K3 Capital Group PLC Acquisition, Directorate Changes & Results Notice (8517U)

TIDMK3C

RNS Number : 8517U

K3 Capital Group PLC

03 August 2020

K3 CAPITAL GROUP PLC

("K3", the "Company" and including its subsidiaries, the "Group")

Acquisition of Quantuma Advisory Limited

Directorate Changes

Adoption of New Share Incentive Plan and Grant of Share Incentives

Total Voting Rights

and Notice of Results

K3 Capital Group plc, a multi-disciplinary professional services firm providing advisory services to SMEs, is pleased to announce it has acquired the entire issued and to be issued share capital of Quantuma Advisory Limited, a holding company containing the assets of Quantuma LLP ("Quantuma") (the "Acquisition"), a UK-focused business providing advisory services including restructuring and insolvency, corporate finance and forensics, for a cash free, debt free initial consideration of GBP26.95 million to be satisfied through a combination of cash and ordinary shares of 1 penny each in the Company ("Ordinary Shares"), in addition to maximum combined earn outs of GBP15 million and an additional 645,513 Growth Shares.

In addition to the Acquisition, the Company is pleased to announce the appointments to the Board of Carl Jackson as Executive Director and Charlotte Stranner as Independent Non-Executive Director. In addition to these Board appointments, Martin Robinson has been appointed as Senior Independent Director and Stuart Lees as Non-Executive Director.

Background to and reasons for the Acquisition

Quantuma is a UK-focused business advisory firm with overseas operations, specialising in corporate finance, financial advisory, pension advisory, forensic accounting and investigations, creditor services and restructuring and insolvency. Quantuma has a strong and experienced management team. Quantuma has demonstrated significant fundamental growth in recent years, underpinned by 35% revenue and normalised EBITDA CAGR over the last 3 years.

As stated in the announcement dated 29 June 2020, the Board has "market mapped" the corporate recovery and insolvency market, which it considers to be an attractive and complementary market. The corporate recovery market saw its peak during the last recession in 2009. Quantuma is a specialist independent adviser and K3 believes there will be a great opportunity in implementing its direct marketing approach with its marketing engine and national sales force to accelerate Quantuma's already strong growth plans.

For the financial year ended 31 March 2020, Quantuma LLP generated revenue of GBP23.19 million (audited), normalised EBITDA of GBP4.53 million (unaudited) and profit before tax and members' remuneration charged as an expense of GBP7.83 million (audited). Quantuma had net assets of GBP6.39 million as at 31 March 2020, of which GBP3.69 million was cash (audited).

The Acquisition is expected to be immediately earnings enhancing.

Terms of the Acquisition

The initial consideration of GBP26.95 million will be satisfied through GBP20.22 million in cash from the Company's existing cash reserves and the issue of 4,492,667 Ordinary Shares (being GBP6.74 million at an issue price of 1.50 pence) satisfied through the Company's existing authorities ("Consideration Shares").

The Consideration Shares are subject to a 2 year lock-in, followed by a 12 month orderly market agreement. The Board notes that the lock-in agreements are each capable of being modified, waived or cancelled in the event each of the parties to the respective lock-in agreement are in agreement it is in the best interests of maintaining an orderly market.

The earn out is split into three tranches, with the first tranche forecast to be GBP6.74 million payable over 3 years with mechanisms to increase or decrease subject to certain performance criteria. The first tranche is payable as to 60% cash and 40% shares across the next 3 financial years ending 31 May 2023 (the "First Earn Out").

The First Earn Out shares are subject to a 2 year lock-in for those shares issued in relation to FY21 and a 1 year lock-in for those shares issued in relation to FY22. The lock-in agreements are each capable of being modified, waived or cancelled in the event each of the parties to the respective lock-in agreement are in agreement it is in the best interests of maintaining an orderly market, subject to the approval of the Company's broker at that time and also certain other limited circumstances (including but not limited to a transfer to executors on death, in acceptance of an offer for the entire issued share capital of the Company, and pursuant to a court order).

The second tranche of the earn-out is payable wholly in cash in each of the next three financial years, subject to certain threshold levels of normalised EBITDA having been achieved by Quantuma (the "Second Earn Out").

The date for payment and/or issue of Ordinary Shares, as applicable, in respect of the First Earn Out and Second Earn Out is set at 31 August in each relevant financial year. The First Earn Out and Second Earn Out are capped at GBP15 million in aggregate.

