Stm Grp. Regulatory News (STM)

28 Mar 2007 07:02

STM Group PLC28 March 2007 Press Release 28 March 2007 STM Group Plc ("STM" or "the Group") STM joins AIM Acquisition of Fidecs Group Limited STM Group Plc, the cross border financial services provider, today announces thecommencement of dealings of its Ordinary Shares on the AIM Market of the LondonStock Exchange. It also announces the acquisition of Fidecs Group Limited(Fidecs), a Gibraltar based corporate and trustee service provider (CTSP).Daniel Stewart & Company Plc is acting as both Nominated Adviser and Broker tothe Company. The stock market EPIC is STM.L. Placing and Admission StatisticsPlacing Price 50pGross proceeds of the Placing £7.5 millionEstimated net proceeds of the Placing receivable by the Company £6.7 millionCash consideration payable by the Company pursuant to the Acquisition £6.3 millionNumber of Consideration Shares being issued pursuant to the Acquisition 14,600,000Number of new Ordinary Shares being issued pursuant to the Placing 15,000,000Number of Ordinary Shares in issue immediately following Admission 35,200,000Placing Shares as a percentage of the Enlarged Issued Share Capital 42.6%Market capitalisation following the Placing at the Placing price £17.6 million Reasons for Admission and use of proceeds STM is seeking Admission for the following reasons: to raise finance to acquireFidecs and to enable it to offer quoted shares to the Vendors of Fidecs; tofacilitate the raising of finance, both equity and debt; to enable it to offerquoted shares to the sellers of CTSPs, which is important given the Group's keystrategy of growth by acquisition; to raise the profile of the Company whichshould assist in attracting potential acquisition targets; and to facilitateincentivisation of key employees through the ability to grant awards over quotedshares. Fidecs, STM's first acquisition, (renamed today STM Fidecs Limited) is one ofthe largest financial services firms in Gibraltar and employs some 88 people.It specialises in financial planning both for HNWIs moving to work, live orretire 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 a specialist insurancemanagement division, that provides set up and management services to insurancecompanies based in Gibraltar. The Company intends to use the proceeds of the Placing, together with £2.0million in bank borrowings, to pay the cash element of the acquisition price forFidecs, to repay Fidecs' existing borrowings and to pay the costs of the Placingand Admission. Tim Revill, Chief Executive Officer of STM Group Plc, said: "We are delightedthat the flotation of the Group has been completed successfully and would liketo thank our new shareholders for their support and we look forward to workingwith them. They have recognised the potential of the fragmented CTSP market andthe operational, product and financial benefits of consolidation within it.Having completed the acquisition of Fidecs, a market leader in the strategicallyimportant foothold of Gibraltar, we look forward to pushing forward our buy andbuild strategy in the broader CTSP markets." - Ends - For further information, please contact:STM Group PlcTim Revill, Chief Executive Tel: +44 (0) 20 7398 7706Matt Wood, Non-executive director Tel: +44 (0) 7739 537 137 www.stmgroupplc.com Daniel Stewart & Co. PlcLindsay Mair/Stewart Dick/Chloe Ponsonby Tel: +44 (0) 20 7776 6550 Media enquiries:AbchurchHenry Harrison-Topham / Charlie Jack Tel: +44 (0) 20 7398 7706henry.ht@abchurch-group.com www.abchurch-group.com INTRODUCTION STM has been formed as a strategic investment company specifically to build aleading financial services group operating in the international corporate andtrustee service provider (CTSPs) sector. This is expected to be achievedthrough acquiring and consolidating high-quality existing CTSPs which offercomplementary products and services and that operate from complementaryjurisdictions to those provided by STM's first acquisition, Fidecs. The Directors have considerable expertise both of the CTSP sector, and ofsuccessfully integrating acquisitions, and believe that there is an opportunityto build a significant group in the CTSP sector, due to a combination ofregulatory pressures, increasing compliance requirements, the market need formore sophisticated products and services, and the pending retirement of ownermanagers of many existing CTSPs. The Company is seeking admission to AIM so that it can use quoted shares as acurrency for acquisitions and also to incentivise the