ZPG PLC Regulatory News (ZPG)

30 April 2015

ZOOPLA PROPERTY GROUP PLC TO ACQUIRE USWITCH

Combining two of the UK's most successful digital businesses to create a single resource where consumers can research, find and manage their home

Zoopla Property Group Plc (LSE:ZPLA) ("ZPG", "the Group" or the "ZPG Group"), the digital media business which owns and operates some of the UK's leading online property brands including Zoopla and PrimeLocation, today announces that it has conditionally agreed to acquire Ulysses Enterprises Limited ("uSwitch", and together with its subsidiaries, the "uSwitch Group") for £160m based on a cash-free, debt-free enterprise value, plus a performance-based earn-out of up to £30m (the "Acquisition").

Founded in 2000, uSwitch is the UK's #1 price comparison website and lead generation engine in the home services sector (energy and communications) by market share[1] and is one of the most widely recognised and trusted brands in the price comparison space. uSwitch generated revenues of £62.9m and Adjusted EBITDA of £16.2m in the year ended 31 December 2014 with revenue CAGR of 20% (2012-2014). In 2014 the uSwitch website generated 50.3 million visits and saved consumers over £112m off their energy bills alone.

The acquisition of uSwitch is a significant step in ZPG's mission to be the most useful resource for consumers and the most effective marketing partner for professionals across the property space. The transaction brings together two of the UK's best-known digital consumer brands and fastest-growing technology businesses of the past few years.

With its highly engaged audience of over 44m visits per month to its websites and mobile apps, ZPG is well positioned to lead the next phase of innovation across the property portal space and the creation of a single platform where consumers can research, find and manage their homeis a natural next step. The businesses have highly complementary brands and both are consumer champions empowering consumers to make smarter property decisions.

The combined Group will offer advertisers enhanced lead generation, more frequent user engagement and additional revenue opportunities from new products and data. uSwitch will continue to operate as a standalone brand and platform and the uSwitch management team will remain with the business including CEO Steve Weller. The acquisition is expected to complete by end of June 2015.

Transaction Highlights

· Acquisition of uSwitch, the leading price comparison website for switching in home services (energy and communications) sector, with a revenue CAGR of 20% (2012-2014)

· The acquisition is expected to be significantly enhancing to Adjusted EBITDA and adjusted basic earnings per share in the first full financial year following Completion[2]

· Consideration of £160m based on a cash-free, debt-free enterprise value, represents 9.9x uSwitch's 2014 Adjusted EBITDA plus a performance-based earn-out of up to £30m

· The acquisition will be partly funded by existing cash resources with the remainder funded by a new 5-year £150m credit facility, of which c.£125m will be drawn down at Completion

· Strong deleveraging profile due to cash generated by the combined Group; opening net debt ratio of around 2.0x the combined Group's EBITDA

· The combined Group will maintain ZPG's current dividend policy of 35-45% payout ratio of the combined Group profits

· The transaction provides an exit for uSwitch's institutional backers, including LDC, the private equity arm of Lloyds Banking Group and Forward Internet Group

Acquisition benefits

· ZPG continues to lead innovation in digital property market, building a single home services platform for consumers to research, find and manage their home

· Enhanced products and services which empower consumers to make smarter property decisions, manage their household bills and save money

· Additional revenues from a market leading business with a complementary brand audience and business model

· Earlier and more frequent engagement with consumers and new products driving enhanced lead generation to ZPG members

· Timely engagement with consumers during the decision-making stage of the property journey and additional ZPG data driving enhanced lead generation to uSwitch advertisers

Alex Chesterman, Founder & CEO of Zoopla Property Group Plc said, "This is a transformational acquisition and a meaningful step towards delivering our long-term strategy to be the market-leading resource for consumers and most effective lead generation engine for professionals in the property space. We have always been at the forefront of innovation in our industry and this deal brings together two of UK's best known and fastest growing digital brands as a natural next step towards creating the ultimate platform where consumers can research, find and manage their home."

