Aptitude Software Group PLC Proposed sale of Microgen Financial Systems (5402A)

TIDMAPTD

RNS Number : 5402A

Aptitude Software Group PLC

30 May 2019

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.

This announcement contains inside information for the purpose of Article 7 of the Market Abuse Regulation (EU) No 596/2014 (the "Market Abuse Regulation").

30 May 2019

Aptitude Software Group plc

("Aptitude", the "Group" or the "Company")

Proposed sale of Microgen Financial Systems Limited

for cash consideration of GBP51.0 million

Aptitude Software Group plc (LSE: APTD), a leading provider of business-critical software and services, today announces that it has entered into an agreement to sell the entire issued share capital of its wholly-owned subsidiary, Microgen Financial Systems Limited ("MFS"), to Moscow Bidco Limited, a newly incorporated private limited company controlled by funds advised by Silverfleet Capital Partners LLP ("Silverfleet"), for an aggregate cash consideration of GBP51.0 million (the "Disposal").

The Disposal is conditional only upon the approval of Aptitude's shareholders at a general meeting.

Highlights

-- The Disposal is a major milestone in the Group's long term strategy of creating two independent software businesses which benefit from recurring revenues, and represents the start of a new era which sees the Aptitude Software business become the total focus of the Group.

-- On 25 March 2019, Aptitude announced that it had concluded that a demerger of MFS on to AIM would enhance the Group's ability to allocate capital and management attention on the higher growth Aptitude business, whilst also providing MFS with the ownership environment for it to successfully pursue its own independent growth strategy focusing on its specialist target market and servicing its international customer base. The Aptitude Board considers that the benefits to Aptitude of a demerger also apply to Aptitude in the case of the Disposal.

-- Following the announcement on 25 March 2019, discussions have been held with Silverfleet in respect of the potential acquisition of MFS and the Board of Aptitude is now pleased to announce the Disposal.

-- The Board of Aptitude believes that the aggregate cash consideration of GBP51.0 million represents a fair value for the business, which recognises MFS' market position, track record of organic growth and positive cash characteristics. Furthermore, the Board of Aptitude believes that the Disposal provides certainty over the crystallisation of the value of MFS without the longer timeframe and risk associated with the previously announced demerger process.

-- Assuming Completion on 30 June 2019, the Net Cash Proceeds arising from the Disposal are expected to be approximately GBP48.4 million.

-- The Aptitude Board intends that the Company will return a significant majority of the Net Cash Proceeds to shareholders, unless more value creating opportunities arise and subject to prevailing market conditions.

o In determining the optimal route to return a significant majority of the Net Cash Proceeds and the timescale to do so, the Board will consider a number of factors, including the scale of the proceeds to be returned and the balance of shareholder preference.

-- Aptitude's strategy is, and following the Disposal will be, to continue to drive growth in revenues from its suite of specialised applications which enable finance functions to comply with complex regulations and/or provide financial insight and control to their organisations.

-- Due to its size, the Disposal constitutes a Class 1 transaction under the Listing Rules and is therefore subject to the approval of shareholders. A circular containing further details of the proposed Disposal and containing the notice convening a general meeting to consider a resolution to approve the Disposal (the "Circular"), will be sent to Aptitude shareholders as soon as practicable.

-- Subject to the approval of shareholders, Completion of the Disposal is expected to take place in late June 2019.

-- In the financial year ended 31 December 2018, MFS generated revenue of GBP18.0 million, Adjusted Operating Profit of GBP7.0 million, profit before taxation of GBP9.1 million (benefitting from a GBP3.2 million gain on the disposal of the small non-core Payments business) and, as at 31 December 2018, had gross assets of GBP41.1 million.

Commenting on the Disposal, Ivan Martin, Chairman of Aptitude, said:

"I am pleased to announce today the sale of Microgen Financial Systems. The Disposal represents a significant milestone in the strategic development of the Group and, as was the case with the previously announced proposed demerger, the Board strongly believes that the Disposal enhances the long-term prospects of both businesses and will benefit clients and employees.

