Cambian Group PLC PROPOSED DISPOSAL OF THE ADULT SERVICES BUSINESS (8966Q)

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RNS Number : 8966Q

Cambian Group PLC

05 December 2016

Cambian Group plc

5 December 2016

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, IN, INTO, OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF THAT JURISDICTION

Cambian Group plc

PROPOSED DISPOSAL OF THE ADULT SERVICES BUSINESS FOR CASH CONSIDERATION OF GBP377 MILLION

SUMMARY

-- Cambian Group plc ("Cambian" or the "Company"), one of the UK's leading specialist behavioural health service providers, has agreed to dispose of its adult services business (the "Adult Services Business") to Cygnet Health Care Limited (the "Buyer"), a wholly owned subsidiary of Universal Health Services, Inc. ("UHS") for cash consideration of GBP377 million (the "Disposal Consideration") (the "Transaction").

-- The Disposal Consideration represents an attractive enterprise valuation of approximately 2.9x FY15 revenue of GBP129.5 million for the Adult Services Business. FY15 Adjusted EBITDA for the Adult Services Business was GBP24.1 million; some costs taken into account in determining this figure will remain with Cambian after Completion.

-- The sale of the Adult Services Business will allow the Company and its subsidiary undertakings (the "Cambian Group") to focus on being a market leading provider of children's services, where the board of directors of the Company (the "Board") sees significant opportunities for growth, development and the creation of shareholder value.

-- The majority of the Disposal Consideration will be used to repay the Company's existing indebtedness in full.

-- Cambian also intends, subject to certain conditions, to announce a return of capital of GBP40 million to Cambian's shareholders (the "Shareholders") following Completion in H1 2017.

   --     Completion of the Transaction ("Completion") is expected by the end of December 2016. 

Christopher Kemball, Chairman of Cambian Group, commented:

"We are delighted to have attracted a high level of interest for the Adult Services Business.

"The consideration from the proposed disposal will enable us to fully pay down debt and provide adequate working capital for the development and roll-out of the Children's Services Business at a time of significant and growing demand for its critical services. It also offers an opportunity to return capital to Shareholders."

Saleem Asaria, Chief Executive, said

"We recently took the strategic decision to develop our Children's Services Business around a differentiated integrated recovery model incorporating care, education and therapy for children with the highest needs.

"The proposed disposal will enable us to focus fully on the development of the business and realise its potential as one of the UK's leading specialist providers."

Due to its size, the Transaction constitutes a Class 1 transaction for the Company under the Listing Rules and is therefore subject to the approval of Shareholders. A circular containing further details of the proposed Transaction and containing the notice convening a general meeting to consider a resolution to approve the Transaction, will be sent to Cambian Group shareholders as soon as practicable.

This summary should be read in conjunction with the full text of this announcement.

Conference call:

There will be a conference call for analysts and investors today at 8.30am GMT. To join the call please dial the appropriate number listed below and provide the operator with the Conference ID. It is advised to join the call up to 10 minutes in advance.

A presentation to accompany this call will be published on the Company's website in due course: http://www.cambiangroup.com/cambiangroup/investor/home

Participant UK Dial-In: 0800 6940 257

Participant International Dial-In: [phone]

Conference ID: 32225754

For those unable to join the call, a replay function will be available within four hours of the conclusion of the call. To access the recording, please dial the appropriate number listed below and enter the Conference ID.

UK Replay: 08009531533

International Replay: [phone]

Conference ID: 32225754

 
 
   Enquiries: 
 Cambian Group plc                Tel: +44 (0) 20 
                                   8735 6150 
 Saleem Asaria, Chief Executive 
  Officer 
 Martin Hopcroft, Chief 
  Financial Officer 
 
 Rothschild (Financial Adviser)   Tel: +44 (0) 20 
                                   7280 5000 
 Hedley Goldberg 
  Thibault Poirier 
 
 Numis (Sponsor and Joint         Tel: +44 (0) 20 
  Corporate Broker)                7920 3150 
 Michael Meade 
 James Taylor 
 James Black 
 
   J.P. Morgan Cazenove (Joint      Tel: +44 (0) 20 
   Corporate Broker)                7742 4000 
   James Mitford 
   Alex Bruce 
 Instinctif Partners (PR          Tel: +44 (0) 20 
  Adviser)                         7457 2020 
 Mark Garraway 
 James Gray 
 

Notes to Editors:

   1.    About Cambian 

Cambian is one of the UK's leading specialist behavioural health service providers. Founded in 2004, it has grown to become a significant partner to the UK Government. The Cambian Group's services have a specific focus on children and adults who present high severity needs with challenging behaviours and complex care requirements. The Cambian Group employs over 7,000 people across a portfolio of over 300 purpose-designed facilities and 9 fostering offices located in England and Wales.

