Disposal

 

TIDMXPT 
 
RNS Number : 7841S 
XploiTe PLC 
26 May 2009 
 

26 May 2009 
 
 
Xploite plc 
 
 
Disposal of Anix realises GBP31.5 million 
 
 
Xploite plc ("Xploite", "the Group", AIM: XPT), the operator and aggregator of 
strategic and high growth IT services businesses, announces the proposed 
disposal by its subsidiary, Xploite IHC, of Anix, its managed services division, 
to ACS Business Process Solutions Limited (ACS BPS) for GBP31.5 million in cash 
on completion. The disposal is subject to a deduction for debt and working 
capital, expected to be circa GBP3.0 million. 
 
 
ACS BPS is a wholly owned subsidiary of ACS, the Texas-based business process 
outsourcing and information technology services and solutions provider. 
 
 
Highlights 
 
 
  *  The offer represents a cash profit of GBP10.5 million - the difference between 
  the net cash cost of the businesses acquired and the net cash received at 
  disposal 
 
  *  The offer represents an IRR for the Company on the total invested capital in 
  Anix of 39% 
 
  *  The proposed transaction is an all cash offer, providing an immediate cash 
  return 
 
  *  The offer represents a multiple of 13.5 x EBIT for the year ended 31 October 
  2008 
 
  *  The disposal will enable Xploite to capitalise on the weakness of valuations in 
  the IT services market through other strategic "buy and build" opportunities 
 
The calculations above have been made on the basis of the offer made by ACS BPS, 
net of the deduction for debt and working capital. 
 
 
Ian Smith, Xploite Chief Executive commented, 
 
 
"This very competitively priced and unsolicited cash offer provided us with an 
excellent cash return at a time of considerable market uncertainly. 
 
 
"In a difficult trading environment, we have been focussed and have successfully 
delivered on our strategy of identifying, buying, investing in, actively 
managing and now disposing of various assets and businesses to provide 
shareholders, in a relatively short time, with excellent returns. 
 
"We are now in a strong position to create further shareholder value by 
exploiting our proven expertise, market knowledge and business strategy at time 
when valuations are very attractive." 
 
 
Enquiries: 
 
 
+--------------------------------------+--------------------------------+ 
| Xploite plc                          | 0870 737 2001                  | 
+--------------------------------------+--------------------------------+ 
| Ian Smith, Chief Executive Officer   |                                | 
+--------------------------------------+--------------------------------+ 
| Robert Arrowsmith Finance Director   |                                | 
+--------------------------------------+--------------------------------+ 
|                                      |                                | 
+--------------------------------------+--------------------------------+ 
| Oakley Capital                       | 020 7766 6900                  | 
+--------------------------------------+--------------------------------+ 
| Chris Godsmark                       |                                | 
+--------------------------------------+--------------------------------+ 
|                                      |                                | 
+--------------------------------------+--------------------------------+ 
| KBC Peel Hunt Ltd                    |                                | 
+--------------------------------------+--------------------------------+ 
| Nicholas Marren/Richard Kauffer      | 020 7418 8900                  | 
+--------------------------------------+--------------------------------+ 
|                                      |                                | 
+--------------------------------------+--------------------------------+ 
| College Hill                         | 020 7457 2020                  | 
+--------------------------------------+--------------------------------+ 
| Adrian Duffield/Carl Franklin        |                                | 
+--------------------------------------+--------------------------------+ 
 
 
Background to and reasons for the disposal 
 
 
This is the second significant cash realisation that Xploite has achieved for 
shareholders through its "buy and build" strategy in the IT services sector 
since 2003. 
 
 
The first "buy and build" business established by the Group was Matrix 
Communications Group. Matrix completed nine acquisitions and sold its two 
principal operating divisions in 2006, realising a cash return of over GBP20m 
(after all acquisition costs) in less than three years. 
 
 
Following these disposals, the Group was renamed Xploite in April 2007. The 
Board reaffirmed its strategy to identify, acquire, consolidate and develop 
innovative, high growth businesses in the IT services marketplace and to deliver 
shareholder value via the subsequent disposal of assets to industry peers or 
other third parties. 
 
 
In line with this strategy, Xploite began another substantial "buy and build" 
plan in the IT services sector. Four acquisitions were completed (detailed 
below) in order to establish and grow the Group's principal operating division, 
Anix. The acquisitions comprised: 
 
 
  *  Posetiv Limited, a value added reseller of storage infrastructure solutions, for 
  approximately GBP4.21 million in cash in February 2007; 
  *  Anix Group Limited, a value added reseller of storage hardware and provider of 
  IT managed services, for a total consideration of GBP10.96 million in April 
  2007; 
  *  Red Squared plc, a quoted provider of IT managed services, for a total 
  consideration of GBP3.23 million in October 2007; and 
  *  Blue River Systems Limited, and the assets of three managed IT services 
  businesses from Cantono plc in December 2008 for a consideration of GBP2 million 
  (see note below). 
 