"The uSwitch team has developed a trusted brand and leading position in home services price comparison and switching. With the plans we have to develop our combined services, consumers will have a single resource for all their property needs and this enhanced engagement with our users will create a unique advantage for our advertisers."

"We have also announced a current trading update today which shows strong traffic growth up 11% year-on-year, with mobile engagement up 34% as consumers increasingly rely on the Group's services at home, work and on the move. We continue to grow our ARPA as our members appreciate the benefits of the scale and differentiation of our audience."

Steve Weller, CEO of uSwitch added, "I am immensely proud of everything that we have achieved over the last 15 years and look forward to the next phase of our journey. Consumers need our support now more than ever before and, with ZPG's impressive credentials as an innovative, consumer-empowering business, I am confident that we will be able to help even more people save money on their household bills."

Consideration

The total consideration range for the acquisition is £160m to £190m, based on a cash-free, debt-free enterprise value, dependent on the performance of the uSwitch business.

· Initial Consideration of £142.6m payable in cash on Completion will be satisfied entirely by cash funded from a mixture of existing cash resources and a new 5-year £150m credit facility

· Institutional Deferred Consideration of £10m payable in Dec-15 to the Institutional Sellers which may be satisfied by an issue of new ordinary shares or cash at ZPG's discretion

· Management Deferred Consideration of £7.4m payable in FY17 and FY18 to the Executive Sellers and Management Sellers in cash

· Earn-out Consideration of up to £30m based on Adjusted EBITDA and revenue performance targets payable in FY16 to all Sellers in cash or up to 50% in shares at ZPG's discretion, with 50% of the Earn-out Consideration payable to Executive Sellers and Management Sellers to be paid in FY17 and FY18

Approvals & Timetable

Completion is conditional upon:

(a) ZPG shareholder approval given the size of the acquisition, which is a Class 1 transaction under the Listing Rules

(b) FCA approval of the change of control of uSwitch

A circular containing the notice convening a General Meeting of the Company to approve the transaction will be sent to shareholders shortly, and completion of the acquisition is expected by June 2015.

DMGT has agreed, pursuant to a letter of intent, to vote in favour of the acquisition in respect of its beneficial holding which amounts to 132,788,961 ordinary shares or 31.76 per cent of the issued share capital of the Company. In addition, all of the Directors holding ordinary shares in the Company have irrevocably agreed pursuant to separate respective irrevocable undertakings to vote in favour of the acquisition in respect of their own beneficial holdings which amount, in aggregate, to an additional 4.69 per cent of the issued share capital of the Company.

ZPG Current Trading

Our consumer-led approach and proposition continues to drive strong engagement across ZPG's websites and mobile apps as consumers increasingly rely on the Group's unique tools and data for property search and research. The board of directors of the Company (the "Board") is pleased with the Group's progress in the six months ended 31 March 2015 and anticipates revenues of over £41m and Adjusted EBITDA of around £21m for the six months ended 31 March 2015

Below is a selection of unaudited key performance indicators ("KPIs") for the six months ended 31 March 2015.

KPIs

ZPG continues to experience strong traffic growth as visits to the Group's websites and mobile apps increased by 11% to 265.5m in the six months ended 31 March 2015, with average monthly visits of 44.2m over the period. Mobile devices now account for 63% of monthly visits and are up 34% compared with the same period last year, as consumers continue to use the Group's services to search and research the property market at work, home and on the move.

The Group has experienced strong Agency ARPA growth over the period as members continue to see the benefits of digital marketing with the Group. The increase in Agency ARPA has been driven by (i) current members purchasing more products and upgrading packages; and (ii) lower ARPA members leaving the Group. As guided in February 2015, the Group has experienced further UK agency membership churn due to competition.

The Board is pleased with the overall Developer performance as the Group continues to develop a targeted proposition. The increase in Developer ARPA has been driven by (i) current members upgrading packages; and (ii) increasing spend on targeted email campaigns and other depth products.