Group's employees, throughan employee incentive scheme. The traditional business of CTSPs is to administer and manage personal, familyand commercial assets and income streams in tax efficient jurisdictions. Theeconomic factors for CTSPs include demand for more sophisticated tax planning,particularly for high net worth individuals (HNWIs) and those approachingretirement age, and the increased movement and migration of individuals, asevidenced, for example, by the growth in the number of British expatriatesliving in Southern Spain. The CTSP market is fragmented in nature, comprising a small number of very largeinternational financial services groups and a large number of relatively smalltrust and company management businesses regulated by, and operating out of,single offshore jurisdictions. Many of these smaller businesses areowner-managed and whilst their owners often wish to continue to remain withtheir businesses, they also want to plan for their own retirement and succession. The Directors believe that these factorspresent an opportunity for consolidation. STM's first acquisition, is of Fidecs Group Limited (renamed today STM FidecsLimited). Founded in 1989 by STM's chief executive, Tim Revill, Fidecs operatesprincipally from Gibraltar and specialises in financial planning both for HNWIsmoving to work, live or retire overseas or making cross-border investments, andfor entrepreneurial, predominantly owner-managed, businesses, expanding into orre-locating to other, frequently lower, tax jurisdictions. Employing some 88 people, Fidecs is one of the largest CTSPs in Gibraltar. Itis regulated by the Gibraltar Financial Services Commission and providestraditional CTSP administration and management functions, but also hassuccessfully originated and grown a number of other key divisions, including aninsurance management division, specialising in providing set up and managementservices to newly formed insurance companies operating out of Gibraltar. Fidecs' annual revenue increased by approximately 33 per cent. from 2004 to 2006and profit after tax increased by approximately 140 per cent. over the sameperiod. In the year ended 31 December 2006, Fidecs reported audited revenues of£5.0 million and a profit after tax of £1.7 million. INFORMATION ON STM Background STM became a wholly owned subsidiary of Equity Special Situations plc ("ESS") in2006, with a view to becoming a leading provider of international trust andcompany management services through a "buy and build" strategy. ESS is astrategic investment company whose shares are traded on AIM, which creates oracquires significant minority shareholdings in financial services businesses forlong term capital growth. ESS has a track record in the financial servicessector having created, and organised the AIM flotation of, Syndicate AssetManagement plc ("SAM") in 2005. Since then, SAM has made seven acquisitions inthe fund management sector and now has total funds under management of £5.5billion. ESS has supported SAM financially in each of its acquisitions sinceits IPO and is now a long term passive shareholder in SAM. Following almost twelve months of extensive research into the CTSP sector, ESSincorporated and registered STM in the Isle of Man. Having arranged the seedcapital finance for STM, ESS is also investing £2.2 million as part of thePlacing, as well as providing the New Loan Facility to the Company. FollowingAdmission, ESS will retain a shareholding of 20.0 per cent. in STM, which willbe subject to the terms of a Lock-up Agreement. Acquisition strategy STM's strategy is to build an international group of CTSPs operating from anumber of complementary tax efficient jurisdictions with each offering itsclients high quality products and services. The Directors have outlined threeinitial principal criteria to be applied when assessing the suitability of anacquisition target, although these criteria are not intended to be exhaustive.The Directors will seek to acquire CTSPs which: • bring to the Group a licence to conduct trust and company management business in a complementary jurisdiction to that of the existing Group; and/or • provide the Group with complementary financial products or services which can be sold across the Group; and/or • have portfolios of clients which can easily be integrated within an existing Group company, thus eliminating one set of fixed overheads (business process systems, compliance, finance and accounts, marketing etc). A high proportion of operating costs of CTSPs are fixed. It