Ideagen PLC Acquisition, Placing and Notice of General Meeting (1090A)

TIDMIDEA

RNS Number : 1090A

Ideagen PLC

18 December 2014

Ideagen plc

("Ideagen" or the "Group")

Proposed Acquisition of Gael, Placing to raise GBP17.5m and Notice of General Meeting

Further step in strategy to build a leading Governance, Risk and Compliance ("GRC") Software business.

Ideagen, a leading supplier of Information Management software to highly regulated organisations, is pleased to announce the proposed acquisition of the entire issued share capital of Gael Limited (the "Acquisition"), and a conditional oversubscribed placing of 51,470,589 ordinary shares of 1 pence each (the "Placing Shares") at 34 pence per share raising gross proceeds of GBP17.5 million.

Highlights:

-- Proposed acquisition of Gael Limited ("Gael") a GRC software company supplying the healthcare, manufacturing and aviation sectors for a net cash consideration of GBP18m

   --     Current year forecast adjusted EV/EBITDA* multiple of 7.8 

-- For the year to 31 December 2014 Gael is expected to deliver revenues of approximately GBP9 million and adjusted EBITDA* of GBP2.3 million

o 14% compound annual organic revenue growth between 2011 and 2014

o Recurring revenues of approximately GBP4.5m

   --     Acquisition is expected to be immediately earnings enhancing 
   --     Heavily oversubscribed placing, including 11 new institutional shareholders 

-- Placing of 51,470,589 new Ordinary Shares at a price of 34 pence per share (the "Placing Price"), raising gross proceeds of GBP17.5 million to be used for cash consideration and working capital

Strategic Rationale for Acquisition:

   --     Delivers strong IP in the area of Governance, Risk & Compliance ("GRC") 

-- Consolidates the Group's position in the "Compliance and Standards management" market and significantly enhances the Group's Risk Management proposition

   --     Strengthens Ideagen's position within the NHS and Complex Manufacturing sectors 
   --     Provides Ideagen with a strong entry point into the highly regulated aviation sector 
   --     Adds over 1,000 customers to the Group 
   --     Strengthens the Group's management team and marketing capability 
   --     Delivers significant cross-selling opportunities 

David Hornsby, CEO, commented;

"I am delighted to announce the proposed acquisition of Gael which we believe will augment the Group both strategically and financially, thereby enhancing shareholder value. Gael has established an extremely compelling value proposition comprising strong IP and long-term relationships with its extensive customer base which includes over 130 NHS Trusts and over 300 airlines. We believe the combination of Gael and Ideagen will enable the Enlarged Group to rapidly develop new markets and provides an outstanding opportunity to leverage the growing risk and compliance market"

A circular will be sent to shareholders giving notice of a general meeting of Ideagen to be held on 7 January 2015 at noon at the offices of finnCap Limited, 60 New Broad Street, London EC2M 1JJ. A copy of the circular will be available on the Company's website www.ideagenplc.com.

Capitalised but undefined terms shall have the meaning given to them in the definitions appearing in the circular.

 
 Enquiries: 
 Ideagen Plc                                Tel: [phone] 
 David Hornsby, Chief Executive 
 Graeme Spenceley, Finance Director 
 
 finnCap (Nominated Adviser and Broker)     Tel: [phone] 
 Charlotte Stranner (Corporate Finance) 
 Victoria Bates/Stephen Norcross 
  (Corporate Broking) 
 
 

The following text has been extracted from the circular

Introduction

The Companyannounced earlier today that it had conditionally placed,in aggregate, 51,470,589 new Ordinary Shares at 34p per share and had entered into an agreement to acquire the entire issued share capitalof Gael Limited for net cash consideration of GBP18 million. The Placing requires the approval of Shareholders at the General Meeting in order for the Directors to be able to allot such shares. Conditional on inter alia, the passing of the Resolutions at the General Meeting, the Placing Shares are to beallotted as detailed in this document and admitted to trading on AIM on 9 January 2015. The Placing Price represents a discount of approximately 1.4 per cent. to the closingmid-market price of 34.5 pence per Ordinary Share on 17 December 2014 (being the last practicaldate prior

to the announcement of the Acquisition and the Placing).

