998 and operating nationally from headquarters in Welwyn Garden City, Hertfordshire, the business employs around 185 people. DCUK's key customers include national hotel and leisure providers, airports, NHS trusts, universities, local authorities, and FTSE companies.

The acquisition of DCUK represents Marlowe's first step into the air hygiene market, where it will form the basis of a new division to sit alongside the Group's existing activities in fire & security and water treatment. The Board believes that the air hygiene market shares attractive key characteristics with the fire & security and water treatment markets, including a significant element of non-discretionary spend, strong regulatory and legislative drivers, a degree of operational and technical complexity which favours outsourcing, and the same channel to market, which provides opportunities for cross-selling. In addition to providing the Group with a presence in a new complementary service sector, the market in which DCUK operates is currently highly fragmented and offers significant scope for consolidation.

For the year ended 30 September 2016, DCUK reported revenues of £16.7 million, underlying EBITDA of £1.8 million (adjusted for non-recurring items) and gross assets of £6.0 million, including freehold property which has been independently valued at £1.5 million. The Directors believe that the Acquisition will immediately enhance Group earnings.

The Acquisition of DCUK includes cash consideration of £4.0 million which will be used in part to repay debt of approximately £2 million. In addition Marlowe will issue of 878,031 new ordinary shares of 50 pence each (the "Consideration Shares") at 393.88 pence per share, representing an aggregate value of approximately £3.5 million, to the DCUK management team who will lead Marlowe's new Air Hygiene division. The Consideration Shares are subject to a lock-up period of up to 60 months with orderly market conditions attached after this period. An additional earn-out is payable of up to £2.5 million, which can be settled in cash or ordinary shares at the Company's option. The earn-out shares would be issued at the market price at the time of issue and subject to the same lock-in period.

In addition, the Company today announces a Placing that was oversubscribed, with new and existing institutional shareholders, to raise approximately £10 million. The proceeds of the Placing, along with the Company's existing £18 million debt facilities, will be used to fund the cash consideration for DCUK and to support the Company's plans for further acquisition-led growth. The Company has approximately £17 million of net headroom under its current debt facilities.

The Placing Proceeds, as well as the issue of the Consideration Shares, will be subject to approval by the Company's shareholders at the General Meeting (the "GM") to be held on 28 July 2017. The Company will apply for admission of 2,597,402 Placing Shares and 878,031 Consideration Shares to trading on AIM that are subject to shareholder approval at the GM and it is expected that admission will occur on 31 July 2017.

The Circular which sets out the details of the Placing and Consideration Shares, and of the Resolutions to be proposed at the GM, is expected to be posted to shareholders today. The Circular will also be available on the Company's website at: www.marloweplc.com. Capitalised terms used, but not defined in this announcement shall have the same meaning as set out in the Circular.

Following admission of the Placing and Consideration Shares, the Company's issued ordinary share capital will consist of 34,392,428 ordinary shares; no shares are held in treasury. The above figure of 34,392,428 may be used by shareholders 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 Company under the FCA's Disclosure Guidance and Transparency Rules.

Alex Dacre, Chief Executive of Marlowe plc, commented: 

"The acquisition of DCUK significantly extends the scope of the Group's activities into a new complementary service sector with strong recurring revenues and where growth is driven by stringent health and safety regulation. The air hygiene market is currently highly fragmented and this will provide Marlowe with increased acquisition-led growth opportunities alongside our existing Fire & Security and Water Treatment businesses. We look forward to DCUK joining the Group and to the substantial contribution that it will make to the continued development of Marlowe into the UK's leading provider of critical asset maintenance services."

For further information:

About Marlowe plc

Marlowe is an AIM-listed company formed to create sustainable shareholder value through the acquisition and development of businesses that provide critical asset maintenance services in the UK. It is focused on fire protection, security systems, water treatment and air hygiene services - which are essential to its customers' operations and invariably governed by regulation, and where customers require a single specialist outsourced provider with nationwide coverage. Our customers can be found on most high streets, in office complexes and industrial estates, and include SMEs, local authorities, facilities management providers, multi-site NHS trusts and FTSE 100 companies.