is intended that potential acquisition targets will be subject to extensivedue diligence, with a focus on quality of service and compliance and each willbe required to adhere to Group-wide standards following acquisition. STMbelieves that its senior staff, following the acquisition of Fidecs, have theknowledge and experience necessary to undertake due diligence on targetbusinesses. The Group will operate a separately identifiable acquisitions andintegration division with effect from Admission. STM's acquisitions are likely to include CTSPs operating in a differentjurisdiction to Fidecs, and one that is able to continue to provide zero-taxentities to its clients. This could allow Fidecs to refer clients who requirethe setting up of a zero-tax entity to another member of the group, rather thanto third party CTSPs (as at 31 December 2006, Fidecs administered approximately300 entities incorporated outside Gibraltar). It is intended that Tim Revill,CEO of STM, will oversee the identification of, and be closely involved in thenegotiations with, potential targets. Integration STM's strategy will be to retain the existing branding of one dominantSTM-branded operation in each jurisdiction (with the addition of the STM acronymto the local name), the first of which will be STM Fidecs in Gibraltar. TheDirectors expect that, over time, STM Fidecs will acquire other CTSPs operatingin Gibraltar. Although clients of CTSPs are, by the nature of the business,loyal (the typical average lifecycle of one of Fidecs' trusts is approximatelyten years), the Directors believe that securing the goodwill of the staff andcreating minimum disturbance to the existing business relationships between theclient and the CTSP will assist in ensuring that the staff and underlying clientremain with Group. Following Admission, STM will retain a separately identifiable integration team,who will be responsible for undertaking the integration of the acquiredbusinesses and, accordingly, the Company expects to recruit a suitablyexperienced manager for this team before the end of 2007. THE CTSP MARKET The CTSP sector is very fragmented, with many providers being owner-managedbusinesses. The number of licensed company managers/fiduciaries in a selectionof offshore centres is, according to the website of the relevant regulatoryauthority, as follows: BVI 99, Gibraltar 81, Guernsey 144, and Isle of Man 163. Whilst some of these entities are part of international groups, a numberoperate from a single office in their respective finance centres. As clientsoften need a range of services and products (e.g. access to a double tax treatynetwork), all of which are not available in one location, a CTSP must haveaccess to a network of other jurisdictions and providers, whose professionalstandards and ethics can be relied on. INFORMATION ON FIDECS History of Fidecs Tim Revill, STM's Chief Executive, established Fidecs in 1989, to acquire FidecsConsulting SA from Fidecs' then parent company by way of a management buy out.Following the management buy out, Fidecs began trading in Gibraltar in 1990 andgrew steadily with the introduction of new business lines and in July 1996became the Gibraltar member firm of BDO International. Since 1996, Fidecs'management has successfully acquired and integrated two companies and hasbroadened its product offering considerably. Fidecs Group Limited which, on 13 March 2007, redomiciled from Luxembourg toIsle of Man has its main operational office in Gibraltar and it has a secondoffice on the south coast of Spain in Sotogrande, Cadiz Province. Fidecs'client base has been almost exclusively based in the United Kingdom, but inorder to address other European markets, Fidecs has started actively to recruitstaff with broader European language skills. Fidecs' primary business is trust and company management, a sector which hascontinued to grow in Gibraltar, a jurisdiction which has pioneered thesupervision and regulation of professional trusteeship and company managementservice procedures. Fidecs' insurance management business, FIM, which was set upin 1997 by STM's Chief Financial Officer, Alan Kentish, is now only slightlysmaller than its trust and company management business. FIM currently has 15insurance companies to which it provides management and administrative services. Fidecs' operations and revenue model Fidecs has grown both organically and through a number of carefully selectedacquisitions, each financed from retained earnings. Fidecs' operations can becategorised into four