WTG.L Regulatory News (WTG)

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 ("MAR").

Watchstone Group plc ("Watchstone" or the "Company")

Proposed disposal of the Ingenie Business ("the Disposal") and Notice of General Meeting

Watchstone Group Plc announces the proposed disposal of the Ingenie Business to A-Plan Group Limited ("A-Plan Group") acting through its related companies Endsleigh Insurance Services Limited ("Endsleigh") and Trafalgar Bidco Limited (together "the Buyer") for cash consideration of up to £5.5 million including an aggregate of £3 million in cash payable on completion ("Initial Consideration"). In addition to the Initial Consideration, the Group will be entitled to up to an aggregate of £2.5 million in cash payable conditional on the financial performance of the Ingenie Business during 2021. The Company will also retain its subsidiary ISL which is seeking repayment of overpaid VAT in the sum of over £2 million from HMRC.

The Disposal will be effected through the sale of the entire issued share capital of Romeo Newco (which has acquired certain of the assets and liabilities of IL) and the transfer of the general insurance broking business operated by ISL under the name "Ingenie".

In view of the size of the Ingenie Business relative to the Company, the Disposal will result in a fundamental change in the business of the Company for the purpose of Rule 15 of the AIM Rules and it is therefore conditional upon the approval of Shareholders, amongst other matters. That approval will be sought at a general meeting of the Company to be held at Aldwych House, 71-91 Aldwych, London WC2B 4HN at 9.30 a.m. on 28 October 2020.

The Circular, along with a notice of general meeting, to be held at Aldwych House, 71-91 Aldwych, London WC2B 4HN at 9.30 a.m. on 28 October 2020 will be posted to Shareholders shortly and made available on the Company's website www.watchstonegroup.com.

The release of this announcement has been authorised by Stefan Borson, Group Chief Executive Officer and Company Secretary of the Company.

For further information:

Extracts from the Circular

The following has been extracted from, and should be read in conjunction with, the Circular, which will be posted to Shareholders shortly and made available on the Company's website www.watchstonegroup.com.

1. The Disposal

1.1 Background

The stated strategy of the Group has been to resolve its legacy issues and prepare its operating businesses for disposal. Following the sale of Healthcare Services earlier this year, the Ingenie Business is the remaining operating business in the Group.

The Ingenie Business is a technology provider and an insurance broker focused on helping young drivers use the road safely and affordably. Using telematics technology, the Ingenie Business gives its community discounts, feedback and bespoke advice via its Driver Behaviour Unit to help them improve their driving skills whilst staying safe. It also provides its telematics technology and analytics capability to certain third parties as a technology solutions provider.

As announced on 30 September 2020, the results of the Ingenie Business for the first half of 2020 have improved significantly from H1 2019 despite the impact of COVID-19 restrictions, which included a temporary halt to driving tests in the UK. The board of ISL has taken the steps necessary to protect the business for when the situation resolves. Revenue for the period to 30 June 2020 was £4.8 million compared to £3.3 million for the same period in 2019. The loss for the period, net of tax was £671,000 (six months to 30 June 2019, loss of £1.8 million). For the year ended 31 December 2019, the Ingenie Business recorded total revenues of £7.3 million, gross profit of £2.0 million and an EBITDA loss of approximately £2.6 million.

The Ingenie Business has been developing and recovering from a difficult period of trading and has inevitably been impacted by the COVID-19 restrictions. Accordingly, the Board feels that now is the right time for a new owner to further leverage its market leading proposition.

1.2 Reasons for the Disposal

The Directors believe that the Ingenie Business is a high-quality business with a robust operating model, strong systems and dedicated people. However, without the scale of a more established insurance business in the UK and/or without investing a substantial amount in marketing and building further market presence, the Directors believe that growth opportunities are limited as a standalone entity. The COVID-19 restrictions further complicate the development of its proposition and its growth in the short to medium term.

Accordingly, the Directors have decided to dispose of the Ingenie Business whilst retaining an interest in its performance in 2021 through deferred consideration. In addition, the Company will retain the benefit of historic tax claims in ISL which the Directors are advised have substantial value (albeit this remains subject to challenge by HMRC).

The sale of the Ingenie Business represents an opportunity for the Company to realise cash proceeds and for Shareholders to participate in that cash realisation. The Disposal is in line with the Board's broader objective of generating value for Shareholders and returning cash to Shareholders.

If the Resolution is not passed, the Disposal will not proceed, and the Board would continue to operate the Ingenie Business in the best interests of Shareholders in line with the Board's strategy.

1.3 Summary terms of the Disposal

Through the Transaction Documents, the Buyer has conditionally agreed to acquire the Ingenie Business. The Disposal will be effected through the sale of the entire issued share capital of Romeo Newco (which has acquired certain of the assets and liabilities of IL) to A-Plan Group and the transfer of the general insurance broking business operated by ISL under the name "Ingenie" to Endsleigh.

The Disposal is subject to fulfilment of conditions including, inter alia, the approval of the Shareholders at the General Meeting and the agreement by certain counterparties of the novation of contracts with IL and ISL. On completion, which is expected to occur on or around 31 October 2020, the Buyer will pay initial cash consideration of an aggregate of £3 million in cash with further deferred contingent cash consideration of up to an aggregate of £2.5 million depending on the revenue of the Ingenie Business in the calendar year 2021. 