"In line with my comments on 25 March 2019, we believe that the Disposal will simplify the Group, allowing the higher growth Aptitude Software business with its specialised financial management software applications to be the sole focus going forwards whilst Microgen Financial Systems looks forward positively to its future as a focused independent software business based on its leading product, Microgen 5Series.

"The Disposal process provides certainty over the crystallisation of the value of MFS for Aptitude shareholders, without the longer timeframe and risk associated with a demerger process and we will evaluate, in consultation with our shareholders, how best to deploy the net proceeds of the Disposal for the benefit of shareholders over the coming months."

Enquiries:

Aptitude Software Group plc 020 3880 7100

Ivan Martin, Chairman

Philip Wood, Chief Financial Officer

Investec Bank plc 020 7597 5970

(Sponsor, Financial Adviser and Broker to Aptitude)

Henry Reast

Junya Iwamoto

Alex Wright

FTI Consulting 020 3727 1063

(Financial PR adviser to Aptitude)

Darius Alexander

The person responsible for arranging the release of this announcement on behalf of Aptitude Software Group plc is Georgina Sharley, Group Company Secretary.

ADDITIONAL INFORMATION

Background to and reasons for the Disposal

Aptitude is a leading provider of business-critical software and services in a number of sectors including banking, insurance, telecommunications, and wealth management. Aptitude has continued to develop the Group's activities as two separate business units:

-- the Aptitude Software business with its suite of specialised applications which enable finance functions to comply with complex regulations and/or provide financial insight and control to their organisations; and

-- the Microgen Financial Systems business, which provides software and services primarily focused across the financial services industry:

- Microgen 5Series, its key product in the Trust & Fund Administration ("T&FA") sector, addresses the core operational and regulatory requirements of a number of organisations including trust administrators, fiduciary companies, corporate services providers and fund administrators; and

- Application Management, covering a range of MFS Group-owned and third party systems principally focused on the financial services industry.

Historically both businesses benefitted from the combined financial and organisational scale of the Group. The Aptitude Software business leveraged the more established corporate credentials of the wider Group when securing new business contracts with prospects for whom the corporate strength of a key supplier is a material consideration. With the growth experienced by Aptitude Software in recent years this benefit has reduced materially as demonstrated by Aptitude Software's 2018 revenue of GBP52.3 million being significantly ahead of the Group's total revenue in earlier years (for example, in 2013 the Group's revenue was GBP29.8 million of which Aptitude Software represented GBP14.7 million). The second key historical benefit from the combined financial and organisational scale of the Group were the operational synergies focused principally on back office administration.

In recent years these synergies have largely been reduced as the finance, legal and human resources functions have been embedded into each business unit separately, to provide greater and more tailored support for their growth.

Aptitude announced on 25 March 2019 that it had concluded that a demerger of the Microgen Financial Systems business on to AIM will enhance the Group's ability to allocate capital and management attention on the higher growth Aptitude Software business, whilst also providing the Microgen Financial Systems business with the ownership environment for it to successfully pursue its own independent growth strategy focusing on its specialist target market and servicing its international customer base. The Aptitude Board considers that the benefits to Aptitude of a demerger also apply to Aptitude in the case of the Disposal.

Following the announcement on 25 March 2019, discussions have been held with Silverfleet in respect of the potential acquisition of Microgen Financial Systems. The Board believes that this is a fair value for the business, which recognises Microgen Financial Systems' market position, track record of organic growth and positive cash characteristics. Furthermore, the Board of Aptitude believes that the Disposal provides certainty over the crystallisation of the value of MFS without the longer timeframe and risk associate with the previously announced demerger process.

Key terms of the Disposal

The Disposal is conditional upon the passing of the Resolution by shareholders at the General Meeting and the Disposal will not proceed unless the Resolution is passed.

The Disposal Agreement between Aptitude and Silverfleet was entered into on 29 May 2019.

Pursuant to the Disposal Agreement, the Company has agreed to dispose of Microgen Financial Systems to Silverfleet for total consideration of GBP51.0 million, plus an additional agreed profit ticker amount to compensate the Company for the profits of MFS generated between the date of the Disposal Agreement and Completion, the entirety of which will be paid in cash at Completion.