As at 31st March 2015, ZPG had £38.8m of cash on the balance sheet and no debt.

uSwitch Current Trading

uSwitch has had a good start to the calendar year with a robust trading performance. The energy vertical is performing particularly well as uSwitch has fulfilled a higher level of switches compared to last year and also increased its rate per sale.

Our next market update will be our half-year results on 20 May 2015.

A conference call with online presentation for analysts and investors will take place at 8.30am. Dial-in details as follows:

PIN: 50718046#

UK Toll Number: 020 3139 4830

UK Toll-Free Number: 08082 370 030

United States Toll-Free Number: 1866 928 7517

United States Toll Number: 1 718 873 9077

To register for the slide webcast, please go to: http://event.onlineseminarsolutions.com/r.htm?e=984505&s=1&k=9B17B69E15A57E28CB96114CAC35CF46 

Enquiries

Torch Partners, which is authorised and regulated by the FCA in the United Kingdom, is acting exclusively for ZPG as financial adviser in relation to the Acquisition.

Jefferies International Limited ("Jefferies"), which is authorised and regulated by the FCA in the United Kingdom, is acting exclusively for ZPG as sponsor and financial adviser in relation to the Acquisition.

Each of Torch Partners and Jefferies are acting exclusively for ZPG and no one else in connection with the Acquisition and will not regard any other person as a client in relation to the Acquisition and will not be responsible to anyone other than ZPG for providing the protections afforded their clients or for providing advice in relation to the Acquisition, the contents of this announcement, or any other matters referred to herein.

Neither Torch Partners nor Jefferies accepts any responsibility whatsoever for, or makes any representation or warranty, express or implied, as to the contents herein, including its accuracy, completeness or verification, or for any other statement made or purported to be made by it, or on its behalf, in connection with ZPG or the Acquisition and nothing in herein is, or shall be relied upon as, a promise or representation in this respect, whether as to the past or future. Subject to applicable law, each of Torch Partners and Jefferies accordingly disclaim all and any liability whether arising in tort, contract or otherwise which it might otherwise have in respect of this announcement or any such statement.

About Zoopla Property Group Plc http://www.zpg.co.uk/

Zoopla Property Group Plc is a digital media business that owns and operates some of the UK's leading online property brands including Zoopla, Primelocation, SmartNewHomes and HomesOverseas. Each of our brands has a distinct market position and attracts a unique audience, delivering increased exposure and enquiries for our members.

Over 16,000 property professionals advertise on our websites and mobile apps which attract over 40 million visits per month and generate over 2 million enquiries per month for our member estate/letting agents and property developers.

Zoopla is the UK's most comprehensive property website, focused on empowering users with the resources they need to make better-informed property decisions. We help consumers both find their next home and research the market by combining hundreds of thousands of property listings with market data, local information and community tools.

PrimeLocation is one of the UK's leading property websites, focused on helping house-hunters in the middle and upper tiers of the market find their next home with listings advertised by all of the top estate and letting agents across the UK.

SmartNewHomes is the UK's #1 website exclusively for new build properties and lists new developments available for sale from all the leading UK housebuilders.

HomesOverseas is the UK's leading website dedicated entirely to helping users find the perfect holiday property abroad.

In addition to operating our own websites we exclusively power the property search facility on a number of the UK's biggest websites which means that we offer our members exposure to an unrivalled property audience in the UK. Our exclusive partnerships include The Times, The Telegraph, Independent, Evening Standard, The Daily Mail, Homes & Property, AOL, Homes24 and many more.

Zoopla Property Group Plc was founded in 2007 and has a highly-experienced management team, led by Founder & CEO, Alex Chesterman.

Information on the uSwitch Group

Overview

Founded in 2000, the uSwitch Group operates a leading UK based online and telephone comparison and switching service that helps consumers (and in respect of businesses, through a third party, to compare energy prices) to compare prices, switch providers where necessary and save money on their gas, electricity, home phone, broadband, digital television, mobile phone and personal finance products including mortgages, credit cards, current accounts and insurance. The uSwitch Group website had approximately 50.3 million visitors for the year ended 31 December 2014.

In 2013, Lloyds Development Capital ("LDC"), an affiliate of Lloyds Banking Group, acquired a majority stake in uSwitch Group with uSwitch Group management and Forward Internet Group retaining a minority holding. As at 31 March 2015, the uSwitch Group employed 181 employees.

In addition to online price comparison and switching services across the energy, broadband, mobile, money and insurance sectors, the uSwitch Group also provides its users the following services, among others, to compare products and features:

· a free call centre service to search for and compare energy and broadband products;

· email newsletters, a free send-us your bill service, informative guides and results from independent customer satisfaction surveys that help inform its website's users about recent trends and developments which allow users to select the most appropriate product or service for their needs and provide related offers, products and services;

· a free energy alert service for its energy comparison and switching service customers, which informs users when their energy plans can be changed without a cancellation fee as well as providing a choice of plans that can save them money; and

· a broadband speed test, to help customers learn which is the fastest broadband provider in their specific location.

In the case of energy comparison, as part of the choice of plans and products available, the uSwitch Group provides users the choice of a list of all suppliers for whom rates have been made available to the uSwitch Group, including where that supplier is not currently available to be switched through the uSwitch Group's website.

The uSwitch Group uses data provided from its suppliers and third party data providers to calculate price and product comparison results. The data is collected from sources including its energy, broadband and mobile suppliers, independent personal finance data publishers, insurance providers and other third party data providers. The data provided is continuously monitored and updated, by the uSwitch Group or a third party supplier, to help ensure the accuracy of results provided to the uSwitch Group's users.

The uSwitch Group is accredited by The Confidence Code, which is managed by the UK energy market regulator Ofgem, as a voluntary code of practice for online domestic price comparison services designed to help make the switching process easier, more reliable and provide reassurance for consumers. The uSwitch Group is also authorised to help consumers compare money and insurance products by the Financial Conduct Authority ("FCA"), an independent organisation established by the UK government to regulate financial services provided in the UK. Furthermore, the uSwitch Group was the first comparison site to achieve the Plain English Campaign's, an independent group working for plain English in public communication, Internet Crystal Mark, recognising that it has clear language, is accessible and easy to use.

The uSwitch Group operates in the UK. The single largest activity of the uSwitch Group is its energy comparison and switching service which provides consumers with a choice of substantively 'whole of market' energy provider options; that is, not just those energy providers which can be switched to through the uSwitch Group's website.

The uSwitch Group has commercial agreements with certain suppliers across each of its divisions and earns revenue via fees from a supplier each time a consumer chooses to switch or purchase a product or service. In the energy division, the uSwitch Group supports the whole customer journey from initial visit through to fulfilment of the switch. In this division, the uSwitch Group revenue fees are generated based on completed switches. In the broadband, mobile, money and insurance divisions, the uSwitch Group's revenues are generated primarily through the conversion of leads generated from its website which are passed to the suppliers' sites via an affiliate network for completion and fulfilment.

The uSwitch Group markets its services, and thereby attracts consumers to its website and contact centre, using a mixture of online, TV, social media, public relations, partner-based, contact centre-based and email-based marketing. Online marketing is primarily performed using PPC ("Pay Per Click") advertising and SEO ("Search Engine Optimisation") techniques. PPC adverts are placements associated with particular search terms that uSwitch Group's target users would be likely to use in the process of searching for energy, broadband, communication and personal financial products (for example "energy switching" or "broadband deals"). SEO is the practice of adapting a website's design and content to improve a site's search engine ranking when consumers search for specific terms. While the specific ranking criteria used by search engines are private and proprietary, uSwitch Group's team contains developers and editors with proficiency in improving the site's SEO ranking. Partner-based marketing is the payment of fees to partners who provide uSwitch Group with leads that subsequently result in a switch or the purchase of products or services. The majority of partner-based costs relate to sales generated through partner call centres.

Summary financial information of the uSwitch Group

As the table above indicates, the uSwitch Group has shown consistent revenue growth throughout 2012, 2013 and 2014, growing at a 20 per cent. Compound Annual Growth Rate ("CAGR") between 2012 and 2014. This growth has been driven mainly by its energy and communications businesses, with strong traffic growth as well as an increase in the conversion rate of traffic.

Adjusted EBITDA growth has also been strong between 2012 and 2014 although impacted by some one-off factors described below. The energy division continues to be the main driver of profitability due to its strong gross margins and increasing operating leverage from comparatively fixed overheads, although improvements in the division efficiency of the broadband segment of the communications division has also benefitted the Adjusted EBITDA margin.

At the Adjusted EBITDA level, the uSwitch Group's most profitable division, energy, had an exceptionally strong year in 2013, having been positively impacted by the decision of many of the major UK energy providers to increase their retail prices to consumers, particularly during the last quarter of 2013. The resulting media and consumer interest led to high numbers of UK households comparing energy prices and ultimately switching energy providers. This was a significant factor that contributed to the increase in the uSwitch Group's Revenues, Adjusted EBITDA and Operating Profit before tax from 2012 to 2013 of approximately £16.0 million, £5.3 million and £0.5 million, respectively.

In August 2013, LDC acquired a majority stake in the uSwitch Group with the uSwitch Group management and Forward Internet Group ("FIG") retaining a minority holding. During the period of ownership of the uSwitch Group by FIG prior to August 2013, certain central and administrative functions were conducted on behalf of uSwitch Group by FIG and not recharged and therefore were not reflected in uSwitch Group's financial statements. Following the acquisition of the uSwitch Group by LDC in August 2013, the uSwitch Group has since replaced those central and administrative functions previously conducted by FIG and now operates on a fully standalone basis. It is estimated that, had it been the case that the uSwitch Group had operated on a fully standalone basis throughout, and prior to 2013, the uSwitch Group would have incurred significant additional central and administrative costs above those recorded in the 2013 financial statements. This increase in central and administrative costs resulted in the uSwitch Group's Adjusted EBITDA margin decreasing to 26 per cent. in 2014.

As at 31 December 2014, uSwitch Group's total gross assets were £100.6 million.

Background to and reasons for the Acquisition

Introduction

The ZPG Group is a digital media business which owns and operates some of the UK's leading online property brands including Zoopla, PrimeLocation, SmartNewHomes and HomesOverseas. Its goal is to be the UK's most trusted online resource enabling consumers to make better informed property decisions and to help professionals and suppliers win more business as their most effective marketing partner. As at 31 March 2015, over 16,000 property professionals advertise on the ZPG Group's websites and mobile applications, which together attract over 40 million visits per month and generate over 2 million leads per month for our advertisers.

Since inception, the ZPG Group has been one of the leading innovators in the online property sector and has grown rapidly both organically and through a number of acquisitions. The ZPG Group management team has demonstrated a solid track record of identifying strategic opportunities to enhance its proposition and efficiently integrating acquired businesses.

Evolution of the Property Portal

The digital property landscape has evolved in various stages, as set out below.

· Property Portal 1.0 - Search

In the early 2000s classified newspaper adverts began to shift online. This created "Property Portal 1.0" - aggregators of digital property ads offering pure property search with low barriers to entry. As a result, there were many new entrants delivering a non-differentiated consumer experience and many struggled to reach the critical mass of inventory and traffic necessary to operate a successful network effects business.

· Property Portal 2.0 - Search + Research

The ZPG Group was launched in 2008 with a differentiated consumer offering providing additional data and information to help consumers make better informed property decisions. This led to "Property Portal 2.0" - delivering transparency and efficiency to the market, creating on-going relationships with consumers throughout the property cycle and enabling greater value to be delivered to property professionals via enhanced user engagement. The combination of property search with property research made the ZPG Group a one-stop shop resource for the consumer.

· Property Portal 3.0 - Search + Research + Manage

As at 30 April 2015, having established household brands strongly associated with the property sector and with 77 per cent. prompted brand awareness amongst all UK adults and over 40 million monthly visits to its sites, the ZPG Group is ready to lead the next phase of innovation across the industry. "Property Portal 3.0" is a natural extension of the existing services provided by the ZPG Group whose sites will become the go-to hub for 'all things property' - helping consumers find their next home, helping them with their move and managing and reducing the costs and services associated with their property.

The acquisition of the uSwitch Group delivers on the ZPG Group's core strategy to be the UK's most trusted online property resource and generate consumer leads in areas associated with the property journey including primarily switching services, financial services and professional services, fulfilling its ambition to pioneer Property Portal 3.0.

Acquisition Benefits

The Board believes that the Acquisition will benefit the ZPG Group in the following ways:

Enhanced product and service offering

The ZPG Group intends to further increase its user engagement levels by continuing its consumer-centric approach to product development and the provision of tools that assist users with: (i) their property search; (ii) their financial options and requirements; (iii) their moving process and requirements; and (iv) managing their property occupancy costs and services.

The Board believes that offering home services comparison switching services in the areas of finance, utilities and communications are a natural extension of the ZPG Group's relationship with its users throughout the property journey. The additional products that the ZPG Group intends to develop on its platform will provide a single home services hub where users will be able to research, find and manage their move and their home. The Board believes the enhanced services will drive increased user engagement which it is anticipated will in turn drive additional value to the ZPG Group's existing property professional members.

Fully integrated consumer property journey

The Board believes that the integration of the uSwitch Group's products into the ZPG Group's existing business will help create a leading marketplace for the complete consumer property journey and provide more relevant products and useful services to the ZPG Group's consumer audience.

The switching market has high consumer engagement and is highly valued by suppliers in terms of a customer acquisition channel. The Board believes that the uSwitch Group's products and services are highly relevant to the ZPG Group's consumer audience, from energy and broadband switching to home insurance, mortgage and loan comparison. The Board believes that this will provide substantial cross-selling opportunities.

By offering the uSwitch Group's products and services along the consumer property journey, the ZPG Group is expected to drive traffic to the uSwitch Group platform, further monetising the ZPG Group's existing consumer audience.

Increased consumer engagement with the ZPG Group's platform

The Board believes that user engagement is characterised by three key elements: (i) initially acquiring a user's attention, (ii) repeatedly engaging a user through compelling products and features and (iii) retaining user loyalty through developing a customised user experience.

The Board believes that a fully integrated consumer property journey with enhanced products and services will drive increased consumer engagement on the ZPG Group's platform at zero acquisition cost to the consumer. Further engagement on the platform is expected to enable the ZPG Group to create more frequent and customised services for consumers and drive higher-quality leads to property professional members and advertisers.

Additional revenues 

The Acquisition is expected to be significantly earnings enhancing in the first full financial year following Completion. Alongside the integration of the uSwitch Group's products into the ZPG Group's platform, the uSwitch Group will continue to operate as a standalone brand, platform and business.

The uSwitch Group's revenue is primarily generated from suppliers in the form of fees for successful "switches" in the case of the energy sector and the conversion of leads in the case of the broadband, mobile, money and insurance sectors. An experienced uSwitch Group management team has consistently delivered strong results with 20 per cent. revenue CAGR between 2012 and 2014.

The uSwitch Group is the clear market leader in both the energy and communications verticals with 42 per cent. market share in "energy" switching and 54 per cent. market share in "communications" switching in 2013. In addition, the uSwitch Group has a nascent financial services business with significant opportunity for growth in "money" and "insurance" price comparison switching.

Information on the Enlarged Group

The combined ZPG Group and uSwitch Group following the Acquisition (the "Enlarged Group") will be one of the UK's most comprehensive property websites, focused on empowering users with the resources they need to make better-informed property decisions across the complete consumer property journey. The Enlarged Group's main activities will be helping consumers find their next home, help with their move and managing the costs and services associated with their property.

The Enlarged Group will help property professionals win new business by generating leads across the property journey from property search to home services comparison switching in the areas of Energy, Communications and Financial Services.

On Completion, the ZPG Group and uSwitch Group businesses will be run as standalone businesses. The Enlarged Group will have subsidiaries regulated and authorised by the FCA.

The Enlarged Group will be headquartered in London and will have approximately 400 employees.

Summary of the key terms of the Acquisition

Share Purchase Agreement

Under the terms of the share purchase agreement between the Company, LDC and certain other institutional, executive and management sellers (the "Sellers") (the "Share Purchase Agreement"), which was entered into on 30 April 2015, the Sellers have conditionally agreed to sell, and the Company has conditionally agreed to acquire, all of the Sellers' holding of shares in uSwitch.

Consideration payable to the Sellers

The total consideration for the Acquisition, based on a cash-free, debt-free enterprise value, is a maximum of £190 million, with an initial consideration of £142.6 million (the "Initial Consideration") payable in cash on Completion.

A further £10 million will be payable to LDC and certain other institutional sellers (the "Institutional Sellers") as deferred consideration on 31 December 2015 (the "Institutional Deferred Consideration"). This Institutional Deferred Consideration may be satisfied by an issue of new ordinary shares by the Company with an aggregate value of £10 million apportioned between the Institutional Sellers, or by an aggregate cash payment of £10 million to the Institutional Sellers (or any combination thereof in the sole discretion of the Company).

Up to £7.4 million will also be payable to the executive sellers (the "Executive Sellers") and the management sellers (the "Management Sellers") as management deferred consideration (the "Management Deferred Consideration"), the full amount of which will be paid into an escrow account by the Company on completion of the Acquisition ("Completion"). The Management Deferred Consideration (if any) will be paid out of the escrow account in two tranches. The first tranche of £4.9 million, being an amount equal to 66 per cent. of £7.4 million, will be payable 24 months after Completion. The second tranche of £2.5 million, being an amount equal to 34 per cent. of £7.4 million, will be payable 36 months after Completion.

An additional amount of up to £30 million may be payable to the Sellers (the "Earn-out Consideration") in accordance with the Earn-out Consideration provisions of the Share Purchase Agreement if the uSwitch Group achieves certain Adjusted EBITDA and revenue targets for the period commencing on 1 January 2015 and ending on 30 April 2016. The Earn-out Consideration (if any) will be payable to the Institutional Sellers within 10 business days of the determination of the uSwitch Group's Adjusted EBITDA and revenue for the relevant period in accordance with the terms of the Share Purchase Agreement. 50 per cent. of the Earn-out Consideration (if any) payable to the Executive Sellers and Management Sellers will be paid at the time the Management Deferred Consideration (if any) is paid (that is, 66 per cent. 24 months after Completion and 34 per cent. 36 months after Completion). The remaining 50 per cent. of the Earn-out Consideration payable to the Executive Sellers and Management Sellers will be paid at the same time as the portion paid of the Earn-out Consideration to the Institutional Sellers.

The Share Purchase Agreement also provides that the Sellers will indemnify the Company against any losses, fines or costs incurred by the uSwitch Group (up to a maximum of £10 million in aggregate) as a result of the investigation by Ofgem during the period of up to three years from Completion. As security for such indemnity, £10 million of the Institutional Deferred Consideration and the Management Deferred Consideration (less any sum paid to the Company pursuant to such indemnity prior to the payment of such deferred consideration amounts) will be paid into an escrow account. Any such losses fines or costs incurred shall be paid to the Company and the balance of such amount (if any) shall be paid to the Sellers upon expiry of this indemnity.

Leaver provisions in the Share Purchase Agreement provide that if any of the relevant Executive Sellers or Management Sellers resigns or is dismissed for gross misconduct, that Seller shall not be entitled to receive any further payments of the Management Deferred Consideration or Earn-out Consideration.

For any new ordinary shares issued by the Company as part of the consideration, applications would be made in respect of such ordinary shares for listing on the premium listing segment of the Official List of the FCA and to trading on the main market for listed securities of the London Stock Exchange.