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

About DCUK

DCUK was founded in 1998 and is headquartered in Welwyn Garden City. It provides ventilation maintenance and contamination remediation services including: 

In addition to its headquarters in Welwyn Garden City, it operates from four other branches in the UK and employs around 185 people of which 60 are duct cleaning operatives and 70 are asbestos remediation operatives. Its key customers include national hotel and leisure providers, airports, NHS trusts, universities, local authorities, and FTSE companies.

In line with businesses in Marlowe's other sectors of fire and security and water treatment, DCUK operates in a regulated environment. The Directors believe that this regulation should drive DCUK's growth. In April 2006 it became a serious offence if injury results from unmaintained duct systems. In addition, there are various statutory requirements and other regulations placed on building owners and tenants regarding maintenance of ductwork.

Asbestos management and remediation is a highly regulated industry. Key legislation includes the Control of Asbestos Regulations 2012 and Hazardous Waste Regulations. To undertake asbestos remediation a company requires Health & Safety Executive licenses.

The following financial information has been extracted from the audited accounts of DCUK. For the 12 months to 30 September 2016, DCUK recorded underlying EBITDA (adjusted for non-recurring items) of £1.8 million (2015: £1.2 million) on audited revenues of £16.7 million (2015: £12.6 million) and profit before tax of £1.0 million (2015: £0.3 million). The audited fixed assets of DCUK at 30 September 2016 were £2.2 million and the net assets were £1.7 million. Net assets being acquired include a property in Welwyn Garden City independently valued at £1.5 million and working capital of £0.9 million.

Background to and reasons for the Acquisition

DCUK is a well-established ductwork cleaning and asbestos remediation company.

In line with Marlowe's strategy of acquiring businesses in the outsourced business service sector that provide critical asset maintenance services in the UK, the Acquisition will broaden the capabilities of the Group and create a third complementary division in air hygiene.

The Acquisition is expected to be immediately earnings enhancing.

A summary of the principal terms of the Acquisition Agreement is set out below.

The Acquisition Agreement

Pursuant to the Acquisition Agreement, the Company has agreed to purchase the entire issued share capital of DCUK. The aggregate consideration payable to acquire the entire issued share capital of the Company and to repay outstanding debts is £7.5 million payable on Completion and up to a further £2.5 million conditional on DCUK's EBITDA in the periods to 30 September 2019.

The Company has a right to choose the form in which any deferred consideration is settled. Resolutions 1 and 2 therefore include a proposed authority to allot up to 2,500,000 Ordinary Shares in settlement of any deferred consideration payable.

Completion of the Acquisition Agreement is conditional on the passing of the Resolutions.

Details of the Consideration Shares

Application will be made to the London Stock Exchange for the Consideration Shares to be admitted to trading on AIM. Subject to, inter alia, the passing of the Resolutions, it is expected that Admission will take place and that trading will commence on AIM at 8am on or around 31 July 2017. Following the issue of the Consideration and Placing Shares, the Company will have 34,392,428 Ordinary Shares in issue and there are no shares held in treasury.

The Issue Price of 393.88 pence per new Ordinary Share represents the average closing mid-market price at which the Ordinary Shares were quoted on AIM for the 20 Business Days ending 11 July 2017.

The allotment of the Consideration Shares is conditional on, amongst other things, the Acquisition Agreement becoming unconditional save in respect of conditions relating to Admission.

The Consideration Shares will, when issued and fully paid, rank pari passu in all respects with the Existing Ordinary Shares, including the right to receive all dividends and other distributions declared, made or paid after the date of Admission.

Background to and reasons for the Placing, and use of proceeds

Since its admission to AIM in spring 2016, Marlowe has successfully developed its platform within the fire and security and water treatment segments of the critical asset management services sector. DCUK offers Marlowe the opportunity to move into a new sector. Marlowe has historically financed its acquisitions through equity fundraisings as well as with debt facilities. It intends to use approximately £4.0 million of the proceeds of the Placing to pay the initial cash consideration and to repay outstanding debt. The remaining net proceeds of the Placing of approximately £5.68 million will provide resources for future acquisitions alongside Marlowe's existing debt facility.

