Parity Regulatory News (PTY)

21 November 2023

Parity Group plc

("Parity Group" or the "Company")

Proposed disposal of Parity Professionals Limited and notice of GM

Parity Group plc (AIM: PTY), the data and technology-focussed recruitment and professional services company, announces the proposed disposal of 100% of Parity Professionals Limited ("PPL"), the Company's primary operating subsidiary, to Network Ventures Limited (the "Purchaser") for cash consideration of up to £3 million (the "Disposal").

Overview of the Disposal:

· Under the terms of the SPA, on completion of the Disposal:

- 100% of the issued share capital of PPL will be acquired by the Purchaser;

- cash consideration of £2 million will be payable immediately; and

- a further £1 million will be retained by the Purchaser for adjustments based primarily on the working capital position of PPL at completion.

· The Disposal constitutes a fundamental change of business of the Company under Rule 15 of the AIM Rules and accordingly requires shareholder approval. If approved, the Company would become an AIM Rule 15 Cash Shell on completion.

· On completion, the proceeds of the Disposal will be utilised to remove the pension liability from the Company's balance sheet and in seeking to identify and execute a potential acquisition.

· It is also the intention of the Directors to change the name of the Company to Partway Group plc following shareholder approval and the relevant paperwork being filed with Companies House.

Further information regarding the proposed Disposal can be found below and in a Circular which will shortly be posted to shareholders and made available on the Company's website at www.parity.net (the "Circular").

The proposed Disposal is subject to shareholder approval at General Meeting of the Company to be held on 7 December 2023 at 1:00 p.m. Notice of the General Meeting and further information regarding voting and attendance is provided within the Circular.

Unless otherwise defined, terms used in this announcement have the defined meaning given to them in the appendix at the end of this announcement.

1. Introduction

This announcement sets out proposals for: (i) the sale of materially all of the trading business of Parity Group plc via the proposed disposal of Parity Professionals Limited for a cash consideration of up to £3 million; and (ii) the proposed change of the name of the Company to Partway Group plc. Subject to the passing of the Resolutions at the General Meeting being convened for 7 December 2023 and on completion of the Disposal, the Company will become an AIM Rule 15 Cash Shell.

2. Background to the Proposals

As referenced in the interim results for the period ended 30 June 2023, the Board has worked to remove the substantial overhead costs associated with the previous management team's failure to build a profitable consulting business and has reinvested a small portion into re-establishing Parity's heritage as a well-recognised recruitment brand.

After years of underinvestment in the Group's business, the team has rebuilt the core recruitment business into a position of strength in the public sector market. However, the Group remains subscale and faces significant challenges to source investment for growth.

Over the last 12-18 months, the recruitment sector as a whole has seen market conditions become increasingly challenging with economic uncertainty resulting in clients and potential new business opportunities deferring hiring decisions. Although the Board feels that Parity has performed well in spite of market conditions, particularly in the public sector market, cost inflation and a decline in hiring has proved challenging.

As a result of the Covid -19 pandemic and the structural shift towards remote working, we have seen clients looking to exploit global supply chains in the face of rising domestic labour costs. As a result of this, coupled with the expectation that market conditions are not set to improve in the near term, Parity is prioritising resources within the public sector. As a consequence, the new business initiatives targeting the private sector, were scaled back, with a resultant reduction in headcount.

The Board feels that the Group's core business is sound and Parity's position in the public sector is attractive but that it is subscale and would benefit from being a part of a larger group. The Board has exhausted a number of initiatives to source additional funding to invest in further growth, none of which it believed were in the best interests of shareholders.

For the year ended 31 December 2022, Parity Professionals Limited contributed £378,000 of profit before taxation to the Group's consolidated set of accounts.

3. Transaction details

The Disposal will take place in the form of the sale by Parity Holdings Limited, the Company's subsidiary, to the Purchaser of the entire issued share capital of Parity Professionals Limited for a cash consideration of up to £3 million. Of this consideration, £2 million is payable at Completion and the balance of £1 million will be retained by the Purchaser to set off against the expected negative working capital position of PPL as at Completion and other minor adjustments. That working capital position will be determined from a set of completion accounts that will be agreed following Completion. To the extent that PPL's negative working capital position at Completion is less than £1 million, the difference will be paid by the Purchaser to PHL and to the extent that PPL's negative working capital position at Completion is greater than £1 million, the difference will be paid by PHL to the Purchaser.

Some basic warranties of a type normally given as regards PHL's title to the share capital of PPL and its ability to enter into the Disposal have been given by PHL. Under the terms of the SPA PHL and the Company have also entered into certain restrictive covenants and given various undertakings in respect of PPL and its business after Completion.

Subject to the passing of the Resolutions, Completion is expected to occur shortly after the General Meeting has been held.

4. Details of the Pension Scheme

The 'Parity Group Retirement Benefit Plan' is a defined benefit pension fund with assets held separately from the Group. This fund has been closed to new members since 1995 and with effect from 1 January 2005 was also closed to future service accrual.

As detailed in the Company's final results for the year ended 31 December 2022, the Group made payments of £300k to the Pension Scheme in that financial year. It was also noted that the Directors were exploring a buy out of the Pension Scheme. The Board has now reached an agreement with the Pension Scheme trustees to settle the Group's obligation to make future contributions to the Pension Scheme for a fee of £589k.