   2.    About Cygnet Health Care Limited 

The Buyer, a wholly owned subsidiary of UHS, offers a wide range of services in the UK for individuals suffering from a variety of mental health problems. The Buyer operates 21 centres with more than 1,000 beds in the UK.

UHS is one of the largest hospital management companies in the US. For nearly 40 years, UHS and its affiliates have focused on meeting patients' healthcare needs across hundreds of local communities. Today, UHS subsidiaries own and/or operate more than 240 acute care hospitals and behavioural health facilities in 37 US states, Washington, D.C., Puerto Rico, US Virgin Islands and the UK.

   3.    Cautionary statement 

Numis Securities Limited ("Numis") which is authorised and regulated by the Financial Conduct Authority in the United Kingdom, is acting solely for the Company in relation to the Transaction and nobody else as a client in relation to the Transaction and will not be responsible to anyone other than Cambian for providing the protections afforded to the clients of Numis or for providing advice in relation to the Transaction.

J.P. Morgan Securities plc (which conducts its UK investment banking activities under the marketing name, J.P. Morgan Cazenove), which is authorised in the United Kingdom by the Prudential Regulation Authority and regulated in the United Kingdom by the Prudential Regulatory Authority and by the Financial Conduct Authority, is acting as joint Corporate Broker for Cambian and for no-one else in connection with the proposed disposal referred to in this document and is not, and will not be, responsible to anyone other than Cambian for providing the protections afforded to clients of J.P. Morgan Securities plc, nor for providing advice in connection with any of the matters described in this document

N.M. Rothschild & Sons Limited ("Rothschild"), which is authorised and regulated in the United Kingdom by the Financial Conduct Authority, is acting as financial adviser exclusively for Cambian and no one else in connection with the Transaction and will not regard any other person as a client in relation to the Transaction and will not be responsible to anyone other than Cambian for providing the protections afforded to clients of Rothschild or for providing advice in relation to the Transaction.

Proposed disposal of the Adult Services Business for cash consideration of GBP377 million

   1.    Introduction 

The Company today announces that it has agreed to dispose of the Adult Services Business to the Buyer for cash consideration of GBP377 million payable upon Completion, subject to certain customary adjustments.

Due to its size, the Transaction constitutes a Class 1 transaction for the Company under the Listing Rules and is therefore subject to the approval of Shareholders by ordinary resolution (the "Resolution"). A circular containing further details of the Transaction and containing the notice convening a general meeting to consider the Resolution (the "General Meeting"), will be sent to Shareholders as soon as practicable.

An irrevocable undertaking to vote in favour of the Resolution has been received from GI Partners in respect of approximately 43 per cent. of the issued share capital of the Company.

   2.    Background to and reasons for the Transaction 

As indicated in the 2015 Annual Report and Accounts, the Board has been reviewing its strategic options, in light of the need to repay Tranche A of its existing borrowings in September 2017 as well as the wider market environment in which the Cambian Group is operating, and advisors were appointed to review the options for the Adult Services Business including a potential sale of this business. It was further announced in September 2016 that the Board had commenced market testing to assess potential interest in the Adult Services Business.

The Board has now completed its strategic review and has concluded that focusing on its children's services business (the "Children's Services Business") represents the best way to create value for Shareholders. The Cambian Group will be one of the largest specialist children's services providers in the UK; operating in a fragmented market with high quality ratings, a differentiated care model and exciting long-term growth opportunities.

The sale of the Adult Services Business will enable the Cambian Group to focus all of its resources on becoming a high quality provider of specialist education and behavioural health services for children whilst, at the same time, repaying all of the Cambian Group's existing debt.

The Board believes that the Transaction is highly attractive for the following reasons:

-- the sale process attracted a significant number of interested parties; this competitive process has ensured that the Disposal Consideration of GBP377 million recognises the market position and future prospects of the Adult Services Business and provides an attractive valuation;

-- it significantly improves the Cambian Group's overall financial position by enabling the repayment of all of the Company's existing indebtedness;

   --     it allows a GBP40 million return of capital to Shareholders; and 

-- the anticipated growth and development of the Cambian Group following Completion (the "Retained Group"), focused solely on the Children's Services Business, is a potential source of future Shareholder value.

   3.    Information on the Adult Services Business 

The Adult Services Business is a leading provider of care services to adults in the UK who present high severity needs with challenging behaviours and complex care requirements. The origin of these behaviours can be divided into one of three categories: intellectual disabilities; mental health; and acquired brain injury. The Cambian Group divides its services into these three categories:

-- intellectual disabilities: comprising rehabilitation hospitals, step-down and residential services and day services;

-- mental health: comprising rehabilitation hospitals and step-down and residential services; and

   --     acquired brain injury: comprising rehabilitation hospitals. 

For the financial year ending 31 December 2015, the Adult Services Business generated revenue of GBP129.5 million and Adjusted EBITDA of 24.1 million.

It should be noted that the Adult Services Business as defined in this announcement is not the same as the business described as "Adult Services" in Cambian's published financial reports, including the 2015 Annual Report and Accounts and the 2016 Interim Results. This is because the perimeter of the Adult Services Business differs from the perimeter of the business described as "Adult Services" in these financial reports, due to sites being transferred to and from the Adult Business Services Group pursuant to the corporate reorganisation of the Cambian Group to ensure that businesses and operations and only the business and operations of the Adult Services Business are conducted by members of the Adult Services Business Group. Further, the allocation of central costs to the Adult Services Business is different from the allocation made to the business described as "Adult Services" in the segmental analysis contained in Cambian's published financial reports. Certain central costs allocated to the Adult Services Business will be retained by the Cambian Group at Completion.

   4.    Information on the Retained Group 

The Retained Group will be significantly smaller than the Cambian Group is today and will be focused exclusively on the Children's Services Business. The Retained Group will keep Cambian's name and brand.

For the financial year ending 31 December 2015, the Children's Services Business generated revenue of GBP160.6m and Adjusted EBITDA of GBP18.4m.

It should be noted that as referred to above in relation to the Adult Services Business, the Children's Services Business is not the same as the business described as "Children's Services" in Cambian's published financial reports, including the 2015 Annual Report and Accounts and the 2016 Interim Results.

In 2015, the Board took a strategic decision to develop a differentiated integrated recovery model incorporating care, education and therapy focused on children and young people with the highest needs. The Cambian Group is re-focusing its services accordingly, including fostering, and has invested in upskilling its staff capabilities.

The Board believes that there is increasing demand for the Children's Services Business, and significant potential for growth in what continues to be a highly fragmented market in the UK. The Retained Group will be one of the UK's largest specialist children's services providers, with significant opportunity to develop through a strategy of organic growth and prudent bolt-on acquisitions, increasing both the range of services and geographic reach of the business. The Board believes the Retained Group will be successful due to a combination of its excellent operational management, high quality regulatory ratings, differentiated model and the significant demand that exists for the services of the Retained Group.

The Board intends to adopt a measured approach to expanding its business, combining both organic growth and acquisitions. In order to achieve this, the Board intends to negotiate and put in place appropriate bank facilities to support its future growth and prospects. The Board's current intention is that, in the medium term, its total net debt should not exceed 1.5 times Adjusted EBITDA.

   5.    Use of proceeds and financial effects of the Transaction 

The net cash proceeds arising from the sale of the Adult Services Business are expected to be approximately GBP359 million after Transaction costs and expenses of approximately GBP18 million. It is expected that there will be separation and restructuring costs subsequent to the Transaction in order to fully separate the Adult Services Business.

It is the Board's intention to use these net cash proceeds to repay in full the indebtedness of the Cambian Group, which will be approximately GBP293 million if Completion takes place prior to 1 January 2017 and approximately GBP298 million if Completion takes place on or after 1 January 2017, and to return capital to Shareholders (as described more fully below) with the balance retained for the growth of the Children's Services Business.

   6.    Return of Capital 

Following Completion and repayment of its existing indebtedness in full, Cambian intends to return GBP40 million of the Disposal Consideration to Shareholders following Completion (the "Return of Capital"). The Return of Capital is subject to a number of conditions including creation of sufficient distributable reserves, final Board approval and, if required, final shareholder approval. Further details of the Return of Capital will be provided in due course. It is the Board's expectation that the Return of Capital will be announced during the first half of 2017. Shareholders will not be asked to approve the Return of Capital at the General Meeting.

   7.    Future dividend policy 

In addition to the Return of Capital, the Board intends to resume its progressive dividend policy. The Board expects that the first dividend payment to be made pursuant to such dividend policy will be the interim dividend for the first six months of 2017 which, subject to, amongst other things, the availability of sufficient distributable reserves, will be declared on or around the time of the interim results announcement in 2017.

   8.    Current Trading 

Trading overall, and within each division, is in line with the Board's expectations, notwithstanding slightly reduced occupancy, of late, in the lower severity day schools within the Children's Services Business. Whilst the sale of the Adult Services Business will involve complex separation issues, the Board looks forward with confidence to the future as a stand-alone children's services business.

   9.    Summary of the principal terms and conditions of the Transaction 

Pursuant to a sale and purchase agreement, the Sellers have agreed to sell the entire issued share capital of Care Aspirations Developments Limited, Cambian Healthcare Limited and Cambian Care Services Limited (these companies, together with their subsidiary undertakings, the "Adult Services Business Group") to the the Buyer for GBP377 million, subject to customary adjustments, payable in cash on Completion, subject to a post Completion adjustment.

To facilitate the Transaction, the Company has conducted a reorganisation to transfer, upon receipt of relevant regulatory approval, where applicable, those sites which carry out the Adult Services Business, which are not held by a member of the Adult Services Business Group, to a member of the Adult Services Business Group and to transfer those sites which carry out the Children's Services Business and which are held by a member of the Adult Services Business Group to a member of the Cambian Group which is not a member of the Adult Services Business Group. The Board expects that up to five of such site transfers will take place after Completion, as the requisite regulatory approval for such transfers will not have been received by then.

Completion is expected to occur by the end of December 2016 and is conditional only upon the approval of Shareholders at the General Meeting by way of an ordinary resolution.

At Completion, Cambian Group Holdings Limited will enter into a transitional services agreement pursuant to which members of the Retained Group will provide services, for a charge, relating to IT, finance, procurement and estates, to members of the Adult Services Business Group for a period of time following Completion.

Further details of the sale and purchase agreement and transitional services agreement will be set out in the Circular.

10. Board Changes

On Completion, Anne Marie Carrie will become the chief operating officer of the Retained Group and an executive director of the Company. Anne Marie Carrie has extensive experience in the care services sector, having been previously chief executive officer of Barnardo's (the UK's largest children's charity) and a director of children's services at The Royal Borough of Kensington and Chelsea. She has managed the Children's Services Business for the last two years.

Alison Halsey, who is the chair of the audit committee, and Christopher Brinsmead, senior independent director and chair of the remuneration committee, have decided to step down from the Board effective as of the conclusion of the Company's annual general meeting expected to be held in mid-2017.

Following Completion, the Board will reduce in size in line with the Retained Group and will comprise Christopher Kemball as chairman, Saleem Asaria as chief executive officer, Anne Marie Carrie as chief operating officer, and Alfred Foglio, Dr. Graham Rich, Mike Butterworth and Donald Muir as non-executive Directors. Martin Hopcroft is currently the interim chief financial officer.

11. Expected timetable to Completion

A circular containing further details of the proposed Transaction and containing the notice convening a general meeting, will be sent to Cambian Group shareholders as soon as practicable. Completion of the proposed Transaction is expected to occur by the end of December 2016.

ENDS

This information is provided by RNS

The company news service from the London Stock Exchange

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December 05, 2016 02:46 ET (07:46 GMT)