The Placing

The Company proposes to raise approximately £10 million gross (approximately £9.68 million net of expenses) through the issue of the Placing Shares through Cenkos, the Placing not being underwritten, at the Issue Price.

The Company's existing share authorities, which allow it to issue shares on a non pre-emptive basis, are insufficient to allow the Placing to proceed. Therefore the Placing is conditional, inter alia, on the passing of the Placing Resolutions.

If the Placing Resolutions are not passed at the General Meeting, the Placing Shares will not be issued and the proceeds of the Placing will not be available to the Company.

The issue price of 385 pence per Placing Share represents a premium of 1.99 per cent. against the mid-market price of 377.5 pence per share at which the Ordinary Shares were quoted on AIM as at close of trading on 12 July 2017, the last trading day prior to announcement of the Placing. Following their admission, the Placing Shares will represent approximately 7.55 per cent of the Company's then enlarged issued ordinary share capital.

The Placing is conditional, amongst other matters, on the passing of the Placing Resolutions at the General Meeting, and is expected to complete at 8.00 a.m. on 31 July 2017, being the expected date of Admission. The notice of General Meeting is set out at the end of the Circular.

The Placing Shares will, when issued and fully paid, rank pari passu in all respects with the Existing Ordinary Shares, including the right to receive all dividends and other distributions declared, made or paid after the date of Admission.

Application will be made to the London Stock Exchange for the Placing Shares to be admitted to trading on AIM. Subject to, inter alia, the passing of the Placing Resolutions, it is expected that Admission will take place and that trading will commence on AIM at 8.00 a.m. on or around 31 July 2017. Following the issue of the Placing and Consideration Shares, the Company will have 34,392,428 Ordinary Shares in issue and there are no shares held in treasury.

Details of the Placing Agreement

The Placing Agreement contains customary warranties and an indemnity from the Company in favour of Cenkos together with provisions which enable Cenkos to terminate the Placing in certain circumstances prior to Admission, including where any warranties are found to be untrue, inaccurate or misleading in any material respect or in the event of a material adverse change in the financial position or prospects of the Company's group in the context of the Placing or Admission.

The Placing Agreement is conditional, inter alia, upon:

(a) Shareholder approval of the Placing Resolutions at the General Meeting;

(b) the Placing Agreement having become unconditional in all respects (save for the condition relating to Admission) and not having been terminated in accordance with its terms prior to Admission; and

(c) Admission becoming effective not later than 8.00 a.m. on 31 July 2017 or such later time and/or date as the Company and Cenkos may agree, being not later than 31 August 2017.

General Meeting

You will find set out at the end of the Circular a notice convening the General Meeting to be held at 20 Grosvenor Place, London, SW1X 7HN at 11.00 a.m. on 28 July 2017 at which the Resolutions will be proposed as ordinary or special resolutions.

Action to be taken in respect of the General Meeting

Shareholders will find accompanying to the Circular a Form of Proxy for use in connection with the General Meeting. The Form of Proxy should be completed and returned in accordance with the instructions thereon so as to be received by Capita, The Registry, 34 Beckenham Road, Kent BR3 4TU as soon as possible and in any event not later than two Business Days before the time of the General Meeting. Completion and return of the Form of Proxy will not prevent a Shareholder from attending and voting at the General Meeting should he/she/it so wish.

Recommendation

The Directors believe the Acquisition and the Placing to be in the best interests of the Company and its Shareholders as a whole. Accordingly, the Directors unanimously recommend Shareholders to vote in favour of the Resolutions as they intend so to do in respect of their beneficial shareholdings amounting to 8,899,847 Existing Ordinary Shares.

EXPECTED TIMETABLE OF PRINCIPAL EVENTS

2017

Notes:

(i) References to times in the Circular are to London time (unless otherwise stated).

(ii) If any of the above times or dates should change, the revised times and/or dates will be notified by an announcement to an RIS.

(iii) The timing of the events in the above timetable and in the rest of the Circular is indicative only.