Tpximpact Hldg Regulatory News (TPX)

This announcement contains inside information

1 March 2021

The Panoply Holdings PLC

("The Panoply", or the "Group")

Acquisition of Keep IT Simple

Expands and strengthens capabilities, enabling the Group to bid for larger contracts

The Panoply Holdings PLC (AIM: TPX), the technology-enabled services group focused on digital transformation, announces the acquisition of the entire issued and to be issued share capital of Keep IT Simple LTD ("KITS"), a provider of high value IT support and transformation services to public and private sector clients (the "Acquisition") for £26m.

The Acquisition

KITS has built a reputation in the public sector for transforming and running live and critical services such as payments platforms on behalf of clients including the Rural Payments Agency and the Department for Environment, Food and Rural Affairs ("DEFRA"). KITS typically delivers managed services, with market-leading expertise in service integration and management, which is seen by large organisations as the highest value-added layer in the technology services stack.

With a proven track record, the acquisition of KITS enables the Group to bid for ever-larger contracts across both the public and commercial sectors. KITS enters the Group having recorded unaudited revenues for the full year ended 31 December 2020 of £9.7m (audited 18 months to 31 Dec 2019: £10.9m), unaudited adjusted EBITDA and adjusted net profit before tax of £2.7m (audited EBITDA 18 months to 31 Dec 2019: £3.3m) and with £30.3m of contract backlog to be recognised between 2021 and 2024. KITS will be integrated into the Group's technology brand, Foundry4 and is being acquired from its sole shareholder, Grant Harris.

Following the acquisition, the Directors now expect Revenue and Adjusted EBITDA for the year ending 31 March 2021 of not less than £48.5m and £6.6m respectively.

The key benefits of the Acquisition include:

● Significant expansion of The Panoply's digital transformation capabilities for the public sector, enabling the Group to provide an ongoing managed support service to clients. While The Panoply's strength in technology has previously been in the discovery, alpha and beta (user research, design, prototyping and development) stages, KITS adds the capability to secure additional contracts running high value, high profile services to public sector customers, providing a complete end-to-end offering.

● Extension of the average length of client relationship and generation of a greater proportion of recurring revenues.

● The Acquisition will enable the Group to bid for multi-year projects several multiples higher in value than it can currently.

● Bringing another purpose-driven organisation into the Group, supporting The Panoply in its mission to deliver Sustainable Futures through Digital Transformation.

● The acquisition of KITS is expected to be immediately earnings enhancing for the Group.

Neal Gandhi, Chief Executive Officer of The Panoply said:

"Following a period of strong organic growth, I am delighted to today announce continued execution on our acquisitive strategy with the addition of Keep IT Simple into the Group. KITS's reputation for delivering major service transformation programmes and for service integration and management is unparalleled. Their work at the Rural Payments Agency, after a series of well-documented failures by larger monolithic providers, has contributed to KITS's reputation as a credible modern alternative providing outcomes and value that is orders of magnitude better than past options. Importantly, their work complements the existing strengths of the Group, and means we are now able to offer a truly end-to-end service to public sector clients.

"In addition, the Board and I are delighted to have found another ethical business to join our purpose-driven Group. Together, I am confident we can drive positive change through technology, in a responsible way, and I look forward to seeing what we will achieve."

Grant Harris, Chief Executive Officer of Keep IT Simple said:

"We are very proud of the business we have built, and the value of our work to the Public Sector. This acquisition marks a milestone in our growth journey, as we become part of a modern, agile and rapidly scaling Group which is set to become a key player in our field. The support of The Panoply will fuel our ambitious plans for expansion, as we roll out our leading capabilities to a wider set of clients."

Consideration

Given the strong contracted pipeline backlog of £30.3m to be recognised between 2021 and 2024, The Panoply has agreed to pay a total consideration of £26m for the Acquisition, satisfied through the payment of £7.5m cash and the issue of 10,277,778 new ordinary shares in The Panoply (at a price of 180p) with up to £7m of the share consideration subject to claw back. In addition, it is expected that a further £4.9m will be paid to the vendor of KITS from free cash on its balance sheet on completion representing excess cash of its normalised working capital requirements. The purchase price will be subject to a customary adjustment based on completion accounts.

Up to £7.0m of shares will be subject to a clawback in the event that KITS does not achieve a revenue target of £26.8m either during the calendar year 2022 or the calendar year 2023. Should the revenue target not be met in either of those years, shares with a value of up to £7.0m can be clawed back from the seller with a value equal to the amount by which the actual revenue in the calendar year 2023 is less than the revenue target.

In order to help fund the acquisition and to provide the Group with additional resources for further acquisitions, The Panoply has extended its revolving credit facility with HSBC (which reaches maturity in June 2023) from £7.0m to £20.0m (the "RCF Facility"). £6.0m will be drawn down at completion to fund the acquisition, leaving a further £7.0m available for future acquisitions. Within the £20.0m facility The Panoply can draw down up to £5.0m for working capital purposes with the remainder set aside for acquisitions. As announced on 12 June 2019, HSBC has taken security over The Panoply and all of the Group's material subsidiaries and their assets in connection with the RCF Facility. The RCF Facility contains customary terms and covenants, including financial covenants.

As at 28 February 2021, assuming all payments in connection with the Acquisition had been made as at that date, the Group retained cash reserves of approximately £3.7m with a net debt position of £9.3m, meaning that net debt remains below 1.0x EBITDA based on pro forma results.

The combination of run rate revenue, forecast organic growth and additional banking facilities now available for acquisition mean that the Group is well placed to hit its stated commercial target of £100m run rate revenue by 31 March 2023.

Integration and strategic outlook

Having joined the Group, KITS will sit under the Foundry4 brand as part of the deep tech, engineering focused division of the Group. Foundry4 helps organisations in highly regulated sectors harness technology to solve complex challenges, focusing on CTO/CIOs looking to enable digital transformation through the adoption of hyper scale cloud, data analytics, AI and machine learning and automation.

Grant Harris, CEO of KITS, will become Managing Director of a newly formed Managed Services Division within Foundry4. The division will be provided with additional sales and bid management, HR and recruitment as well as finance support to facilitate further growth.

Additional information on the acquisition

The Panoply has acquired Keep IT Simple from Grant Harris.

The consideration payable under the share purchase agreement relating to the Acquisition (the "SPA") is £26.0m (plus £4.9m in respect of excess cash) and comprises the following on Completion:

(a) the allotment and issue of 10,277,778 ordinary shares in The Panoply, with a value of £18.5m, calculated by reference to a price of 180 pence to Grant Harris (the "Consideration Shares");

(b) a payment in cash of £7.5m; and

(c) a payment in cash of £4.9m in respect of the cash currently held on KITS's balance sheet in excess of its normalised working capital requirements, subject to adjustment following the determination of the actual working capital in the completion accounts

together (the "Consideration").

The Consideration referred to in (b) above is being funded through a combination of the RCF Facility and the Group's existing cash reserves. The Consideration referred to in (c) above is being funded by cash on KITS's balance sheet at completion.

All shares in The Panoply allotted and issued under the SPA (including the shares issued as part of the Consideration) are subject to lock-in arrangements and shares with a value of up to £7,0m are subject to claw-back by The Panoply if KITS' revenues do not meet a target of £26.8m in either the calendar year 2022 or the calendar year 2023.

Following the issue of the Consideration Shares, Grant Harris will hold 10,277,778 ordinary shares in The Panoply, representing 12.87% of the then issued share capital.

Admission and total voting rights

An application has been made for the admission of the Consideration Shares to trading on AIM which is expected to take place on or around 4 March 2021. Following this issue, the Company's issued share capital will comprise 79,850,906 Ordinary Shares and this is the total number of voting rights in the Company. There are no shares held in treasury.

This figure may be used by shareholders as the denominator for the calculation by which they may determine if they are required to notify their interest in, or change to their interest in, the Company under the FCA's Disclosure Guidance and Transparency Rules.

The person responsible for this announcement is Oliver Rigby, CFO.

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