Once completed, the proceeds from the Placing will be approximately GBP17.5 million (before commissions and expenses). The purpose of the Placingis to fund the acquisition of Gael and the costs associated with the Acquisition as well as to provide the Company with working capital.

The purpose of this document is to explain the background to and reasons for the Placing, to explain why the Board considers the Placing to be in the best interests of the Company and its Shareholders, and why the Directors unanimously recommend that you vote in favour of the Resolutions to be proposed at the General Meeting, as they have irrevocably undertaken to do in respect of their beneficial interests amounting, in aggregate, to 13,127,899 Ordinary Shares representing 10.7 per cent. of the existing issued ordinary share capital of the Company at the date of this document and approximately 7.5 per cent. of the issued share capital of the Company following Admission.

Background and Reasons for the Acquisition and Placing

It has been the Directors' stated strategy to acquire businesses with strong IP and recurring revenues. Gael has both of these qualities. Furthermore, Gael operates within complementary markets to Ideagen and is growing, profitable and cash generative. The Acquisition will bring enhanced scale to the Group as well as marketing strength and management expertise, and is expected to be immediately earnings enhancing. The Acquisition will also enable further consolidation of the sectors within which the Group currently operates, namely manufacturing and healthcare, together with a strong entry point into the aviation sector, all of which are subject to increasing regulatory pressures.

The proceeds of the Placing will part fund the cash consideration for the Acquisition and will also be used to cover transaction costs and to provide the Enlarged Group with working capital.

Information on Gael

Gael is a software company that has developed products which help organisations manage their Governance, Risk and Compliance ("GRC") requirements. Established in 1992, Gael specialises within the complex manufacturing, aviation and healthcare sectors. Increasingly, highly regulated organisations operating within these sectors are required to demonstrate that they have the tools in place to proactively monitor and assess their operations to ensure that they can respond quickly to potential risks.

Gael has made significant investment in R&D over the past few years as it has developed new products to meet the demand for "risk based compliance" solutions for its target markets which has generated strong organic revenue growth.

Gael has three primary products:

   1.    Q-Pulse - an ISO compliance and standards management solution 
   2.    Gael Risk - an operational risk management solution 
   3.    Gael Enlighten - a SaaS risked based compliance solution 

Current revenues are generated predominantly through the Q-Pulse and Gael Risk products, however significant investment has been made in Enlighten which was launched earlier this year. Gael Enlighten is a cloud based SaaS solution that is delivered over the Amazon cloud platform. This product will enable the Enlarged Group's existing customer base to migrate to cloud solutions, thereby providing the potential to increase the Enlarged Group's current recurring revenue base. The Directors also believe Enlighten represents a significant growth opportunity and should enable Gael to win larger and higher value contracts.

Gael has a well dispersed customer base of over 1,000 customers, with no single customer representing more than 5% of revenue in any given year, and has a number of high profile clients, including Emirates, BAE Systems, Dairy Crest and the NHS.

Gael is based in East Kilbride and currently has circa 100 employees, including the current chief executive who will remain with the Enlarged Group post Completion.

Financial Information on Gael Limited

In the year ended 31 December 2013 Gael generated revenues of GBP8.0 million, EBITDA of GBP1.6 million and profit after tax of GBP1.4 million. At 31 December 2013 Gael had net assets of GBP1.4 million.

Management accounts for the nine months to 30 September 2014 show revenues of GBP6.4 million, EBITDA of GBP1.1 million and profit after tax of GBP1.0 million.

Gael currently expenses R&D costs, certain elements of which, under International Financial Reporting Standards, would need to be capitalised. Furthermore, cost savings in Gael in respect of directors' remuneration, consultancy and training of approximately GBP0.25m have been identified. The Directors also believe that further synergies in the Enlarged Group can be achieved.

Terms of the Acquisition

Under the terms of the Acquisition Agreement, the Company is to acquire Gael for total consideration of GBP21 million assuming cash balances in Gael of GBP3 million as at 31 December 2014, subject to certain adjustments. The Acquisition is in line with the Company's strategy of acquiring profitable businesses with intellectual property and recurring revenues. The Acquisition will be completed within 3 business day following Admission when payment of the cash consideration in accordance with the terms of the Acquisition Agreement will be paid to the Vendors.

The headline terms of the Acquisition are as follows:

(a) The purchase price is GBP21 million assuming cash balances in Gael as at 31 December 2014 of GBP3 million, subject to certain adjustments, and subject to an upper cash balance cap of GBP3.15 million;

   (b)          The purchase price is payable in cash as follows: 

(i) GBP14,774,000 plus the amount of the cash in Gael as at 31 December 2014, subject to certain adjustments;

   (ii)          GBP1,613,000 payable on the first anniversary of the date of Completion; and 
   (iii)         GBP1,613,000 payable on the second anniversary of the date of Completion; 

(c) The purchase price may be reduced in the event that the net current assets excluding cash of Gael Limited as at 31 December 2014 are less than GBP1.4 million

The Acquisition Agreement contains warranties (including a tax covenant) from certain Vendors in favour of the Company. Their liability is capped at GBP18 million.

The Placing

The Company is proposing to raise, in aggregate, GBP17.5 million (before commissions and expenses) by means of the Placing. The Placing Shares will represent approximately 29.5% of the Enlarged Issued Share Capital. The Placing Shares will rank in full for all dividends and otherwise pari passu with the existing Ordinary Shares from the date of their unconditional allotment. It is expected that the Placing Shares will be admitted to trading on AIM on 9 January 2015.

The placing of the Placing Shares will be conducted in three separate tranches to assist investors in the EIS Placing and the VCT Placing to claim certain tax reliefs available to EIS investors and VCT investors, respectively. EIS Shares will be offered to those investors seeking to claim EIS relief in relation to their subscription, VCT Shares will be offered to VCTs and the remaining Placing Shares will be offered to those investors who are neither seeking EIS relief nor whom are VCTs.

The EIS Placing is conditional, among other things, upon the Placing Agreement becoming unconditional in respect of the matters that fall to be performed prior to the issue of the EIS Shares and not having been terminated in accordance with its terms. The VCT Placing is conditional, among other things, upon the Placing Agreement becoming unconditional in respect of the matters that fall to be performed prior to the issue of the VCT Shares and not having been terminated in accordance with its terms.

EIS and VCT investors should note that it is intended that the Company will issue the EIS Shares on 7 January 2015 and the VCT Shares on 8 January 2015 and that Admission is expected to occur at 8.00 a.m. on 9 January 2015 and, accordingly, completion of each of the EIS Placing and the VCT Placing is not conditional upon Admission.

The placing of the Non-Eligible Shares is conditional, among other things, upon the Placing Agreement becoming unconditional (including Admission taking place on 9 January 2015 (or such later time and/or date as finnCap and the Company may agree, not being later than 30 January 2015)) and not having been terminated in accordance with its terms prior to Admission.

VCT

The Company has applied for and obtained advance assurance from HMRC that the VCT Shares will be eligible for the purposes of section 285(3A) of the Income Tax Act 2007 and that the VCT Shares will be "qualifying holdings" for the purposes of Chapter 4, Part 6, Income Tax Act 2007. The conditions for relief are complex and depend not only upon the qualifying status of the Company but upon certain factors and characteristics of the VCT concerned. Moreover, VCT investors should be aware that, whilst advance assurance has been obtained from HMRC, the Directors cannot guarantee that the VCT Shares will satisfy, and will continue to satisfy, the requirements for tax relief under VCT legislation or that the Company will, or will continue to be, a qualifying company for VCT purposes. VCTs should consult their own tax advisers regarding this.

EIS

Advance assurance has been sought and obtained from HMRC that the Company should be a qualifying company and the EIS Shares are eligible shares for the purposes of EIS provisions. However, EIS investors should be aware that, whilst advance assurance has been obtained from HMRC, the Directors cannot guarantee that the EIS Shares will satisfy, and will continue to satisfy, the requirements for tax relief under EIS or that the Company will, or will continue to be, a qualifying company for EIS purposes.

The PlacingAgreement

Pursuant to the terms of the Placing Agreement, finnCap, as agent for the Company, has conditionally agreed to use its reasonable endeavours to place the Placing Shares on a non-underwritten basis at the Placing Price.

The Placing Agreement contains certain warranties from the Company in favour of finnCap in relation to, inter alia, certain matters relating to the Company and its business, subject to certain limitations. In addition, the Company has agreed to indemnify finnCap in relation to certain liabilities it may incur in respect of the Placing. finnCap has the right to terminate the Placing Agreement in certain circumstances prior to Admission, including without limitation for an event of force majeure or in the event of a material breach of the warranties set out in the Placing Agreement. Under the terms of the Placing Agreement the Company has agreed to pay finnCap commissions based on the number of Placing Shares which are the subject of the Placing.

The Share Sale

Certain existing Shareholders, including certain employees of Ideagen, have conditionally agreed to sell 4,400,000 Sale Shares at the Placing Price. The Share Sale is conditional upon, inter alia, the Resolutions being passed at the General Meeting and Admission becoming effective on or before 8.00 a.m. on 9 January 2015 (or such later time and/ or date as the Company and finnCap may agree, but in any event, no later than 8.00 a.m. on 30 January 2015).

Admission and dealings

Application will be made to the London Stock Exchange Plc for the Placing Shares to be admitted to trading on AIM. The Placing Shares will, when issued, rank pari passuin all respects with the existing Ordinary Shares, including the right to receive dividends and other distributions declared following the date of their unconditional allotment. It is expected that Admission will become effective and that dealingsin the Placing

Shares will commence at 8.00 a.m. on 9 January2015.

General Meeting

A notice convening the General Meeting to be held at the offices of finnCap Limited, 60 New Broad Street, London EC2M 1JJ at noon on 7 January 2015 is set out at the end of this document.

At the General Meeting, the Resolutions will be proposed to grant the Directors the authority to allot the Placing Shares and further to allot the Placing Shares without first offering them to existing Shareholders on a pre-emptive basis.

The Directors appreciate that it would be normal when a company issues a material number of new shares for cash for that issue to be fully pre-emptive i.e. to incorporate an offer to all Shareholders. However, the Directors believe it would not be in Shareholders' best interests to incur the significant additional expense that would be required for such an offer to Shareholders to be implemented.

The Directors have therefore concluded that seeking general authority from Shareholders to issue Ordinary Shares other than on a pre-emptive basis is the most flexible and cost effective method available to the Company. At the General Meeting, the following Resolutions will be proposed:

Resolution 1 - which is an ordinary resolution to grant the Directors authority to allot shares in the Company and/or to grant right to subscribe for, or to convert any security into, shares in the Company pursuant to section 551 of the Act up to a maximum nominal amount of GBP514,705.89, such authority to expire at the end of the next annual general meeting of the Company to be held after the date of the passing of such Resolution or, if earlier, fifteen months from the date of the passing of the Resolution.

Resolution 2 - which is conditional on the passing of Resolution 1, is a special resolution to empower the Directors pursuant to section 570 of the Act to allot equity securities for cash pursuant to the authority conferred on them by Resolution 1 as if the statutory pre-emption rights did not apply to such allotment provided that such power is limited to the allotment to any persons of equity securities up to an aggregate nominal amount of GBP514,705.89, such authority to expire at the end of the next annual general meeting of the Company to be held after the date of the passing of such Resolution or, if earlier, fifteen months from the date of the passing of the Resolution.

Irrevocable Undertakings

The Directors have irrevocably undertaken to vote in favour of the Resolutions in respect of their aggregate beneficial interest of 13,127,899 Ordinary Shares representing 10.69 per cent. of the existing issued share capital of the Company at the date of this document.

