Stm Grp. Regulatory News (STM)

STM Group Plc

("STM" or "the Company" or "the Group")

Acquisition of Zenith Trust Company Limited, Jersey

STM Group Plc (AIM:STM.L), the cross border financial services provider, is today pleased to announce the acquisition of the Jersey based Zenith Trust Company Limited ("Zenith") for a maximum consideration of up to £5.1 million which includes £0.7 million of liquid net assets being left within the business ("Acquisition").

Zenith was established in 1994 and has been operating as a stand-alone business since 1999 providing corporate and trustee services ("CTS") to an international clientele although with a majority having UK connections. As at 30 November 2009, the client base consisted of 263 corporate entities and 116 trusts, nominees and foundations. The entities under management are involved primarily in holding real estate, leasing, receiving royalties, consultancy and general investment activities.

In the year ended 30 June 2009, Zenith reported turnover of approximately £2.7 million and delivered an adjusted profit before tax on an as-if basis for known changes post acquisition of approximately £0.6 million. As at 30 June 2009, Zenith had net assets of approximately £1.0 million.

The acquisition of Zenith is expected to be earnings enhancing to the Group in the current financial year. STM considers that it has found an outstanding addition to the services already being provided by STM from Jersey and believes that significant integration gains and synergies will result from this acquisition.

The strong management and staff team will provide an excellent complementary fit to the STM team already in place in Jersey.

The maximum consideration of up to £5.1 million is made up of a fixed component of £2.7 million ("Fixed Consideration") and variable consideration of up to £2.4 million ("Variable Consideration"). The Fixed Consideration comprises £1.85 million payable in cash on completion with a retention amount payable 6 months after completion of £0.65 million ("Retention") and a further £0.2 million payable in equal instalments on the first and second anniversaries of completion. The Variable Consideration will be satisfied by two amounts of up to £1.2 million each on or about September 2010 and March 2011, conditional upon performance.

The Fixed Consideration payable at completion, together with the costs of Acquisition and part of the Retention is to be financed through the issue today by the Company of £2.2 million of new convertible loan notes ("Loan Notes") for cash, with the remaining consideration being financed by a combination of operating profits and bank funding. The Loan Notes have a fixed term of 4 years and carry an annual coupon of 7%, payable half yearly. Up to 50% of each Loan Note can be converted into new ordinary shares of 0.1p each in the Company ("Ordinary Shares") at a price of 33p at the option of the holder in the month following the release of the Company's preliminary results for the year ending 31 December 2011 ("Convertible Notes"). Any Convertible Notes not converted into new Ordinary Shares at that date can, at the option of the Company, be redeemed at par, together with any outstanding interest due thereon. The balance of the Loan Notes will run to term. The Loan Notes are secured against all the assets of the Group, which are subordinated to the Company's existing £1.4 million loan from RBS International Limited, which itself is secured on a blocked cash deposit of £2.4 million.

In addition to the successful raising of the £2.2 million Loan Notes to finance the Acquisition, the Company also today announces the issue of approximately a further £1.3 million of Loan Notes in exchange for the £1.3 million of loans outstanding to the founding shareholders of STM Fidecs, the Group's first acquisition. These loans have been in place since the Group's admission to AIM in March 2007 and have latterly earned the same rate of interest as the Loan Notes. Accordingly, an aggregate of £3.5 million of Loan Notes are being issued today.

Hearth Investments Limited ("Hearth"), as trustee of the Revill Family Settlement, of which Tim Revill, a director of the Company, is a potential beneficiary, is subscribing £300,000 of Loan Notes and receiving £700,000 of Loan Notes in exchange for its founding shareholder loan as referred to above. Clifton Participations Inc ("Clifton"), as trustee of the Perros Trust, of which Alan Kentish, a director of the Company, is a potential beneficiary, is receiving £475,000 of Loan Notes in exchange for its founding shareholder loan as referred to above. Finally, Fiander Properties Limited (in which Hearth and Clifton are substantial shareholders) is subscribing £50,000 of Loan Notes.