In addition, as is customary for transactions of this nature, the Company will be required to compensate Silverfleet for any unauthorised leakage of value from the MFS Group which has taken place during the period between 31 December 2018 and the date of Completion. Furthermore, the Disposal Agreement contains certain warranties, indemnities and a tax covenant given by the Company which are customary for a transaction of this nature.

In the event that the Disposal Agreement terminates due to shareholder approval not being received by 31 July 2019 or becoming incapable of being satisfied before then, the Company has agreed to pay Silverfleet an amount equal to its costs and expenses incurred in connection with the Disposal up to a maximum sum of GBP0.75 million (excluding VAT).

As part of the Disposal, Aptitude and Microgen Financial Systems have agreed the scope of services that will be provided following Completion by (i) Aptitude Group to Microgen Financial Systems (the "TSA Services") and (ii) Microgen Financial Systems to the Aptitude Group (the "RTSA Services") (together comprising the "TSA"). The TSA Services shall include tax services, financial reporting services, IT transition project services, company secretarial services, continued access to certain software of the Aptitude Group which contains historic information in respect of the MFS Group and use of London office space by a certain number of Microgen Financial Systems' employees. The RTSA Services include co-operation regarding withholding of tax and payment of proceeds to employees following exercise of share options in Aptitude Group and access to accounts for the purpose of preparation of the audit for the year ending 31 December 2019. Charges associated with the TSA will be specified in each of the service schedules contained in the TSA. The various TSA Services will have different pre-determined initial service terms of either up to 31 December 2019, 30 June 2020 or the one year anniversary of the Company entering into the TSA. The RTSA Services will have an initial term of up to 30 June 2020.

The liability of each party in connection with the TSA will be, subject to certain limited exceptions, limited in aggregate to GBP0.25 million. Breach by the parties subject to the TSA of intellectual property, employee transfer and confidentiality provisions, or in relation to matters requiring third party consent when such consent is not obtained or complied with, are not included in the GBP0.25 million cap in addition to certain customary exclusions, and are therefore uncapped.

Further details of the Disposal Agreement and the TSA will be set out in the Circular.

Information on Microgen Financial Systems

Microgen Financial Systems' key product in the T&FA sector is Microgen 5Series, which addresses the core operational and regulatory requirements of a number of organisations including trust administrators, fiduciary companies, corporate services providers and fund administrators. In addition to Microgen Financial Systems' T&FA operations, revenue is generated from the Application Management business covering a range of MFS Group-owned and third party systems principally focused on the financial services industry.

Revenues are generated through a combination of software licence fees (primarily annual recurring licences), software maintenance/support fees and professional services.

In the financial year ended 31 December 2018, Microgen Financial Systems generated revenues of GBP18.0 million (or, adjusting for the disposal of the Payments business, GBP17.3 million) and Adjusted Operating Profit of GBP7.0 million (or, adjusting for the disposal of the Payments business, GBP6.5 million) and statutory profit before taxation of GBP9.1 million (benefitting from a GBP3.2 million gain on the disposal of the Payments business). As at 31 December 2018, Microgen Financial Systems had gross assets of GBP41.1 million.

Robert Browning (Chief Operating officer of MFS), Eileen Jackson (Finance Director of MFS) and Joe Sefton-Jenkins (Chief Technology Officer of MFS) are deemed key to the operation of MFS and will transfer with MFS on Completion.

Information on the Aptitude Group

Following Completion, the Aptitude Group will consist of the Aptitude Software business with its suite of specialised applications which enable finance functions to comply with complex regulations and/or provide financial insight and control to their organisations.