Certain other Shareholders have also given irrevocable undertakings to vote in favour of the Resolutions in respect of a total of 13,805,361 Ordinary Shares, representing 11.2 per cent. of the existing issued share capital of the Company at the date of this document.

Action to be taken

Shareholders have been sent a Form of Proxy for use at the General Meeting. Whether or not you propose to attend the General Meeting in person, you are requested to complete the Form of Proxy and to return it to the Company's Registrars, SLC Registrars, Thames House, Portsmouth Road, Esher, Surrey KT10 9AD, so as to arrive not later than noon on 5 January 2015. Unless the Form of Proxy is received by this date and time, it will be invalid. The completion and return of a Form of Proxy will not preclude you from attending the General Meeting and voting in person if you so wish.

Recommendation

The Directors consider the Resolutions to be proposed at the General Meeting to be in the best interests of the Company and the Shareholders as a whole. Consequently, the Directors unanimously recommend that you vote in favour of the Resolutions to be proposed at the General Meeting as they have irrevocably undertaken to do in respect of their beneficial interests amounting, in aggregate, to 13,127,899 Ordinary Shares representing 10.7 per cent. of the existing issued share capital of the Company at the date of this document.

Shareholders should read the Notice of General Meeting for the full text of the Resolutions and for further details about the General Meeting.

Forward Looking Statements

All statements other than statements of historical facts included in this announcement, including, without limitation, those regarding the Group's and/or the Enlarged Group's financial position, business strategy, plans and objectives of management for future operations or statements relating to expectations in relation to dividends or any statements preceded by, followed by or that include the words "targets", "believes", "expects", "aims", "intends", "plans", "will", "may", "anticipates", "would", "could" or similar expressions or the negative thereof, are forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors beyond the Group's and/or the Enlarged Group's control that could cause the actual results, performance, achievements of or dividends paid by, the Group and/or the Enlarged Group to be materially different from future results, performance or achievements, or dividend payments expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the Group's and/or the Enlarged Group's present and future business strategies and the environment in which the Group and/or the Enlarged Group will operate in the future. These forward-looking statements speak only as of the date of this announcement. The Company expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company's expectations with regard thereto or any change in events, conditions or circumstances on which any such statements are based unless required to do so by applicable law or the AIM Rules.

Important Notice

This announcement is for informational purposes only, does not constitute a prospectus or admission document and has not been approved by the Financial Conduct Authority or any other regulator. This announcement does not constitute or form part of, and should not be construed as, an offer, invitation or inducement to sell, purchase or subscribe for or a solicitation of an offer to sell, purchase or subscribe for any securities in the Company, or any other entity, nor shall it or any part of it form the basis of, or be relied upon in connection with, any contract or commitment by or with the Company, finnCap, or any of their respective directors, officers, partners, employees, agents, advisers or affiliates for any purpose. This announcement does not constitute a recommendation regarding any securities in the Company.

finnCap is the trading name of finnCap Ltd, which is a private company authorised and regulated by the Financial Conduct Authority. finnCap is acting as nominated and financial adviser to the Company in connection with the matters described in this announcement. finnCap is not responsible to anyone other than the Company for providing the protections afforded to customers of finnCap or for advising any other person on the arrangements described in this announcement. finnCap has not authorised the contents of, or any part of this announcement and no liability whatsoever is accepted by finnCap for the accuracy of any information or opinions contained in this announcement or for the admission of any information. No representation or warranty, express or implied, is made by finnCap as to, and no liability whatsoever is accepted by finnCap in respect of any of the contents of this announcement (without limiting the statutory rights of any person to whom this announcement is issued).

It is the responsibility of any person receiving a copy of this announcement outside the United Kingdom, to satisfy themselves as to the full observance of the laws and regulatory requirements of the relevant territory in connection therewith, including obtaining any governmental or other consents which may be required or observing any other formalities required to be observed in such territory and paying any other issue, transfer or other taxes due in such other territory. Persons (including, without limitation, nominees and trustees) receiving this announcement should not distribute or send this announcement into any jurisdiction when to do so would, or might contravene local securities laws or regulations.

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