principal divisions, with each division being made up of anumber of 'sister' operating companies. The total turnover of each division inthe year ended 31 December 2006 is shown in the table below, identified by eachdivision's principal trading company: 2006 % of 2006 revenue revenue (£'000)Fidecs Management Limited ("FML") 2,395 48.2Fidecs Insurance Management ("FIM") 1,705 34.3Fidecs Advisory Limited ("FAL") 338 6.8Nummos Profesional S.L. ("Nummos") 205 4.1Other 327 6.6 4,970 100.0 FML FML currently provides offshore trust and company management services to morethan 375 offshore trusts and more than 550 companies. The services it providesinclude day to day administration and cash management, the provision ofdirectors, company secretarial functions, accounts preparation work, thecompletion of annual returns. Assets administered by FML include cash, quotedshares and bonds, residential and development property and holdings in privatecompanies. FIM FIM is Fidecs' insurance company management division. The Directors believethere to be approximately 50 insurance companies based in Gibraltar andregulated by the GFSC. Gibraltar is attractive to them for a number of reasonsincluding speed of approval (compared with, for example, the UK), lower solvencyrequirements (thus enhancing return on capital) and Gibraltar's low corporationtax rates. Consequently, many of these companies prefer to outsource theestablishment, regulatory approval process and ongoing management, complianceand infrastructure functions to Gibraltar based insurance management entitiessuch as FIM which are familiar with the regulatory process, and have expertiseand contacts to expedite the process. FIM provides insurance managementservices to 15 insurance companies in Gibraltar and undertakes insurance companyapplications on behalf of new Gibraltar insurance companies. FIM provides acomplete management service from business plan, through licensing tounderwriting support, financial reporting and the administration of reserves. FAL FAL was established in March 2004 and offers cross border tax planning solutionsto corporates and individuals. The business is project fee based. FAL completed179 assignments in 2006 of which a negligible amount of business was referred byBDO. Nummos Nummos, Fidecs' Spanish office, is located in Sotogrande, Cadiz Province andprovides legal, accountancy and taxation services, primarily to Britishexpatriates who have moved to Spain or own property on the Costa del Sol. InApril 2006, Fidecs reacquired the 67 per cent. shareholding in Nummos which ithad previously sold to BDO network's International's Spanish member firm, takingits interest to 100 per cent. Since then, Fidecs' management team has sought tore-establish Nummos as a Fidecs operated entity and they expect Nummos to returnto profitability in 2007. Historic trading The Table below sets out a summary of financial information on Fidecs for thethree years ended 31 December 2006. Year ended Year ended Year ended 31 December 31 December 31 December 2004 2005 2006 £'000 £'000 £'000 Revenue 3,719 4,847 4,970Operating Profit 617 1,662 1,620Profit after Tax 690 1,710 1,661 STRENGTHS OF THE GROUP The Directors consider that the Group has the following key strengths: • it has high earnings visibility, with long term, loyal clients; • it is an established business with a strong track record of profitability and cash generation; • it operates in a growing sector, which has a strong rationale for consolidation; and • it has an experienced and highly-regarded management team with sector and consolidation expertise. COMPETITION Over the past ten years, a small number of independent (i.e. non bank) CTSPshave successfully built multijurisdictional networks, through organic growth aswell as acquisitions. International CTSPs fall into three categories: • bank owned: CITCO Limited, Fortis, Investec Plc; • independent: Equity Trust Limited, Trident Trust Company Limited, Sovereign Trust, Jordans International Limited and IFG Group Plc; and • law firm owned: Maples & Calder, Appleby Hunter Bailhache, Ogier. The law firms are comparatively new entrants to the international sector,replacing some accountancy firms, who are facing regulatory pressures to exitfor reasons of independence. The Directors believe that success is dependent on increasing and maintainingsources of client referrals. This relies on improving quality of service, whichincreasingly relies on the use of IT, without losing the personal touch. It isfor this reason