The third tranche of the earn out comprises 645,513 shares issued in K3 Capital Holdings Limited, a wholly owned subsidiary of the Company (the "Third Earn Out"). The Third Earn Out shares have the same terms as those governing the Growth Shares, set out in the section below, but are separately classified as they are being issued as part of the consideration payable for the Acquisition. The acquisition of the Third Earn Out shares has been financed by the sellers having reinvested part of their sale proceeds.

Immediately following the acquisition of Quantuma the Group will be reorganised in a share for share exchange such that the following entities will all be simultaneously transferred by K3C to a new wholly and directly owned subsidiary of K3C, K3 Capital Group Holdings Limited, in consideration for the issuance of new ordinary shares by K3 Capital Group Holdings Limited to K3C:

   (a)                 Knightsbridge Business Sales Limited; 
   (b)                 KBS Corporate Sales Limited; 
   (c)                 KBS Corporate Finance Limited; 
   (d)                 RANDD UK Limited; and 
   (e)                 Quantuma Advisory Limited. 

This will leave the Group with only two direct subsidiaries, K3 Capital Group Holdings Limited and KBS Capital Markets Limited.

Directorate Changes

The Company is pleased to announce the appointments of Carl Jackson, Chief Executive Officer of Quantuma, to the Board as an Executive Director and Charlotte Stranner as an Independent Non-Executive Director. In addition, Martin Robinson has been appointed as Senior Independent Director and Stuart Lees as a Non-Executive Director.

Carl is a Chartered Accountant and Licenced Insolvency Practitioner FABP, with over 30 years of restructuring experience. Prior to establishing Quantuma in 2013, Carl held senior leadership roles in the restructuring practice of and sat on the board of RSM Tenon.

The Board, in conjunction with its Nomination Committee, has considered the balance of the Board in conjunction with the appointment of Carl and announces the following appointment and further changes to its existing Board.

Charlotte is a chartered accountant and spent many years as corporate finance professional. Previously, Charlotte was a partner at formerly AIM-quoted MXC Capital Limited, a technology, media and telecoms investor and adviser. During her time at MXC Capital she was Interim Chief Financial Officer at AIM-quoted IDE Group Holdings plc which is an investee company of MXC Capital. Charlotte is also on the Board of AIM-quoted Elixirr International plc as Independent Non-Executive Director. Charlotte will be a member of the Audit and Nomination committees.

Martin joined the K3 Board in July 2017 as Independent Non-Executive Director and is currently Chairman of the Audit Committee as well as a member of the Remuneration Committee and the Nominations Committee.

Stuart was a Non-Executive Director member at the time of the Company's IPO in April 2017 and subsequently moved to an executive Board position as it was considered appropriate at that time given Stuart's involvement on larger transactions within KBS Corporate Finance. Stuart will now be stepping down from executive responsibilities and become a Non-Executive Director again. Stuart will be a member of the Nomination Committee, the Audit Committee and the Remuneration Committee.

Adoption of New Share Incentive Plan and Grant of Share Incentives

The Company's Remuneration Committee has, in consultation with external advisers, adopted a new share incentive plan, in the form of a growth share plan (the "Plan") designed to incentivise delivery of the Company's growth objectives over the period to 31 May 2023.

The Remuneration Committee considers that the Plan will comprise an important aspect in aligning key management and employees of the newly acquired businesses with the Group's growth strategy and it considers the performance targets to be challenging. The Plan allows employees to share in the Company's success when the business strategy is executed successfully. The Company believes that whilst these awards are one-off in nature, they will give its new employees the opportunity to build up a meaningful shareholding in the Company which further aligns their interest with shareholders and will help maintain the culture within K3 which encourages strong and sustained corporate performance that drives absolute returns to shareholders over the longer-term.

Certain senior managers of Quantuma (the "Participants") have subscribed for in aggregate 2,075,908 growth shares (the "Growth Shares") under the Plan at a market value determined by the Company's independent advisers, BDO LLP.

"Growth Share Awards" are awards granted in the form of an immediate beneficial interest to be held by participants in a discrete and bespoke class of ordinary shares, namely the Growth Shares in K3 Capital Holdings Limited, a new wholly owned subsidiary of the Company which has been inserted into the Group structure beneath the company but above each of Knightsbridge Business Services Limited, KBS Corporate Sales Limited and KBS Corporate Finance Limited. After a minimum period of three years (being not before the announcement of the Company's financial results for the financial year ending 31 May 2023), the Growth Shares may be exchanged for new Ordinary Shares or cash (at the Company's discretion), subject to the rules of the plan, continued employment, and meeting certain share price hurdles, which the Remuneration Committee considers to be challenging. If the share price for the 5 day period following the announcement of the Company's financial results for the financial year 2023 is below GBP3.00, all of the Growth Shares will be bought back by the Company for nominal value. If the share price following the announcement of the Company's financial results for the financial year 2023 is above GBP3.00, the Growth Shares will partially vest with vesting in full at GBP3.50, when each vested Growth Share may be exchanged for an ordinary share in the Company.