The Group has agreed that, for a period of three years following Completion, it will refrain from competing with Ingenie Business and it has agreed to be subject to customary restrictive covenants in this regard. The Group has given customary warranties to the Buyer in respect of the Ingenie Business and the Group's liability under those warranties is subject to certain customary limitations. The Transaction Documents are governed by English law. The English courts shall have exclusive jurisdiction to settle any disputes arising out of or in connection with the Transaction Documents.

1.4 The Buyer

A-Plan Group was established in 1963 and is one of the largest specialist insurance distribution groups in the UK. Its businesses, which include A-Plan and Endsleigh, provide commercial and personal lines cover for a varied range of clients through its network of branches and centres, looking after the motor and home insurance requirements of the general public, as well as the more specialist needs of high net worth individuals, students, businesses and those with specialist vehicles and homes.

1.5 Use of Proceeds

The net cash proceeds of the Disposal will be kept on deposit and managed prudently until the Company's next distribution is effected. The precise amount of any distribution to shareholders has not yet been determined.

1.6 Strategy in respect of the remaining Company in the event of the Disposal

In the event that the Disposal completes, Watchstone will comprise only of non-operating assets and will, under the AIM Rules, be considered an AIM Rule 15 cash shell. At this stage, the Board has not concluded whether it intends to undertake a reverse takeover in accordance with the AIM Rules.

2. AIM Rule 15

In accordance with AIM Rule 15, the Disposal constitutes a fundamental change of business of the Company. On Completion, the Company would cease to own, control or conduct all or substantially all, of its existing trading business, activities or assets. Following completion of the Disposal therefore, 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 (including seeking re-admission as an investing company (as defined under the AIM Rules)) on or before the date falling six months from completion of the Disposal 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 reason for the suspension not have been rectified.

3. General Meeting

The Disposal is conditional upon, amongst other things, Shareholder approval being obtained at the General Meeting to be held at Aldwych House, 71-91 Aldwych, London WC2B 4HN, at 9.30 a.m. on 28 October 2020, at which the Resolution will be proposed.

The evolving COVID-19 situation and the related Government restrictions will clearly impact the ability of Shareholders to attend the General Meeting in person. In normal circumstances, the Board greatly values the opportunity to meet Shareholders in person. However, it fully supports the Public Gathering Restrictions, and takes seriously the Company's responsibility to slow the spread of COVID-19. In response to the current COVID-19 pandemic, the UK government introduced laws and associated guidance restricting the movement of people.

The health and wellbeing of our Shareholders, employees, advisers and of the general public is of paramount importance to the Board, and the Company is committed to minimising the unnecessary movement of people at this time and observing all measures mandated and recommended by the UK government. As a result, and in order that Shareholders and the Company are able to comply with the Public Gathering Restrictions, the General Meeting will be held as a closed meeting. Shareholders will not be permitted to attend.

4. Recommendation

The Directors consider the Disposal to be in the best interests of the Company and the Shareholders as a whole. The Directors have received advice from Spectrum Corporate Finance Limited ("Spectrum") in connection with the Disposal. In providing advice to the Directors, Spectrum has relied upon the Directors' and management's commercial assessment of the Disposal. Accordingly, the Board unanimously recommend that you vote in favour of the Resolution, as the Directors intend to do in respect of their beneficial holdings.

Part 2DEFINITIONS

The following definitions and technical terms apply throughout this announcement, unless the context otherwise requires:

"AIM" the AIM market, being a market of that name and operated by the London Stock Exchange;

"AIM Rules" the AIM Rules for Companies (as amended from time to time);

"Board" or "Directors" the board of directors of the Company;

"Buyer" A-Plan Group Limited acting through its related companies, Endsleigh Insurance Services Limited and Trafalgar Bidco Limited;

"Completion" completion of the Disposal expected to occur on or about 31 October 2020;

"Disposal" the proposed sale of the Ingenie Business;

"General Meeting" the general meeting of the Company to be held at Aldwych House, 71-91 Aldwych, London WC2B 4HN, at 9.30 a.m. on 28 October 2020;

"Group" the Company and its subsidiaries and subsidiary undertakings;

"HMRC" Her Majesty's Revenue and Customs;

"IL" Ingenie Limited;

"ISL" Ingenie Services Limited;

"Ingenie Business" the business that is the subject of the Disposal being the entire issued share capital of Romeo Newco and ISL's general insurance broking business;

"Ordinary Shares" ordinary shares of 10 pence each in the capital of the Company;

"Romeo Newco" Project Romeo Newco Limited which has been incorporated to acquire certain of the assets and liabilities of IL;

"Resolution" the resolution to approve the Disposal to be proposed at the General Meeting;

"Shareholders" holders of Ordinary Shares;

"Transaction Documents" the conditional sale and purchase agreement relating to the sale of Romeo Newco and the conditional business transfer agreement related to the ISL's general insurance broking business; and

"Watchstone" or "Company" Watchstone Group plc.