Part of the cash consideration from the Disposal will be used to pay the settlement fee and therefore settlement of the Pension Scheme is conditional upon the Disposal being approved by shareholders at the general meeting, failing which settlement of the Pension Scheme will not occur. The Company has also agreed with the trustees to pay £50k towards the costs of the trustee's advisors associated with the transaction.

The settlement of the Pension Scheme will remove from the Company a liability which would be likely to limit the future strategic options available to it, further details of which are set out below.

5. Strategy for the Company following the Disposal

The Company's proposed strategy, following completion of the Disposal, will be to acquire one or more companies and/or projects which are either cash flow generative or show significant potential for growth and a profitable exit.

Leveraging their knowledge and contacts, the Directors will seek to identify suitable investment and/or acquisition opportunities. At this stage, the Directors would not seek to exclude any particular sector or jurisdiction.

In selecting suitable investment and/or acquisition opportunities, the Directors will consider various factors relevant to an opportunity, including the:

? ease with which capital can be raised to meet the working capital requirements both initially and in the future;

? growth potential and outlook for future cash generation;

? likely resulting liquidity in the Company's shares following acquisition(s);

? short, medium and longer-term exit strategies for Shareholders;

? possible synergies with knowledge and contacts of the Directors; and

? suitability for a public listing, either on AIM or another recognised market in the UK.

6. Use of proceeds

The Initial Consideration will be used to pay the settlement fee and agreed costs to the Pension Scheme totalling £639k, cover the costs associated with the Disposal, expected to total approximately £240k, and to provide the Company with working capital whilst it progresses with its strategy.

7. Change of name

Subject to Shareholder approval, it is proposed that the name of the Company be changed to Partway Group plc. The TIDM will remain PTY.

8. AIM Rule 15

In accordance with AIM Rule 15, the Disposal constitutes a fundamental change of business of the Company. On Completion, the Company will cease to own, control or conduct all or substantially all, of its existing trading business, activities or assets.

Therefore, following Completion, the Company will become an AIM Rule 15 Cash Shell and as such will be required to make an acquisition or acquisitions which constitutes a reverse takeover under AIM Rule 14 on or before the date falling six months from Completion or be re-admitted to trading on AIM as an investing company under the AIM Rules (which requires the raising of at least £6 million) failing which, the Company's Ordinary Shares would then be suspended from trading on AIM pursuant to AIM Rule 40. Admission to trading on AIM would be cancelled six months from the date of suspension should the suspension not have been lifted.

As a Rule 15 Cash Shell, the Company would also have no operating cash flow and would be dependent on the net proceeds of the Disposal for its working capital requirements.

9. Related party transaction

The Purchaser is a wholly owned subsidiary of Pertemps Network Group Limited, a company in which Timothy Watts has a direct and indirect interest of 33.1%. Mr. Timothy Watts is a 22.8% shareholder in Parity and is therefore deemed a related party pursuant to the AIM Rules. As a result, the Disposal constitutes a related party transaction for the purposes of AIM Rule 13.

During the last 12-18 months the Directors have evaluated a number of potential opportunities to create long-term value in the business, including the acquisition and/or merger of other businesses in order to create a business of greater scale and value for shareholders.

During this period, the Directors have had exposure to the value ascribed to Parity's business by other interested parties, for example, the vendors of potential acquisitions considering Parity's equity as part of a structured deal, and the appetite amongst Shareholders to support a fundraise.

The Directors have also had three separate approaches to acquire the Company's recruitment business assets from medium to large independent businesses with verified access to funding.

Whilst comparing the potential relative values from these activities with the offer made by the Purchaser, the offer from Network Ventures represents the best available proposition for shareholders amongst those evaluated by the Directors.

The Directors have also considered the speed, certainty and relative cost-efficiency with which this deal can be executed compared to the alternative of initiating a full sale process.

Recognising the risk and the near-term funding requirements of the business, the Directors believe this deal represents the best available value for Shareholders.

The Directors consider, having consulted with the Company's Nominated Adviser, that the terms of the Disposal are fair and reasonable insofar as the Shareholders are concerned.

10. General Meeting

The Disposal constitutes a disposal resulting in a fundamental change of business in accordance with Rule 15 of the AIM Rules.

As a result of the treatment of the Disposal under the AIM Rules, Completion is conditional on the passing of Resolution 1, which seeks Shareholders' approval for the Disposal, and is to be proposed at the General Meeting.

The notice convening a General Meeting, to be held at 1:00 p.m. on 7 December 2023, at the offices of BPE Solicitors LLP, St James House, St James Square, Cheltenham GL50 3PR to consider the Resolutions, is set out at the end of the Circular. A summary of the Resolutions is set out below.

Resolution 1, which will be proposed as an ordinary resolution, seeks to approve the sale by the Company's subsidiary, PHL, of PPL in accordance with the SPA.

Resolution 2, which will be proposed as a special resolution, seeks to approve the change of the Company's name to Partway Group plc.

DEFINITIONS

The following definitions apply throughout this announcement unless the context requires otherwise: