Reverse Acquisition and Placing (4362Y)

TIDMCMG

RNS Number : 4362Y

Croma Group PLC

01 March 2012

Croma Group plc

("Croma" or the "Group")

1 March 2012

Reverse Acquisition of CSS Companies and Notice of General Meeting

Croma Group plc, the AIM listed total security solutions provider, is pleased to announce a further step in the Group's strategy of targeting the facilities service sector as the engine for its future growth with the signing of a sale and purchase agreement ("SPA") on 1 March 2012 to acquire the entire issued share capital of CSS Total Security Limited, CSS Locksmiths Limited and Alarm Bell Company Limited (together the "CSS Companies" or "CSS"), a security services provider based in Southampton (the "Acquisition"). The Group is also pleased to announce that it has completed a conditional placing of new ordinary shares to raise GBP5 million, part of the proceeds of which will be used to fund the Acquisition.

The Acquisition, which will constitute a reverse takeover under the AIM Rules, and the Placing is conditional upon the approval of Croma's shareholders at a general meeting.

Share Consolidation, Loan Note Conversion and Change of Name

The Company is proposing a share consolidation, in the terms of which every 50 ordinary shares of 0.1 pence in the capital of the Company will be consolidated into one ordinary share of 5 pence.

The Company is also proposing to change its name to Croma Security Solutions Group plc to more accurately reflect the trading of the Enlarged Group.

In addition, the Company has agreed with certain loan noteholders that GBP575,000 of loan notes issued by the Company will convert into ordinary shares at the placing price upon Admission.

One effect of the Share Consolidation will be that any shareholder holding fewer than 50 existing ordinary shares of 0.1 pence each at the close of business on 23 March 2012 will not hold any ordinary shares in the Company following the share consolidation becoming effective.

Notice of General Meeting

An admission document, giving details of the proposals and incorporating a notice convening the General Meeting, will be posted to shareholders today. The General Meeting will be held at the offices of Shepherd and Wedderburn LLP at Condor House, 10 St. Paul's Church Yard, London EC4M 8AL, at 10 a.m. on 26 March 2012 (the "General Meeting").

Extracts from the admission document appear below and should be read in conjunction with the full text of the AIM Admission Document which is available to view on the Company's website at www.cromagroup.co.uk with effect from close of business today. References to 'this document' shall be taken to mean the AIM Admission Document. Capitalised terms will have the same meaning as defined in the Admission Document.

Sebastian Morley, CEO of Croma, commented:

"The acquisition of the CSS Group is transformational for Croma Group. This completes the stated ambition of the board to re-focus Croma into a total security services group.

The acquisition brings security personnel, CCTV, intruder and fire systems and access control into an enlarged group targeting the high end security market. The directors believe that the synergies and cross selling opportunities associated with the acquisition will drive growth and increase shareholder value. I am delighted to announce this transaction and to introduce the new board of directors."

For further information visit www.cromagroup.co.uk or contact:

 
 Croma Group PLC: 
 Sebastian Morley, CEO        Tel: [phone] 
 
 Nplus1 Brewin LLP (NOMAD): 
 Sandy Fraser                 Tel: [phone] 
 Robert Beenstock             Tel: [phone] 
 Derrick Lee                  Tel: [phone] 
 

The Group

Today, Croma is a security solutions provider with clients which include GVA, the Ministry of Defence, Halliburton and Balfour Beatty. The Company has two operating subsidiaries, Vigilant Security (Scotland) Limited ("Vigilant") and Photobase Limited ("Photobase").

Vigilant

Vigilant is a security organisation focused on providing asset protection services to large companies and governmental agencies, with a quality of service built upon a staff of former military personnel. Its services include manned guarding, personnel training, key-holding and other specialist services, including covert surveillance and close protection.

Photobase

Photobase specialises in providing biometric identity security software and hardware systems, providing solutions for access control, time and attendance, ID cards and identification of individuals for ID management programs.

Photobase's business is currently managed by CSS Total Security pursuant to an agency and management services agreement, further details of which are set out in paragraph 13.1.7 of Part 7 of the Admission Document.

Background on CSS

The CSS Companies provide electronic security solutions, fire alarm systems, lock-smithing and revenue parking systems to homes and businesses in the UK. Collectively, the businesses provide complementary services; the details of which are set out below.

CSS Total Security Limited

CSS Total Security specialises in providing high quality electronic security solutions to its clients. It supplies and installs bespoke security systems to the retail, commercial and residential sectors as well as local and regional authorities, Government and Council buildings, property management companies, and shops and offices. Its product offering includes CCTV, intruder and access control systems of all types.

In the opinion of the Directors, CSS Total Security has an extensive knowledge of the security industry and the technologies associated with security products. It was this knowledge that prompted Croma to approach CSS Total Security as a potential commercial partner, and is the key element which the Directors believe allows CSS Total Security to deliver tailored security solutions for high net worth and corporate clients in asset protection. As well as products, CSS Total Security also provides complementary consultancy and survey services to define and address the security objectives of its clients.

CSS Locksmiths Limited

CSS Locksmiths specialises in locksmith services including the supply, installation and maintenance of locks, safes, padlocks, other mechanical ironmongery and door furniture equipment. The company is a member of the Master Locksmiths Association and provides services to local police forces, local and regional authorities, Government and Council buildings, insurance groups, property management companies, shops, offices, banks, building societies and residential properties. The company's clients include Arqiva, Wolsley, Carnival and a number of housing associations.

Alarm Bell Company Limited

Alarm Bell Company supplies, installs and maintains a range of security systems to homes and businesses in Hampshire, Sussex, Kent, London, Surrey, Berkshire and Dorset. Its products include, for the home, passive infra-red movement detectors, door contacts, external security lighting, wire free intruder alarm systems, pet sensitive alarms and glass break detectors; and for businesses, technology in a modular format, from small stand alone intruder systems to fully integrated computer controlled intruder, fire and surveillance systems. Alarm Bell Company also undertakes the services and maintenance of intruder alarm systems installed by third party suppliers.

Presently, Alarm Bell Company provides its fire alarm services at four Ministry of Defence sites on the South Coast of England.

Reasons for the Acquisition

The Board's strategy is to continue to seek to grow Croma in a focused manner, both organically and through acquisition, and to create a total security solutions provider encompassing asset protection through manned guarding, surveillance equipment, biometric identity management and other security services and products. This strategy is primarily intended to target the facilities services sector which represents the principal expected area for the Enlarged Group's future growth.

The Board considers that a number of benefits (such as improved operational efficiency and cost and time savings) can accrue to clients who have their guarding, CCTV, access control and alarm systems provided by one supplier. Consequently, in early 2009 the Board made the decision to seek out a partner in the integrated security systems business - one with a similar ethos of high quality service and management sentiment. CSS was identified for its technical ability and product offering. Since then, the companies have operated an informal commercial association of client sharing and sales cooperation, subsequently formalising their relationship in a framework arrangement in April 2011. This commercial association has proven to be a success and key management on both sides have formed a close relationship based upon mutual trust and a shared working ethos. In the opinion of the Directors, the Acquisition is a natural evolution of this close and successful working relationship and also represents an opportunity for the Enlarged Group to expand its foothold within the facilities services sector, whilst exploiting a strengthened market position and enlarged client base.

The Board considers that the combination of CSS and Croma will create potential cost efficiencies to enhance margins and will generate further synergies in operating and administrative costs. The Directors also believe that the CSS product range and client list, together with its geographical bias towards the South of England, will be complementary to that of Croma and will increase the scope for an exchange of knowledge and cross-selling of the Enlarged Group's products and services. Many CSS products and services can be incorporated within a total security solutions package for existing Croma clients, just as manned guarding can be offered to the existing CSS client list. This cross-selling has already been taking place and the businesses have been successful on a number of contract tenders through the framework arrangement. Following the Acquisition, the Enlarged Group will be able to offer all of these services to both client lists, while bidding for new business with a significantly enhanced combined security offering.

Details of the Placing

Under the Placing, the Company is issuing 6,666,666 new Ordinary Shares representing 46.0 per cent. of the Enlarged Share Capital of the Company following the Placing. At the Placing Price, the Placing will raise approximately GBP4.1 million (net of expenses) for the Company.

N+1 Brewin has agreed, pursuant to the Placing Agreement conditional, inter alia, on Admission, to use its reasonable endeavours to place the Placing Shares, with institutional and other investors.

The Placing, which is not being underwritten, is conditional, inter alia, upon:

-- the Placing Agreement becoming unconditional and not having been terminated in accordance with its terms prior to Admission;

-- the Acquisition Agreement becoming unconditional and not having been terminated in accordance with its terms prior to Admission;

-- Admission becoming effective by 8.00 a.m. on 27 March 2012, or such later date as N+1 Brewin and the Company may agree, being no later than 27 April 2012.

The Placing Shares shall rank pari passu in all respects with the existing Ordinary Shares including the right to receive all dividends and other distributions declared, paid or made after Admission. The market capitalisation of the Company immediately following the Placing, at the Placing Price, will be approximately GBP10.9 million. Application will be made to the London Stock Exchange for the Enlarged Share Capital to be admitted to trading on AIM. None of the Placing Shares has been marketed to or will be made available in whole or in part to the public in conjunction with the application for Admission. It is expected that Admission will become effective and dealings commence in the Enlarged Share Capital at 8.00 a.m. on or around 27 March 2012.