The total consideration for the four acquisitions was GBP20.4 million. For the 
year ended 31st October 2008, Anix generated an Operating Profit of GBP2.15 
million. The total cash outflow on these acquisitions, taking into account cash 
balances acquired, was GBP18.6m. The four businesses have been fully integrated 
under the Anix brand, with a common infrastructure covering network monitoring 
platforms, sales, customer service and back office. 
 
 
In addition to buying and integrating these businesses, Xploite's management 
team has contributed substantially to improvements in the trading and financial 
performance of Anix. The acquisitions delivered significant cost synergies and, 
in particular, expanded the recurring revenue customer base. Several changes 
were made to the divisional management team and employees of Anix, resulting in 
a strong improvement in sales and the sales order pipeline. 
 
 
Note: Issues of dispute have arisen with regard to the sale and purchase 
agreement between the Group and Cantono plc arising from the acquisition, 
announced on 27 November 2008, of the managed services business from the Cantono 
group. The dispute has arisen over the amount of the deferred consideration that 
was due to be paid to Cantono plc on 15 March 2009. 
 
Principal terms of the disposal and use of proceeds 
 
 
The Group will sell, subject to shareholders' approval, Anix for an aggregate 
consideration of GBP31.5 million to ACS BPS, payable in cash on completion, 
subject to a deduction for debt and working capital and a retention of GBP3.15 
million as security against possible warranty claims. This retention is payable 
to Xploite 15 months after completion. 
 
 
The working capital and debt reduction is subject to the preparation of a 
closing balance sheet and so its precise quantum will not be known until a 
maximum of 60 days after completion. However, the Board's expectation is that 
this deduction will be of circa GBP3.0 million. 
 
 
The cash received by Xploite will, after fees and other disbursements, be used 
in the short term to pay down bank debt. At 19 May 2009 Group net indebtedness 
was GBP7.6 million including debt related to Storage Fusion. The balance of the 
cash received will be retained by Xploite and is expected to be invested in 
further "buy and build" opportunities. 
 
 
Investing strategy of the Group following disposal 
 
 
The Group will seek to identify further ways to create value for shareholders 
through acquisitions in the Information Communication Technology market. The 
Board believes that current depressed valuations for quoted and unquoted assets 
have created an attractive near- term opportunity to acquire assets. 
 
 
Xploite will continue to operate as a holding company, providing strategic and 
financial management to individual operating divisions. These divisions will 
continue to be run independently with separate management, thus enhancing future 
disposal potential. 
 
 
The investing strategy of the Board will be to acquire, either through the issue 
of securities or for cash, quoted and non-quoted companies operating in the UK 
in the IT services, technology and communications sectors. The acquisition 
strategy will be focused on a limited number of "buy and build" opportunities, 
with the intention of realising further value for shareholders through a future 
exit. 
 
 
The Continuing Group 
 
 
Xploite will continue to own and operate its other business division, Storage 
Fusion. Storage Fusion comprises part of the software business of Itheon, the 
data centre management software business which was acquired in October 2007. The 
key element of that software business is the Storage Resource Analysis ("SRA") 
software. One of the reasons Itheon was originally acquired for GBP6.5 million, 
was to deliver cost savings into the Anix managed services operation. The core 
technology of Itheon was based around server monitoring, which is a key function 
of running a managed service. 
 
 
In November 2008, the Board identified the opportunity to sell Itheon, whilst at 
the same time retaining the core SRA technology within the Group. The disposal 
of Itheon realised proceeds of GBP3.3 million and a gain of GBP1.9 million. The 
opportunity resulted in an overall IRR for the Company of 51% for the Itheon 
business. 
 
 
Since the disposal of Itheon, Xploite has invested in the development of the SRA 
software, which enables the Group to provide storage analytics as a service 
solution. The Board's expectation in the year to 31 October 2009 is to sell more 
licences of this nature. Storage Fusion also expects to set up a portal which 
will allow customers anywhere in the world to log in and utilise the software on 
an as-used basis. 
 
 
In addition to this, the Board is also in discussions with major storage vendors 
to deliver branded SRA portals. Storage Fusion has had a slower than budgeted 
start to this financial year, and is unlikely to achieve the Board's original 
expectations for the year although the pipeline remains strong. 
 
 
Extraordinary General Meeting 
 
 
The disposal is conditional upon the approval of shareholders at an 
Extraordinary General Meeting of the Company to be held at the offices of 
Beachcroft LLP, 100 Fetter Lane, London EC4A 1BN at 11.00 a.m. on 12 June 2009. 
At the EGM the Company will also seek approval for its investing strategy. 
 
 
Recommendation 
 
 
Having taken into account the advice of Oakley, the Directors consider the terms 
of the disposal, as set out in this letter and the Resolutions, to be in the 
best interests of the Company and its Shareholders taken as a whole. 
Accordingly, the Directors unanimously recommend Shareholders to vote in favour 
of the Resolutions. 
 
 
 
 
End 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
This information is provided by RNS 
            The company news service from the London Stock Exchange 
   END 
 
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