Key products include:

 
 Product                          Description 
 Aptitude Insurance Calculation   AICE allows insurers to address the 
  Engine ("AICE")                  requirements of IFRS 17, an accounting 
                                   standard focused on insurance contracts 
                                   effective for accounting periods commencing 
                                   on or after 1 January 2022. 
                                 --------------------------------------------- 
 Aptitude Lease Accounting        ALAE addresses the requirements of 
  Engine ("ALAE")                  IFRS 16 / ASC 842, the leasing accounting 
                                   standards effective for accounting 
                                   periods commencing on or after 1 January 
                                   2019. 
                                 --------------------------------------------- 
 Aptitude Revenue Recognition     ARRE addresses the requirements of 
  Engine ("ARRE")                  IFRS 15 / ASC 606 the revenue accounting 
                                   standards first effective for accounting 
                                   periods commencing on or after 1 January 
                                   2018. 
                                 --------------------------------------------- 
 Aptitude RevStream               Aptitude RevStream is a cloud-enabled 
                                   application that provides broad revenue 
                                   management capability including regulatory 
                                   compliance. 
                                 --------------------------------------------- 
 Aptitude Accounting Hub          AAH is a high volume operational accounting 
  ("AAH")                          platform and subledger that centralises 
                                   control, improves reporting and generates 
                                   a rich foundation of contract level 
                                   finance and accounting data. 
                                 --------------------------------------------- 
 

Aptitude generates revenue from its software through a combination of licence fees (primarily annual recurring licences), software maintenance/support, software subscriptions for its cloud-based offerings and implementation and other support services.

Development continues to be performed principally at the Aptitude Technology Centre in Poland with sales, support and implementation services provided from Aptitude Software's London headquarters in addition to the North American and Singaporean offices.

Aptitude's strategy is, and following the Disposal will be, to continue to drive growth in revenues from its suite of specialised applications which enable finance functions to comply with complex regulations and/or provide financial insight and control to their organisations. Aptitude's particular focus for 2019 is the continuing opportunity for the Aptitude Insurance Calculation Engine.

Following Completion of the Disposal, Philip Wood (currently Chief Financial Officer of Aptitude and Acting Chief Executive Officer of Microgen Financial Systems) will remain with the Aptitude Group and his role will revert to that of Chief Financial Officer. The board of directors of Aptitude will be unchanged following the Disposal.

Use of Proceeds and Financial effects of the Disposal on the Aptitude Group

Use of proceeds

The Net Cash Proceeds arising from the Disposal are expected to be approximately GBP48.4 million (assuming a 30 June 2019 Completion and the deduction of fees associated with the Disposal and the demerger process (which has been run in parallel with the Disposal in order to fulfil Aptitude's commitment to the demerger)).

The Board intends that the Company will return a significant majority of the Net Cash Proceeds to shareholders, unless more value creating opportunities arise and subject to prevailing market conditions.

In determining the optimal route to return a significant majority of the Net Cash Proceeds and the timescale to do so, the Board will consider a number of factors, including the scale of the proceeds to be returned and the balance of shareholder preference.

Discussions with the Company's relevant stakeholders will be conducted and it is envisaged that, shortly following Completion, full details of the proposed return of proceeds will be made available to shareholders and, if necessary, a general meeting will be convened to seek shareholder approval for the return of proceeds.

Financial effects of the Disposal on the Aptitude Group

In the financial year ended 31 December 2018, Microgen Financial Systems contributed revenue of GBP18.0 million to the Group's revenue of GBP70.3 million and Adjusted Operating Profit of GBP7.0 million to the Group's Adjusted Operating Profit of GBP15.7 million. Microgen Financial Systems' ongoing contribution will be lost following Completion of the Disposal. Furthermore, cash held within MFS Group at 30 April 2019, after adjustment for expected transfers within the current Group prior to Completion, was GBP2.6 million.

In addition, in the financial year ended 31 December 2018, Aptitude incurred GBP1.6 million of 'group costs' (before non-underlying items), these costs are separately disclosed within Aptitude's audited consolidated financial information and not allocated to either Aptitude Software or Microgen Financial Systems ("Group Costs"). Group Costs include expenditure in relation to a number of the Directors and other costs associated with a publicly listed group of companies. Following the Completion of the Disposal, Group Costs will be solely borne by the Aptitude Group, with minimal cost savings resulting from the Disposal. Furthermore, following the Completion of the Disposal it is anticipated that there will be a non-material increase in the operating costs of Aptitude Software following the loss of synergies currently benefitting the Aptitude Group, principally in relation to the provision of information technology.