that smaller CTSPs, who are not adequately resourced, are losingground. DIRECTORS AND EMPLOYEES On Admission, the Board will comprise six directors, brief details of whom aresummarised below, with further details in the Admission document. Bernard Gallagher ACMA, aged 54 (Non-Executive Chairman) Bernard is currently finance director of Premier Research Group plc ('PRG'), andwas its finance director on its admission to AIM in December 2004. PRG providesoutsourced clinical testing services and has grown organically and byacquisition. Since it joined AIM, PRG has undertaken major acquisitions all ofwhich have been successfully integrated, and its market capitalisation has grownfrom £16 million to more than £145 million. Bernard has considerable experienceof making and then integrating acquisitions and has over 22 years of experienceof financial management in a variety of businesses. He is an Associate of theChartered Institute of Management Accountants. Timothy John Revill FCA TEP, aged 56 (Chief Executive Officer) Tim is the founder of Fidecs. He qualified as a chartered accountant in 1975with PKF in London and then moved to their Isle of Man office. In 1978, heestablished his own professional practice in the Isle of Man and subsequentlymerged it with another firm. In 1982, he moved to Gibraltar to open theGibraltar and Spanish offices of his partnership, which he ran until 1989, whenhe participated in a management buy-out of the Spanish office and establishedFidecs. Tim specialises in international financial and tax planning and until2006 was a member of the BDO Tax Steering Committee and continues to be a memberof the BDO Tax Knowledge Sharing Centre of Excellence. Part of Tim's role asCEO of STM will be to manage the acquisition process, including theidentification of suitable targets. Tim is currently a director of NewcastleUnited Plc and Stan James (Gibraltar) Ltd. Alan Roy Kentish ACA ACII AIRM, aged 41 (Chief Financial Officer) Alan qualified as a Chartered Accountant in 1989 with Ernst & Whinney,specialising in the financial services industry. In 1993 he moved to Ernst &Young, Gibraltar and shortly afterwards qualified as an Associate of theChartered Insurance Institute. In 1997, Alan joined Fidecs and set up itsinsurance management division, FIM. Alan acts as managing and technical directorof FIM, which has experienced considerable growth over the last three years andis recognised as the largest insurance manager in Gibraltar. In addition, Alanacts as the CEO of the Fidecs Group. Alan sits on the boards of a number ofinsurance companies, including Admiral Insurance Company (Gibraltar) Limited. Mark William Denton, aged 45 (Non-Executive Director) Mark is the managing director of Fortis Intertrust (IOM) Ltd, a company where hehas worked for over 18 years and in this time has been responsible for a numberof key areas including client services, compliance, operations and humanresources. Mark took over the role of managing director on 1 January 2007. Martin James Derbyshire, aged 39 (Non-Executive Director) Martin is the director of Client Services in the Isle of Man Office of FortisIntertrust (IOM) Limited which he joined in 1994, initially working as anaccountant, providing book keeping, accounting and taxation services to theinternational client base of the trust and company administration teams. In1998 he moved to a role as a direct client relationship manager, providingstructuring, company administration, advisory, management and directorshipservices to entities established for corporate and private clients. Matthew Graham Wood ACA, aged 33 (Non-Executive Director) Matt graduated with a First Class honours degree in Economics in 1996 from theUniversity of Wales and qualified as a chartered accountant in 1999. Hesubsequently joined the corporate finance department of Beeson Gregory Limited(now Evolution Securities) in 2000 where he advised growing companies ontransactions including IPOs, secondary fundraisings, mergers and acquisitionsand corporate restructuring. Matt also advised corporate clients on the UKregulatory framework including the Listing Rules of the UKLA, the AIM Rules, theCode and general corporate governance matters. He left Evolution Securities inApril 2006 to become a director of, and a consultant to, a number of private andpublic companies, including AIM quoted Equity Special Situations Limited andAvarae Global Coins plc. - Ends - This information is provided by RNS The company news service from the London Stock Exchange