The Remuneration Committee has the discretion to reduce awards if it considers an individual's performance does not justify full vesting of the awards.

Although implementing this Plan does not require shareholder approval, as recommended under the QCA Corporate Governance Code, the Board has consulted with the Company's major shareholders who are supportive.

Long Term Incentive Plan 2017

As stated as an intention at the time of the acquisition of randd, the Company has now granted awards comprising a total of 666,664 options over new Ordinary Shares in the Company to certain senior management at randd under the Group's existing Long Term Incentive Plan 2017. The Awards are exercisable at a price of 150 pence per new Ordinary Share.

These options will vest on the third anniversary of the grant date subject to the rules of the plan, continued employment and achievement of performance conditions. 50 per cent. of any award will vest dependent on the achievement of an adjusted EBITDA target and 50 per cent. will vest dependent on achievement of a total shareholder return target, each subject to a specific target for each reporting year.

Vested options will be exercisable on the third anniversary of the grant date and will lapse on the tenth anniversary of the grant date.

Following the above grant, no further grants will be made under the Long Term Incentive Plan 2017 and the scheme has now been closed.

Following the grant of share incentives detailed above, 6.4 per cent. of the Company's issued share capital following Admission will be under option in accordance with the Group's LTIP and the new Plan.

Admission and Total Voting Rights

Application has been made for the 4,492,667 Consideration Shares to be admitted to trading on AIM ("Admission") and dealings are expected to commence on 6 August 2020.

The Consideration Shares will rank pari passu with the existing issued Ordinary Shares and will have the right to receive all dividends and other distributions declared, made or paid in respect of the Ordinary Shares following Admission.

The total number of Ordinary Shares in issue following Admission will be 68,549,055. Accordingly, the figure of 68,549,055 may be used by shareholders as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change to their interest in the Company under the FCA's Disclosure Guidance and Transparency Rules.

Notice of Results

The Company looks forward to updating shareholders on publication of its audited results for the year ended 31 May 2020 on 22 September 2020.

John Rigby, K3's CEO, commented,

"We believe that Quantuma is an excellent fit for the Group and will play a significant part in helping us achieve our strategic aim of building a wider group of growing and complementary professional services businesses. In particular, we consider the corporate recovery and insolvency market to be a highly desirable market by virtue of its counter-cyclical nature. Quantuma is a fast growing, professionally managed, and diversified Corporate Recovery business which has increased its turnover from GBP11m to GBP23m over the last three years and we believe that with the benefit of K3's marketing capabilities, the Quantuma business can be scaled significantly.

Following this acquisition and the recent acquisition of randd, K3 Capital Group has become a professional services group which incorporates the UK market leader in company sales and one of the most established R&D tax reclaim businesses in the UK, which together with Quantuma, creates a Group with diversified income streams, recurring revenues, multiple and complementary channels to market and significant cross selling opportunities.

We are pleased to welcome Carl Jackson, the Chief Executive Officer of Quantuma Advisory, to the Board and also further strengthen and balance the Non-Executive function of our Board through the appointment of Charlotte Stranner, Stuart Lees' change to Non-Executive Director and appointment of Martin Robinson as Senior Independent Director."

Carl Jackson, K3's Executive Director and Chief Executive Officer of Quantuma, commented,

"This is a significant milestone for both K3C and Quantuma. The combination of high-quality businesses will provide an independent and compelling proposition in the mid-market.

"Demand for Quantuma's services is already high and we anticipate this gathering pace as the government withdraws its COVID-related financial support. In addition to the merger being a strategically strong fit, we believe that becoming part of a listed plc will enable us to take on more significant mandates and provide greater access to larger corporates, both at home and overseas."

This Announcement contains inside information for the purposes of Article 7 of MAR. Upon the publication of this Announcement, this inside information is now considered to be in the public domain.