Current trading, financial position and future prospects of the Group

On 21 May 2019, the date of its annual general meeting, the Company announced the following update to its current trading and prospects:

"The Board is pleased to confirm that the Group, with its two software businesses (Aptitude Software and Microgen Financial Systems), has made good progress since the start of the year.

Aptitude Software continues to enjoy new business success with its suite of specialised applications which enable finance functions to comply with complex regulations and/or provide financial insight and control to their organisations. Highlights in the first half of the year include further sales of the Aptitude Insurance Calculation Engine, the largest Aptitude RevStream subscription to date and further progress with the Aptitude Lease Accounting Engine. Particularly pleasing are the new business successes with the Aptitude Accounting Hub ('AAH') since the start of 2019. AAH is frequently sold in conjunction with one of Aptitude Software's regulatory focused applications, however, there is a growing opportunity for this application on a standalone basis to provide centralised and granular control generating detailed insights as large enterprises undertake a transformation of their finance organisation to a more agile and forward-looking function (often referred to as 'Digital Finance').

Microgen Financial Systems is well progressed with a number of material opportunities for Microgen 5Series, an application focused on the Trust & Fund Administration sector. Investment in the organisation continues as planned in order to accelerate Microgen Financial Systems' growth."

Dividend policy

The absolute value of the 2019 interim and final dividend is expected to be reduced consistent with the reduction in the profits of the Aptitude Group as a result of the Disposal. Thereafter a progressive dividend policy will be followed by Aptitude.

Steps to completion

The Disposal constitutes a Class 1 transaction for the Company, and therefore, under the UK Listing Rules, will require approval by the Company's shareholders. Aptitude will, in due course, send a circular to its shareholders convening a meeting to approve the Disposal. The Aptitude Board is unanimous in its recommendation of the Disposal.

DEFINITIONS

 
 Adjusted Operating Profit               statutory operating profit excluding 
                                          non-underlying operating items 
 Aptitude Technology Centre              the principal development centre 
                                          for Aptitude Software located 
                                          in Wroclaw, Poland 
                                        ---------------------------------------- 
 Aptitude Group                          Aptitude and its subsidiaries 
                                          and subsidiary undertakings 
                                          excluding those companies which 
                                          form part of the MFS Group 
                                        ---------------------------------------- 
 Aptitude Software                       the division of Aptitude which 
                                          will be part of the Aptitude 
                                          Group following Completion of 
                                          the Disposal 
                                        ---------------------------------------- 
 Application Management or Application   the part of the Microgen Financial 
  Management business                     Systems business which provides 
                                          software and services to a range 
                                          of Microgen Financial Systems 
                                          owned and third party systems 
                                          principally focused on the financial 
                                          services industry 
                                        ---------------------------------------- 
 Completion                              completion of the Disposal on 
                                          the terms of the Disposal Agreement 
                                        ---------------------------------------- 
 Disposal Agreement                      the agreement to sell the entire 
                                          issued share capital of its 
                                          wholly-owned subsidiary, Microgen 
                                          Financial Systems Limited, including 
                                          the Microgen brand, to Silverfleet 
                                        ---------------------------------------- 
 Microgen Financial Systems              Microgen Financial Systems Limited, 
                                          a private limited company incorporated 
                                          under the laws of England and 
                                          Wales with registered number 
                                          03188002 
                                        ---------------------------------------- 
 MFS Group                               the companies operating the 
                                          MFS Business from time to time 
                                          which includes Microgen Financial 
                                          Systems and its subsidiaries 
                                          and subsidiary undertakings 
                                        ---------------------------------------- 
 MFS Business                            the business of providing software 
                                          and services primarily focused 
                                          across the financial services 
                                          industry which is currently 
                                          carried on within the Group 
                                          by Microgen Financial Systems 
                                          Limited and its 
                                          subsidiaries and subsidiary 
                                          undertakings and which is proposed 
                                          to be sold in accordance with 
                                          the Disposal Agreement with 
                                          effect from Completion 
                                        ---------------------------------------- 
 Net Cash Proceeds                       the estimated aggregate cash 
                                          consideration due to the Company 
                                          under the Disposal Agreement 
                                          assuming Completion on 30 June 
                                          2019 less estimated fees associated 
                                          with the Disposal and the previously 
                                          announced demerger process 
                                        ---------------------------------------- 
 Payments business                       the business sold by Microgen 
                                          Financial Systems on 2 July 
                                          2018 
                                        ---------------------------------------- 
 