Consideration payable and other conditions of the SPA

The Company has today announced that it has conditionally agreed, subject, inter alia, to shareholder approval at the General Meeting, to acquire the entire issued share capital of the CSS Companies from the Sellers. The total consideration payable by the Company to the Sellers comprises:

   i)          an initial cash payment of GBP2,000,000; 
   ii)          the issue of 3,282,447 Consideration Shares; 

iii) the issue of up to a further 717,553 Ordinary Shares, dependent upon the post-completion trading performance of the CSS Companies;

iv) a further cash payment equal to the value of the net assets of the CSS Companies at completion; and

   v)          three further earn-out consideration cash payments capped at GBP1,200,000 in aggregate. 

The Acquisition is conditional upon certain conditions being met, including:

   --      the approval of the Acquisition by shareholders at a general meeting; 

-- the placing agreement becoming unconditional in all respects (save for certain conditions which are not capable of being satisfied prior to completion) and not having been terminated;

   --      the admission of the enlarged share capital to trading on AIM; 

-- there having been no material breach of any of the warranties contained in the acquisition agreement at completion;

   --      the acquisition not having been terminated by the Group or the sellers; and 

-- there being no material adverse change in the financial position of the CSS Companies or the Group as at completion.

The net proceeds of the placing will be used to satisfy the GBP2 million cash consideration and the further cash payment equal to the value of the net assets of the CSS Companies payable pursuant to the acquisition agreement and the remaining balance will enhance the Group's working capital position.

Lock-in and orderly market arrangements

Lock-in deeds provide for the Sellers each to individually undertake to the Company and N+1 Brewin not to dispose of any interest which they have in the share capital of the Company for a period of 18 months following Admission. In addition, the Sellers have undertaken to the Company and N+1 Brewin that, during the period of 24 months following the expiry of the 18 month period mentioned above, that they will only dispose of shares through N+1 Brewin (or the Company's then current broker).

The lock-in arrangements outlined above will apply in respect of, in aggregate, 3,322,447 Ordinary Shares representing approximately 22.9 per cent. of the Enlarged Share Capital.

Further details of the lock-in arrangements are set out in paragraph 2 of Part 5 of this document.

Conversion of loan notes

As noted above, in order to seek to strengthen further the Company's balance sheet and working capital positions, the Board entered into negotiations with the holders of certain convertible loan notes (further details of which are set out in paragraph 13.1.8 of Part 7) which were due for redemption during December 2012 and February 2013. The result of those negotiations was that the holders of those convertible loan notes agreed to convert GBP575,000 of principal into Ordinary Shares at the Placing Price on Admission. Whilst these new conversion terms are more favourable than those which originally applied to the notes in question, the Board considers (having regard in particular to the Company's expected requirements for working capital during the 12 months from Admission) that the proposed conversion of these notes on Admission is in the best interests of the Company.

Board of Directors of the Enlarged Group

On Admission, the Board will consist of three executive directors and three non-executive directors. Brief biographical details of all members of the Board immediately following Admission and their proposed roles are set out below.

Sebastian Jake Finch Morley, Executive Chairman, Aged 42

Mr. Morley was originally appointed to the Board in February 2006 as an executive director. In July 2007 he assumed the role of Group CEO. He was educated at Eton and attended the Royal Military Academy at Sandhurst. He was subsequently commissioned in The Black Watch with the rank of Captain, and undertook a period with the United Kingdom Special Forces where he held the rank of Major. He founded and sold two UK security companies, Mison Security and Profile Security, before founding Vigilant Security (Scotland) Limited in 2001. Mr. Morley is also a director of The Camp Limited and The Camp Scotland Limited.

Roberto Michele Fiorentino, Chief Executive Officer, Aged 48

Mr. Fiorentino is currently Managing Director of CSS Total Security Ltd, CSS Locksmiths Ltd and Alarm Bell Company Ltd and will take the position of Chief Executive Officer of the Enlarged Group with effect from Admission. Mr. Fiorentino has been involved in the security industry for 30 years and has been responsible for a number of ground breaking technological advances within the electronic security sector, including the installation of High Security Master Key Locking systems, Vehicle Alarm Systems, Access Control, CCTV with transmission systems, CCTV over IP and, most recently, Video Analytics.

James Leslie Dunion, Finance Director, Aged 50

Mr. Dunion was previously Finance Director at R H Miller (Group) Limited and has held roles at Kilco (International) Limited, The Dumfries Rubber Company Ltd, Hunter Boot Limited, James Gordon (Engineers) Limited and the Royal Bank of Scotland Group plc. Mr. Dunion is a member of the Chartered Institute of Management Accountants and oversees the financial affairs of the Group and its operating subsidiaries.

