Tekmar Group PLC Proposed Acquisition of Subsea Innovation Ltd (3618Y)

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RNS Number : 3618Y

Tekmar Group PLC

21 August 2018

For release 07:00am on 21 August 2018

The information communicated within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain

Tekmar Group plc

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

Proposed Acquisition of Subsea Innovation Ltd

Tekmar Group plc, a market-leading technology provider of protection systems for subsea cable, umbilical and flexible pipes and offshore engineering services, is pleased to announce that it has today signed a sale and purchase agreement for the acquisition of Subsea Innovation Ltd ("Subsea Innovation") for a maximum consideration of approximately GBP4 million (the "Proposed Acquisition") from its founder Gary Ritchie-Bland (the "Seller"). The Proposed Acquisition is subject to shareholder approval.

The Proposed Acquisition represents the Group's first transaction since its successful AIM admission in June 2018, launching the Group's strategy to acquire offshore energy businesses which have a clear technology focus, have complementary customer bases and can leverage Group support. Subsea Innovation, which currently operates in the global oil and gas market, will bring world-class engineering in the design, development and manufacture of back deck equipment and subsea pipeline repair clamps ("EPRC") to Tekmar's portfolio, along with a blue chip client list and a skilled engineering team.

The Proposed Acquisition includes the purchase of a high specification 40,000 sq ft manufacturing and office facility and its fixtures and fittings, which, combined, amount to approximately GBP3 million in fixed assets. This property will become Tekmar Group plc's headquarters and provide additional land for future expansion. Subject to grant and local planning approval, this site would provide the opportunity to reduce overheads across the Group and improve working practices by consolidating multiple manufacturing sites and offices into one location.

Background

Subsea Innovation is an innovation leader in the design, manufacture and supply of complex engineered equipment and technology used in the installation of subsea equipment for the offshore oil and gas market. Its products include large equipment handling systems, which operate on the back of installation vessels; including cable, pipeline and SURF (subsea umbilical riser and flowline); pipeline repair clamps, which protect major oil and gas pipelines, and equipment for the construction of offshore oil and gas projects.

The business is headquartered in Darlington in a facility which includes a manufacturing centre accredited to ISO 9001, ISO 14001, OHSAS 18001 and ISO/TS 29001; HSQE centre, business administration and product testing. The site also includes land for development and expansion.

Subsea Innovation employs 27 skilled staff, including a highly experienced management team, all of whom will remain with the business post acquisition.

The addition of Subsea Innovation's engineering team will add 16 specialist engineers to aid the development of new products for Group companies; in addition to adding long standing relationships with key EPC clients such as Technip FMC, Saipem and Subsea7 and oil and gas operators including the likes of BP, Shell and Total.

Subsea Innovation and Tekmar have shared heritage. In 2011, Tekmar Subsea Limited, originally founded by two commercial divers in 1985, divided to form two new entities Tekmar Energy Limited and Subsea Innovation Ltd.

Given the heritage, focus on engineering excellence, complementary products and shared markets and Subsea Innovation's track record in the delivery of back deck deployment equipment, the Board of Tekmar believes the Proposed Acquisition is an excellent commercial, cultural and technical fit.

Subsea Innovation's last three years of trading are recorded as GBP11.3 million turnover and GBP0.4 million profit in 2015, GBP5.9 million turnover and (GBP0.8 million) profit in 2016 and GBP2.0 million turnover and (GBP1.3 million) profit in 2017. Current year management accounts for 2018 show turnover at GBP4 million and GBP0.3 million profit with strong projections for 2019.

Although all management are remaining, none of the directors of Subsea Innovation will be joining the board of Tekmar.

Consideration and issue of equity

The total consideration of up to GBP4 million will be satisfied through approximately GBP2 million in cash and GBP1 million through the issue of 645,161 new ordinary shares in Tekmar (the "Consideration Shares") to the Seller on completion.

The initial cash consideration of GBP2million will be subject to an adjustment in that it will be:

(a) increased by certain cash items in Subsea Innovation;

(b) reduced by certain indebtedness of Subsea Innovation; and

(c) increased by the amount the working capital exceeds a target figure agreed by the parties or reduced by an amount of any shortfall in working capital below the target figure.

An earn-out consideration of GBP1 million in cash will be payable based on the profits before tax of Subsea Innovation being not less than GBP500,000 prior to 31 March 2020. The profits before tax shall be tested over each 12 month period ending on 31 August 2019, 30 September 2019, 31 October 2019, 30 November 2019, 31 December 2019, 31 January 2020, 28 February 2020 and 31 March 2020 (each a "Relevant Period"). The earn-out consideration shall become payable following expiry of the first Relevant Period in which the profits before tax of Subsea Innovation are at least GBP500,000. No earn-out consideration is payable if the profits before tax of Subsea Innovation are not GBP500,000 in any of the Relevant Periods.

The issue price of the Consideration Shares is GBP1.55 per share, which is calculated by reference to the closing mid-market price at which an ordinary share in the capital of Tekmar has traded on AIM, as derived from the AIM Appendix of the Daily Official List, on the Business Day immediately prior to the date of the agreement, being 20 August 2018.

The Consideration Shares will rank pari passu with existing ordinary shares and will be subject to a lock-in period of 24 months followed by orderly market provisions for 12 months. Application will be made for the Consideration Shares to be admitted to trading on AIM at 8.00 a.m. on or around 18th September 2018.