Market Abuse Regulation

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulation. Upon the publication of this announcement via a regulatory information service, this inside information is now considered to be in the public domain.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND ADDITIONAL INFORMATION FOR SHAREHOLDERS

This announcement (including the information incorporated by reference into this announcement) includes statements that are, or may be deemed to be, "forward looking statements". In some cases, these forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "plans", "predicts", "projects", "anticipates", "targets", "risk", "aims", "assumes", "positioned", "continues", "expects", "intends", "hopes", "may", "will", "shall", "would", "could" or "should" or, in each case, their negative or other variations or comparable terminology that are predictions of or indicate future events and/or future trends or identify forward-looking statements.

These forward-looking statements include all matters that are not current or historical facts. They appear in a number of places throughout this announcement and include, but are not limited to, statements regarding the Directors', the Group's and/or the Company's intentions, beliefs or current expectations concerning, amongst other things, the Group's operational results, financial condition, prospects, growth, dividend policy, strategies and the industries in which the Group operates, and the financial effect of the proposed Disposal of Microgen Financial Systems on the Group.

Shareholders should not place undue reliance on forward-looking statements (which speak only as of the date of this announcement) because they involve known and unknown risks, uncertainties and other factors that are in many cases beyond the control of the Group. By their nature, forward-looking statements involve risk and uncertainty because such statements relate to events and depend on circumstances that may or may not occur in the future. Forward-looking statements are not indicative of future performance; the actual results of operations and financial condition of the Group, and the development of the industries in which the Group operates, may differ materially from those described in or suggested by the forward-looking statements contained in this announcement. A number of factors could cause actual results and developments to differ materially from those expressed or implied by the forward-looking statements, including, without limitation: conditions in the markets; the market position of the Group; earnings, financial position, cash flows, return on capital and operating margins of the Group; anticipated investments and capital expenditures of the Group; industry trends; changing business or other market conditions; competition and changes in business strategy; and general economic and business conditions. These and other factors could adversely affect the outcome and financial effects of the plans and events described herein.

The cautionary statements set out above should be considered in connection with any subsequent written or oral forward-looking statements that the Company, or persons acting on its behalf, may issue.

Forward-looking statements contained in this announcement based on past trends or activities should not be taken as a representation that such trends or activities will continue in the future and no forward looking statement contained in this announcement is intended to provide any representation, assurance or guarantee as to future events or results.

The Company will comply with its obligations to publish updated information as acquired by the FSMA, the Listing Rules and/or the Disclosure Guidance and Transparency Rules or otherwise by law and/or by any regulatory authority, but assumes no further obligation to publish additional information. Subject to any requirement under the Listing Rules, the Disclosure Guidance and Transparency Rules or other applicable legislation or regulation, the Company will not (and expressly disclaims any undertaking or obligation to) publicly release any revisions it may make to any forward-looking statements or other information that may occur due to any change in its expectations or to reflect events or circumstances after the date of this announcement.

Investec Bank plc ("Investec") is authorised by the Prudential Regulatory Authority (the "PRA") and regulated in the United Kingdom by the PRA and the Financial Conduct Authority ("FCA") and is acting exclusively for the Company and no one else in connection with the Disposal or any other matters referred to in this announcement and will not regard any other person as a client (whether or not a recipient of this announcement) in relation to the Disposal or any other matters referred to in this announcement and is not, and will not be, responsible to anyone other than the Company for providing the protections afforded to its clients or for providing advice in relation to the Disposal or any other matters referred to in this announcement.

Aptitude's shareholders will be able to obtain a copy of the Circular (when available) from Aptitude's website at www.aptitudesoftwaregroup.com.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [e-mail] or visit www.rns.com.

END

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