For further information, please contact:

 
  K3 Capital Group plc                         Tel: c/o finnCap 020 7220 
                                                0500 
  John Rigby, Chief Executive Officer          www.k3capitalgroupplc.com 
  Andrew Melbourne, Chief Financial Officer 
 
  finnCap Ltd (Nominated Adviser and Sole      Tel: [phone] 
   Broker) 
  Jonny Franklin-Adams, Emily Watts, Charlie Beeson (Corporate 
   Finance) 
  Tim Redfern, Richard Chambers (Corporate 
   Broking) 
 

The following information is disclosed in accordance with Rule 17 and paragraph (g) of Schedule 2 of the AIM Rules for Companies.

Full name: Carl Stuart Jackson

Age: 59

Shares in the Company held: Conditional upon Admission, Carl will hold 851,751 Ordinary Shares in the Company, representing 1.24% of the Company's issued Share Capital following Admission of the Consideration Shares. Further, conditional upon achieving certain performance criteria, Carl will be eligible to receive Ordinary Shares as part of the First Earn Out and has subscribed for 122,380 Growth Shares as part of the Third Earn Out.

 
 Current Directorships/ Partnerships   Former Directorships/Partnerships 
                                        held in last 5 years: 
 Quantuma LLP                          Arena Central Management Limited 
                                      ---------------------------------- 
 QIAS Advisory Limited 
                                      ---------------------------------- 
 Elixa Capital Consulting Ltd 
                                      ---------------------------------- 
 Quantuma Advisory Limited 
                                      ---------------------------------- 
 

Carl Jackson has been the subject of a reprimand from the Institute of Chartered Accountants in England and Wales in 2010 in relation to his acting as liquidator for a failed company where it was found that sufficient controls were not exercised such that creditor monies were lost. Carl was reprimanded and fined GBP5,000.

Full name: Charlotte Alexandra Stranner

Age: 40

Shares in the Company held: Charlotte does not hold any shares or share incentives in the Company.

 
 Current Directorships/ Partnerships   Former Directorships/Partnerships 
                                        held in last 5 years: 
 Elixirr International plc             PTCA Tech Solutions Limited 
                                      ---------------------------------- 
 IDE Group Limited                     MXC Capital Markets LLP 
                                      ---------------------------------- 
 Connexions4London Limited             MXC Capital (UK) Limited 
                                      ---------------------------------- 
 Aggregated Telecom Limited            MXC Advisory Limited 
                                      ---------------------------------- 
 Selection Services Limited 
                                      ---------------------------------- 
 Selection Services Investments 
  Limited 
                                      ---------------------------------- 
 IDE Group Protect Limited 
                                      ---------------------------------- 
 IDE Group Manage Limited 
                                      ---------------------------------- 
 IDE Group Connect 
                                      ---------------------------------- 
 IDE Group Financing Limited 
                                      ---------------------------------- 
 IDE Group Voice Limited 
                                      ---------------------------------- 
 IDE Group Subholdings Limited 
                                      ---------------------------------- 
 

Save for the disclosures above, there are no further disclosures to be made in accordance with Rule 17 and Schedule 2(g) of the AIM Rules.

About K3 Capital

K3 Capital Group plc is a multi-disciplinary professional services firm providing advisory services to SMEs, with operations throughout the UK and overseas.

Services provided by KBS Corporate, KBS Corporate Finance, Knightsbridge and KBS Capital Markets:

-- Mergers and Acquisitions (M&A) - Company sales, brokerage and corporate finance services to SME's looking to achieve full or partial exit, advising on sales to private, trade, plc, private equity or overseas acquirors. Strategic advisory and valuations, financial due diligence and debt advisory.

Services provided by RandD UK Limited:

-- Research & Development tax credit advisory: advising clients on Research and Development Tax Credit (RDTC) claims.

Services provided by Quantuma Advisory Limited:

-- Restructuring advisory: formal insolvency appointments, informal restructuring advisory, personal insolvency and pension restructuring and insolvency advice.

-- Financial advisory: comprehensive analysis of business performance through business toolkit, independent reviews, stakeholder management and turnaround and interim support.

   --          Creditor Services: creditor representation and liquidations. 

-- Forensic accounting and expert witness: forensic investigations, intelligence and forensic accounting.

-- Pensions advisory: corporate and trustee advisory, pension scheme restructuring advisory, covenant advisory and expert witness.

The Group's medium-term strategy is to build a wider group of growing and complementary professional services businesses to provide SME's with high quality advice across specialist disciplines.

K3 Capital Group trades on the London Stock Exchange (AIM: K3C.L), having listed on 11 April 2017. Please visit

  www.k3capitalgroupplc.com   for more information. 

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August 03, 2020 02:00 ET (06:00 GMT)