Charles Neil McMicking, Non-Executive Director, Aged 46

Mr. McMicking is currently Chairman of RailSimulator.com and director of Coburg Capital and F4G Software. Mr. McMicking has specialised in financing and developing dynamic fast-growth companies for the last 16 years, and was previously Head of Private Equity at Noble Group. Mr. McMicking will join the Board of the Enlarged Group with effect from Admission.

Lord James William Eustace Percy, Non-Executive Director, Aged 46

Lord James Percy is a published author with previous experience in the shipping industry and the manufacture and sale of super yachts. Lord James Percy now works with J Barbour and Sons and sits on the board of Vigilant Security (Scotland) Ltd. Lord James Percy is Colonel of the 5th Battalion Royal Regiment of Fusiliers and a member of the Moorland Association, as well as former Chairman of the Countryside Foundation for Education. Lord James Percy will join the Board of the Enlarged Group with effect from Admission.

Andrew Nicholas Hewson, Non-Executive Director, Aged 53

Mr. Hewson is a graduate of Cambridge University and has spent over twenty-five years as a director of various public companies, having qualified as a Chartered Accountant in 1984. He was Finance Director of property developer and investor, Citygrove PLC, on its flotation on the then Unlisted Securities Market in 1986, and its full listing on the London Stock Exchange in 1988 before resigning in 1989 to co-found the specialist retail warehouse property developer, Grantchester Holdings PLC, in 1990. Grantchester was listed on the London Stock Exchange in 1996 and was a very active public listed company, raising equity capital and issuing a novel debenture in 1997, buying two other listed businesses in 1998, and engaging in substantial capital repayment programmes before the company was acquired by Hammerson PLC in 2002 following a hostile takeover. Since then Mr. Hewson has concentrated on growing other, often smaller businesses, both in property and non-property sectors, including a particular interest in low carbon and carbon reduction business initiatives. He has been an investor in Croma since 1998, joining the Board in 2005 as a non-executive director, taking over as non-executive Chairman in 2008, encouraging the Group to sell loss-making businesses and make its maiden profits and in 2009 reorganising its capital base so as to be in a position to pay a dividend. Mr. Hewson will stand down as non-executive Chairman upon Admission of the Enlarged Group to make way for Sebastian Morley.

Further information

Your attention is drawn in particular to the further information set out in Parts 2 to 7 (inclusive) of the Admission Document. Shareholders should read the whole of the Admission Document which provides additional information on the Company, the CSS Companies and the Proposals and should not rely solely on the information set out in this announcement. In addition, you should carefully consider the risk factors associated with the Acquisition, the Enlarged Group's business and an investment in Ordinary Shares as set out in Part 2 (Risk Factors) of this document.

Notice of General Meeting

The Company will hold a general meeting at the offices of Shepherd and Wedderburn LLP at Condor House, 10 St. Paul's Church Yard, London EC4M 8AL, at 10 a.m. on 26 March 2012 (the "General Meeting"). The purpose of the General Meeting will be to consider, and if thought fit, pass a Special Resolution which comprises six parts. For the Resolution to be passed, not less than 75 per cent of the votes cast must be in favour. Part 1 of the Resolution deals with the Share Consolidation in terms of which every 50 ordinary shares of 0.1 pence in the capital of the Company will be consolidated into one ordinary share of 5 pence. Fractional entitlements arising as a result of this consolidation will be aggregated and sold in the market, with the proceeds being retained by the Company for its benefit. Part 2 of the Resolution increases the limit imposed by the Articles on the aggregate amount of fees that the Company may pay to its non-executive directors to GBP100,000 per annum and ratifies any previous payments made in excess of the then applicable limit. Part 3 of the Resolution approves the Acquisition. Part 4 of the Resolution confers upon the Directors authority under section 551 of the Companies Act 2006 to allot and issue the Consideration Shares (and up to 717,553 further Ordinary Shares which may require to be issued to the Sellers pursuant to the Acquisition Agreement, dependent upon the post-completion trading performance of the CSS Companies), the Placing Shares and the Ordinary Shares to be issued pursuant to the conversion of certain loan notes. Part 5 of the Resolution empowers the Directors to allot and issue those shares on a non pre-emptive basis. Part 6 of the Resolution changes the name of the Company to Croma Security Solutions Group plc.

Recommendations

The Board considers the Proposals to be in the best interests of Shareholders as a whole.

Accordingly, the Board recommends that Shareholders vote in favour of the Resolution to be proposed at the General Meeting, as they intend to do so in respect of their own beneficial holdings of Ordinary Shares amounting in aggregate to 30,894,342 Ordinary Shares, representing approximately 16.32 per cent. of the current issued share capital of the Company.

This information is provided by RNS

The company news service from the London Stock Exchange

END

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