The consideration of £160 million for the Acquisition, based on a cash-free, debt-free enterprise value and on the basis of excluding the Earn-out Consideration described above, represents a valuation multiple of 9.9x the uSwitch Group's 2014 Adjusted EBITDA.[3]

Performance Bonus

In addition to the consideration under the Share Purchase Agreement, the Company has agreed to pay a performance bonus (the "Performance Bonus") equal to up to 50 per cent. of the total consideration, including the Earn-out Consideration (once determined), paid to the Executive Sellers and the Management Sellers under the Share Purchase Agreement. Pursuant to individual bonus letters to be entered into on Completion, the Performance Bonus will be payable if the uSwitch Group achieves certain cumulative Adjusted EBITDA and revenue targets for the period from 1 January 2015 until 36 months from Completion. If an Executive Seller or Management Seller resigns or is dismissed for gross misconduct during this period, he or she will not be entitled to receive any Performance Bonus. A good leaver will be entitled to receive a pro-rata proportion of the Performance Bonus that they would otherwise have received if they had not become a leaver prior to the payment date.

Conditions to Completion

Completion is conditional upon satisfaction of the following Conditions prior to the long stop date of 15 September 2015 (or such later date as the parties may agree):

(a) the Resolution being passed; and

(b) approval being provided by the FCA of the change of control of the relevant target members of the uSwitch Group.

In the event that: (a) the General Meeting resolves not to approve the resolution to approve the Acquisition (the "Resolution"); or (b) the conditions are not satisfied by the long stop date (or such later date as the parties may agree), the Share Purchase Agreement will terminate with immediate effect.

If the Resolution is approved at the General Meeting and the other Condition is satisfied prior to the long stop date, the Company will be contractually obliged to proceed to Completion unless the Share Purchase Agreement is otherwise terminated. Completion is currently expected to occur by 30 June 2015.

Financing of the Acquisition

The Initial Consideration for the Acquisition of £142.6 million, together with £7.4 million to be paid into an escrow account in respect of the Management Deferred Consideration, will be satisfied entirely by the payment of cash funded from a mixture of new debt financing under the Facility Agreement (defined below) and the ZPG Group's existing cash resources. In respect of the Initial Consideration, £125 million will be paid from debt financing and £17.6 million will be paid using the ZPG Group's existing cash resources. Certain of the deferred consideration amounts may be satisfied, at the Company's discretion, by the issue of new ordinary shares to certain of the Sellers and/or in cash (through further amounts to be drawn down at the relevant times under the Facility Agreement and the ZPG Group's existing cash resources).

The facility agreement is a £150 million unsecured revolving credit facility with HSBC Bank plc, Barclays Bank plc, The Royal Bank of Scotland plc and Lloyds Bank plc as mandated lead arrangers and original lenders (the "Facility Agreement"). Subject to the Share Purchase Agreement becoming unconditional and the satisfaction of certain other customary conditions precedent, it will be made available to the ZPG Group for satisfying the Initial Consideration, funding the escrow account in respect of the Management Deferred Consideration, paying transaction costs relating to the Acquisition, refinancing the existing indebtedness of the uSwitch Group and its subsidiaries and for general corporate and working capital purposes of the Enlarged Group. 

Financial effects of the Acquisition on the Enlarged Group

The Acquisition is expected to be significantly enhancing to Adjusted EBITDA and adjusted basic earnings per share in the first full financial year following Completion.[4] The combination of the uSwitch Group and ZPG Group is expected to deliver meaningful benefits of scale and a broader platform.

An unaudited pro forma statement of net assets as at 30 September 2014, illustrating the expected effect of the Acquisition on ZPG Group's net assets. In addition, an unaudited pro forma statement of operating income for the year ended 30 September 2014, illustrating the expected effect of the Acquisition on the ZPG Group's operating income. Both statements will be made available in the circular to shareholders, which will be posted shortly.

The Board believes the Enlarged Group will have a strong de-leveraging profile due to the cash generation of the Enlarged Group after payment of dividends.