Pressure Tech Regulatory News (PRES)

18 September 2014

Pressure Technologies plc

("Pressure Technologies", the "Company" or the "Group")

Acquisition of the business and assets of Greenlane Biogas Holdings Limited

Pressure Technologies announces that, after completing extensive detailed due diligence, the Company has agreed terms to acquire the business and certain assets of New Zealand based Greenlane Biogas Holdings Limited and those of its various subsidiary companies ("Greenlane" or the "Acquisition"), a leading developer and global supplier of patented technology for upgrading raw biogas to high purity biomethane.

Highlights:

· Greenlane is a leading global provider of Biogas-To-Grid ("BTG") waterwash technology, which has designed and built over 80 biogas plants around the world;

· Greenlane has a global footprint with a strong presence in North & South America and Europe. These markets together with emerging markets in South East Asia and China provide significant growth opportunities;

· Greenlane's applications are used to capture biogases released from multiple waste sources and its technology can be applied to turn landfill gases into biomethane;

· The Board believes that the Acquisition is highly complementary to the Group's existing subsidiary Chesterfield Biogas Limited ("CBG"), which has been working with Greenlane since 2008 under an exclusive licence to sell Greenlane Technology in the UK;

· The Acquisition is expected to be earnings enhancing in the year ending 1 October 2016;

· The Board intends to form an enlarged Alternative Energy subsidiary, comprising CBG and Greenlane;

· The longstanding close working relationship between Chesterfield Biogas and Greenlane is expected to ensure a smooth integration process;

· The Acquisition is part of the Group's stated strategy to expand both organically and by acquisition; and

· The Board believes Greenlane has strong potential as part of the Pressure Technologies group.

The maximum total consideration for the Acquisition is NZ$25 million (£12.4 million), comprising an initial consideration of NZ$12.0 million (£6.0million) with additional deferred payments, split over four years, of up to a maximum of NZ$13.0 million (£6.4 million), based on the future financial performance of Greenlane. The initial consideration will be met from the Group's existing cash resources.

Alan Wilson, Chairman of Pressure Technologies, said: "We believe that this deal represents an excellent opportunity to expand the Group's Alternative Energy division with the acquisition of a business, intellectual property, technology and employees that we know very well. Our intention is to combine Greenlane's proven patented technology with our commercial and management capabilities to capitalise on the significant global market opportunity.

"The Acquisition will be integrated rapidly into the Group over the next six months and the Board expects it to be earnings enhancing in the year ending 1 October 2016."

Rob Fenwick, Chairman of Greenlane, said: "The combination of Greenlane and Pressure Technologies makes very sound business sense. Being part of a strong, growing AIM listed plc gives Greenlane the backing it needs to fulfil its true potential.

"Greenlane is considered one of New Zealand's global cleantech success stories. Under Pressure Technologies' ownership it secures a good cultural fit and I believe the acquisition delivers the best possible value to the stakeholders of both companies."

The effective date of the Acquisition is expected to be 1 October 2014. Further details of the terms of the Acquisition are set out below.

NZ$2.01:£1 exchange rate

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Information on Greenlane

Greenlane was founded in New Zealand in 1986 with a focus on the installation and service of equipment for natural gas refueling stations. It subsequently diversified into industrial technologies, building on its core expertise in gas handling, heat exchange, and mass transfer.

Biogas upgrading in New Zealand was initially driven by a desire for an eco-friendly, sustainable and economically viable vehicle fuel. In 1992, Greenlane installed its first biogas upgrading plant in France and opened its first European office in Stockholm in 1994.

Greenlane's headquarters are in Auckland, New Zealand and the business has operations in Europe and North and South America.

Greenlane's biogas upgrading systems are offered as five standard modules (ranging in capacity size) and the focus is on design and development of flexible systems to cover a wide range and scale of uses. Standardised modular design results in lower installed costs and, therefore, improves affordability for smaller installations, whilst significant scale can be achieved by using multiple units.

Earlier this month, Greenlane and partners successfully commissioned the world's largest biomethane production plant in Montreal, Canada, that is able to process up to 16,000 m3 per hour of biogas. This plant succeeded another Greenlane plant in Gustrow, Germany, as the largest plant in the world; Gustrow has been operational since 2009 and has a 10,000 m3 per hour biogas processing capacity.