Under the terms of the Share Purchase Agreement, the Company is obliged to procure the satisfaction of certain indebtedness of Subsea Innovation, including a mortgage owed to HSBC Bank plc and repayment to Gary Richie-Bland of sums owed to him by Subsea Innovation. It is envisaged that on completion of the acquisition of Subsea Innovation, the Company will put in place a loan to Subsea Innovation to allow it to do so. The loan will be at a commercial rate of interest and repayable on demand by the Company.

In addition, it was a requirement of HSBC Bank plc (the current bankers of Subsea Innovation), that on completion the Company enters into a guarantee to cover liabilities owed by Subsea Innovation to HSBC Bank plc pursuant to its overdraft facility (which is up to a maximum amount of GBP500,000), any business card facilities (up to a maximum of GBP80,000) and any liabilities owed pursuant to an Omnibus Counter-Indemnity (up to a maximum amount of GBP360,000).

Alasdair MacDonald, Non-executive Chairman of Tekmar, said:

"Our vision is to continue building on Tekmar's position as the global leader in subsea cable protection systems in the offshore wind market and to become the partner of choice for the supply of subsea protection equipment to the global energy markets. The proposed acquisition of Subsea Innovation will bring new capabilities, new markets and strong cross-selling opportunities to the Group. The Independent Directors are confident that Subsea Innovation's blue chip global client base will open up new sales opportunities for our offshore wind business. Equally, we expect Subsea Innovation to benefit from Tekmar's trusted name in offshore wind, opening up sales and supply chain opportunities for the previously wholly oil and gas focused business."

Dave Thompson, Managing Director of Subsea Innovation, added:

"The team at Subsea Innovation is hugely excited by this move and view it as the start of the next phase in the development of our business. The oil and gas market is already showing clear signs of recovery; Tekmar's backing and its global offices and support functions would enable us to capitalise on this upturn and make strides towards our goal to become a global leader in both oil and gas and offshore wind."

Subsea Innovation will continue to trade under its own name and remain as a separate legal entity. There will be no disruption or change for its customers and all current employees intend to remain with the business.

General Meeting

Subsea Innovation is wholly owned by its founder Gary Ritchie-Bland, the father of James Ritchie-Bland, CEO of Tekmar Group. Whilst the Proposed Acquisition is not a related party transaction under the AIM Rules, it constitutes a substantial property transaction for the purposes of section 190 of the Companies Act 2006. In addition, any loan from the Company to Subsea Innovation would constitute a loan to a person connected to a director of the Company for the purposes of section 200 of the Companies Act 2006 and any guarantee to be given by the Company in relation to the liabilities of Subsea Innovation would constitute a guarantee in connection with a loan or quasi-loan to a person connected to a director of the Company for the purposes of section 200 of the Companies Act 2006. Accordingly the Proposed Acquisition needs to be approved by shareholders at a General Meeting of the Company.

Although supportive, and after tabling the acquisition for consideration, having declared his connection in this matter, James Ritchie-Bland has not taken part in the Board's recommendation to vote in favour of the Proposed Acquisition. Other than James Ritchie-Bland, the directors of Tekmar believe that the Proposed Acquisition is in the best interests of the Company and shareholders as a whole and are unanimously recommending that the Company's shareholders vote in favour of the resolution to be proposed at the General Meeting. The directors of Tekmar intend to vote in favour of the resolution in respect of their own beneficial holdings of Ordinary Shares, representing 1,762,930 Ordinary Shares, being 3.5 per cent of the Group's total voting rights. Following completion of the transaction, Gary Ritchie-Bland will hold 694,899 Ordinary Shares, representing 1.4 per cent. of the Group's total voting rights.

The General Meeting will be held at 09:30 am on Wednesday 12 September 2018.

A circular will be published today and will be made available on the Company's website: https://investors.tekmar.co.uk.

Enquiries:

 
 Tekmar Group plc 
  James Ritchie-Bland, Chief Executive Officer 
  Sue Hurst, Chief Financial Officer              [phone] 
 
   Grant Thornton UK LLP (Nominated Adviser) 
   Philip Secrett / Jen Clarke                      [phone] 
 
   Berenberg (Broker) 
   Chris Bowman / Ben Wright / Laure Fine           [phone] 
 Belvedere Communications (Financial PR) 
  John West / Llew Angus                          [phone] 
 

About Tekmar Group plc - www.tekmar.co.uk

Tekmar Group plc is a market-leading technology provider of protection systems for subsea cable, umbilical and flexible pipes and offshore engineering services.

It operates two primary divisions: the Offshore Wind Farm division, which focuses on the provision of subsea protection for power transmission cables from and between offshore wind turbines, and the Subsea division which focuses primarily on the provision of subsea protection for umbilicals and flexible pipes to the oil and gas market. Both divisions are supported by AgileTek which provides subsea analysis, simulation and engineering consultancy services.

The Group is headquartered in Newton Aycliffe in the United Kingdom in a 70,000 sq ft facility that includes the manufacturing centre, HSQE centre and business administration, and a 30,000 sq ft facility that includes product testing, client-training centre and the sales, project and engineering offices. AgileTek operates from an office in London and has offices supporting its Offshore Wind Farm division in Hamburg (Germany) and Shanghai (China). Tekmar has appointed sales agents in Busan (South Korea) and Boston (United States) for the Offshore Wind Farm division and in Singapore and Abu Dhabi (United Arab Emirates) for the Subsea division.

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August 21, 2018 02:00 ET (06:00 GMT)