These transactions constitute a related party transaction under Rule 13 of the AIM Rules for Companies. The Directors (with the exception of Tim Revill and Alan Kentish who are deemed to be related parties), having consulted with the Company's Nominated Adviser, Evolution Securities Limited, consider that the terms of the transactions are fair and reasonable insofar as the Company's shareholders are concerned.

Colin Porter, CEO of STM Group, stated:

"The acquisition of Zenith is exactly the right strategic fit for STM and at the right time in the Group's development. I am delighted once again with the strong support for the Acquisition and the take-up of the convertible bond from our shareholders and others. In this difficult economic climate it is no small task to raise £2.2 million to secure the initial funding for the acquisition and I am pleased that our shareholders and others can see the benefit of scale and economies that Zenith brings to the Group.

The combined revenue base for Jersey will now be over £3.5 million, giving a "second engine room" to the Group, as well as bringing together a powerful management team. The less visible benefits, such as access to new intermediary distribution channels will also bear fruit as a result of the Group's growing international presence.

Michael Russell, founder and majority shareholder of Zenith Trust Company Limited, commented:

"My colleagues and I are delighted with the synergy and fit between Zenith and STM. It was clear from the outset of our discussions that the STM management share the same philosophies as the Zenith principals and directors who have built a business that values its clients and advisers, delivering a quality service with communication as the key. We are now looking forward to offering our clients and their advisers a broader network of services, products and potential which will be greatly facilitated by being part of a group that can offer a presence in a variety of key financial jurisdictions, not just Jersey where Zenith is strong. The resultant combined business will give its clients access to a greater array of additional, innovative solutions such as QROPS and EFRBS pension products as well as STM's own offshore life assurance bond. These are areas which are likely to prove especially valuable to the tax advisers with whom Zenith work closely on behalf of its high net worth clients.

Putting these businesses together is a relatively straightforward proposition and I am confident that we will continue to maintain and develop the Zenith portfolio under the STM banner.

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Notes to editors

STM was formed in 2007 specifically to become a leading financial services group operating in the Corporate and Trustee Service Provider (CTSP) sector. The Company listed on the AIM market of the London Stock Exchange in March 2007. The traditional business of CTSPs is to administer and manage personal, family and commercial assets and income streams in tax efficient jurisdictions. The Company's aim is to grow through acquiring and consolidating high quality existing CTSPs which offer complementary products and services and that operate in complementary tax efficient jurisdictions to those provided by STM's first acquisition, the Gibraltar based CTSP, Fidecs Group Limited ("Fidecs").

Fidecs is the second largest financial services firm in Gibraltar and employs over 101 people. It specialises in financial planning for both High Net Worth individuals ("HNWI") moving to work, living or retiring overseas or making cross-border investments, and for entrepreneurial, predominantly, owner-managed businesses, expanding into or re-locating to other, frequently lower tax, jurisdictions. It also includes an insurance management division, specialising in providing set up and management services to newly formed insurance companies operating out of Gibraltar

In June and August 2007 STM acquired two Gibraltar based CTS providers, the Atlas Group of companies and Parliament Corporate Services Limited. These two acquisitions further consolidated STM's leading position in Gibraltar. The Group expanded into the Channel Islands in December 2007, with the purchase of Compagnie Fiduciaire Trustees Limited. In June 2008, STM increased its presence in the Channel Islands with the acquisition of St George Financial Services Limited. In July 2009 STM announced the acquisition of The Citadel Group of Companies based in Luxembourg subject to regulatory approval. For the year ended, 31 December 2008, STM Group reported revenue of £9.19 million with pre tax profits of £2.84 million and for the year ended 31st December 2009 the reported revenue was £8.5m with pre-tax profits of £0.7 million.

The CTSP market is fragmented in nature, comprising a small number of very large international financial services groups and a large number of relatively small trust and company management businesses regulated by, and operating out of, a single jurisdiction.

Further information on STM Group can be found at www.stmgroupplc.com