Greenlane's application may also be used for dealing with biogases released from manure, sewage and industrial and household waste. In addition, Greenlane has the technology and equipment that has the capability to turn landfill gases into biomethane, an area that the Directors believe will have significant potential for commercial exploitation.

Greenlane provides a comprehensive maintenance service for its biogas upgrading and gas compression systems, including remote monitoring and remote management capabilities.

Greenlane has built over 80 biogas plants around the world, including Brazil, Canada, China, Denmark, Finland, France, Germany, Iceland, Holland, Japan, New Zealand, South Korea, Spain, Sweden, the UK, and the United States.

Greenlane is also involved in the design and manufacture of heat exchange equipment and solutions of a wide range in terms of size and complexity for the oil field and gas processing equipment market. 

Background to and reasons for the Acquisition

The long established, close working relationship between CBG and Greenlane, complemented by the recent extensive due diligence exercise, has given the Board extensive insight into the business of Greenlane and the significant opportunities of expanding global commercial renewable energy markets, being driven by the increasing scale and availability of regulatory and financial incentives associated with such projects.

CBG has been working with Greenlane since 2008, when it acquired an exclusive licence to utilise Greenlane's patented technology in the United Kingdom and Ireland. CBG has a strong order pipeline supporting the forecast growth in this division, including a recently signed a contract and a letter of intent for new projects totalling £3.4m, all of which use Greenlane's technology.

Greenlane is currently actively involved in numerous potential opportunities in North America, where it has already installed multiple projects, including the world's largest biomethane plant, as mentioned above. Canada and the United States are both ranked highly in terms of their commitment to renewable energy development and, in the Board's view, represent significant long term markets. In addition, Greenlane has just completed a project in Brazil and the Board anticipates an increasing number of opportunities in Central and South America.

South East Asia and China are currently less well developed markets for Greenlane. However, concerns regarding the long term effects of fossil fuel pollution are stimulating an accelerated commitment to clean energy sources and Greenlane has already established a working relationship with a Chinese partner to pursue opportunities in these territories.

The European market is well supported by a drive towards energy self-sufficiency and the reduction of greenhouse gases; Germany, France, Italy and the Netherlands are all strongly supportive of biomass and biogas related technologies and Greenlane is actively pursuing a number of opportunities in these territories.

Whilst Greenlane has made significant progress in the field of BTG technology, it has been adversely constrained by the limited financing opportunities available to SMEs in New Zealand. The impact of the global financial crisis caused Greenlane to undergo financial and corporate restructurings in 2012 and again in early 2013. As a result, there is no recent audited financial information available on the business. The Board believes, however, that the Greenlane business will be far better placed as part of Pressure Technologies, which has the financial resources to fund its development

Post Acquisition integration

The Acquisition dovetails with the Group's existing business, CBG, and together they will form an enlarged Alternative Energy division, with its own holding company.

The principal parts of the division will be:

1. UK and European operation, comprising CBG and the current European business of Greenlane;

2. North and South American operation, based in Vancouver; and

3. South East Asia and China focused operation, based in Auckland. This company will carry out all of the Research & Development activities for the Alternative Energy division and will develop the heat exchanger business.

The Board expects to reach agreement with all Greenlane's key employees such that they transfer to employment with the Group.

In addition, all of the intellectual property and trademarks of the Alternative Energy division will be held in a separate subsidiary company of the Group, registered in England. The Board expects to take advantage of the benefits available from the Patent Box allowances, where applicable.

Following completion of the Acquisition, a new Alternative Energy subsidiary board will be established with John Hayward, the Group's Chief Executive, as Chairman.

The Board believes that the Acquisition is a strong strategic fit with the Group's existing CBG business and meets the stated aims for Pressure Technologies' growth strategy. The long standing relationship between CBG and Greenlane is expected to ensure a smooth integration process over the coming months. In addition, the Board is in the process of engaging a leading accountancy firm to assist with the integration of Greenlane's financial systems into those of the Group.

Terms of the Acquisition

The Company has agreed terms to acquire the business and certain assets of Greenlane and those of its various subsidiary companies. The Acquisition is expected to be completed on or around 1 October 2014, following a consultation process with employees and satisfaction of conditions precedent inserted for the benefit of the Group ("Completion").

Greenlane employs 48 people, the majority of whom are expected to transfer to the Group.

The initial consideration payable to Greenlane is £6.0 million (NZ$12 million) ("Initial Consideration"). This amount will, however, be adjusted to take account of certain liabilities that are owed by Greenlane to certain trade and other creditors, including the Group, estimated to total approximately £4.8 million ("Assumed Trade Creditors"). These amounts will be settled by the Group at Completion and will be met from the Group's existing cash resources.

At Completion, the Group will acquire, inter alia, the customer contracts of Greenlane, although these will be divided into distinct categories for the purposes of further determining the amount of the Initial Consideration to be received by Greenlane. Firstly, there will be certain existing contracts for which the Group is assuming no ongoing liability for any warranties or guarantees that were provided to customers by Greenlane. In the event that any costs arise from such potential liabilities, then those amounts will be deducted from the amount of the Initial Consideration remaining after deduction of the Assumed Trade Creditors at Completion. In the event that there is a surplus remaining, then the balance of the Initial Consideration will be paid to Greenlane via cash or a mix of cash and new ordinary shares in the Company, at the Board's election. In the event that any part of the Initial Consideration is settled via the issue of new ordinary shares in the Company, the number will be calculated by reference to the volume weighted average closing price of the Company's ordinary shares for the five consecutive business days prior to the allotment of such new ordinary shares.

Similarly, there are certain contracts that will be transferred to the Group but where the relevant project has not yet been completed. To the extent that any unforeseen costs are incurred, over and above those that are already agreed with the customer, in completion of these projects then such amounts will also be deducted from the Initial Consideration.

All future contracts will be the responsibility of the Group and will not have any impact on the amount remaining due under the terms of the Initial Consideration.

Further consideration of up to £6.4 million (NZ$13 million) is payable in respect of four separate periods following Completion dependent on the future EBITDA performance of Greenlane for each of the financial years ending 2015 to 2018. For each of those financial periods, additional consideration will become payable on a NZ$1 per NZ$1 basis for audited EBITDA in excess of NZ$3.25 million, capped at a maximum of NZ$ 3.25 million ("Additional Consideration"). Any such Additional Consideration will be paid within five days of the publication of the Group's audited financial results for the relevant period. The Additional Consideration will be satisfied by cash or a mix of cash and new ordinary shares in the Company, at the Board's election.

In the event that any part of the Additional Consideration is settled via the issue of new ordinary shares in the Company, the number will be calculated by reference to the volume weighted average closing price of the Company's ordinary shares for the five consecutive business days prior to the allotment of such new ordinary shares.

The terms of the Acquisition contain the normal commercial warranties and indemnities in favour of the Group.

.Ends.

Company description - www.pressuretechnologies.com

With its head office in Sheffield and its origins going back to 1897, Pressure Technologies is a growing, profitable, debt-free, dividend paying, AIM listed, leading designer and manufacturer of speciality engineering solutions for high pressure systems serving large global markets. The company is building a highly profitable group of companies, specialising in technology for the containment and control of liquids and gases in pressure systems through a combination of organic initiatives and acquisitions.

Pressure Technologies has three divisions, Cylinders, Engineered Products and Alternative Energy, serving four markets: oil and gas, defence, industrial gases and alternative energy.

Cylinders

· Chesterfield Special Cylinders, Sheffield, IPO cornerstone in 2007 www.chesterfieldcylinders.com

· Kelley GTM Manufacturing, Amarillo - 40% stake acquired by the Group in December 2013 with an option to acquire a further 40% in 2015 www.kellygtm.com

Engineered Products

· Al-Met, Mid Glamorgan, acquired in 2010 www.almet.co.uk

· Hydratron, Manchester and Houston, acquired in 2010 www.hydratron.co.uk

· Roota Engineering Limited, Rotherham, acquired in March 2014 www.roota.co.uk

Alternative Energy

· Chesterfield BioGas Limited, Sheffield, founded in 2008 www.chesterfieldbiogas.co.uk

· On completion of the Acquisition, this division will also include Greenlane www.greenlanebiogas.com