TIDMREAT
RNS Number : 7248T
React Group PLC
29 March 2021
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the Regulation 11 of the Market Abuse (Amendment) (EU Exit)
Regulations 2019/310. With the publication of this announcement via
a Regulatory Information Service, this inside information is now
considered to be in the public domain.
29 March 2021
REACT Group plc
("REACT" or the "Company")
Acquisition of Fidelis Contract Services Ltd
Significant expansion of the Group's scale and offering in the
commercial cleaning and hygiene services sector
REACT (AIM: REAT.L), the leading specialist cleaning, hygiene,
and decontamination company, is pleased to announce the acquisition
of Fidelis Contract Services Ltd ("Fidelis"), a successful
commercial cleaning, hygiene and facility support services company
headquartered in Birmingham providing services to customers across
England and Wales. This maiden acquisition, which is expected to be
immediately earnings enhancing, represents an important step in the
Company's stated growth strategy.
Acquisition highlights:
-- Acquisition of Fidelis, a well-established commercial
cleaning, hygiene, and facility support services business with
extensive coverage in England and Wales.
-- Expected to be immediately earnings enhancing.
-- Delivers a significant increase in the scale of the Group's
commercial cleaning and hygiene services offering.
-- Fidelis has strong credentials in the education and
healthcare sectors providing quality contract cleaning and hygiene
services ranging from daily housekeeping and washroom hygiene
services through to building and caretaker services, as well as
specialist services such as kitchen and duct cleaning, industrial
deep cleaning, and pest control.
-- High levels of recurring revenues providing clear visibility of future revenues and income.
o c. 87% of revenue for Fidelis in the financial year ended 31
March 2020 ("FY 2020") were recurring in nature with a significant
proportion being from contracted maintenance cleaning and a small
element from contracted reactive cleaning.
-- Largely long-term contracts of 3-5 years in duration, with a
strong track record of contract renewals and long-term customer
relationships.
-- Wide spread of customers, with no one customer generating
more than c.8% of revenues in FY 2020 and the top 10 customers
representing c.50% of total revenues in FY 2020.
-- Profitable with good cash conversion.
-- Quality service provision, particularly in sectors such as
education and healthcare, commanding higher than average margins
for contracted maintenance cleaning.
-- Total consideration payable for Fidelis is based on 4.75
times EBITDA in the financial year ending 31 March 2022 ("FY 2022")
(on a cash free, debt free basis with normalised working capital)
comprising:
o Initial consideration of GBP1.70 million, payable as to
GBP1.50 million in cash from the Group's existing cash resources
and GBP0.20 million through the issue of new ordinary shares at a
price of 2.1p per share, with the relevant vendors locked-in for 24
months from the date of completion;
o Deferred consideration payments of up to GBP3.05 million,
subject to the audited financial performance of Fidelis in the
current financial year ending 31 March 2021 ("FY 2021") and FY
2022;
o Deferred consideration payments to be settled in cash and paid
in instalments with the final payment being on 29 March 2024;
and
o Maximum consideration payable of GBP4.75 million, plus surplus
cash on completion.
-- Maiden acquisition and an important step in REACT's stated
growth strategy to grow organically and through targeted
value-accretive acquisitions.
-- Fidelis's predominately contracted maintenance work
complements REACT's focus on reactive work - blend of revenues and
margins.
-- The two businesses of Fidelis and REACT complement each other
providing expertise and operational strength in their respective
specialisms in sectors strategically important to both
companies.
-- Cross selling opportunities to customers of both Fidelis and REACT.
-- Lloyd Ansermoz founded Fidelis over 10 years ago and will
remain with the enlarged business as a shareholder and, along with
his colleagues at Fidelis, an integral part of the management team
going forward.
Mark Braund, Executive Chairman of REACT, commented:
"We are delighted to announce the acquisition of Fidelis today,
our maiden acquisition and an important milestone in our stated
goal to become the country's most trusted name in the provision of
specialist cleaning, decontamination and hygiene services. The
acquisition is expected to be immediately earnings enhancing and
leaves REACT well positioned to continue to increase market
share.
"We have structured the acquisition such that the deferred
consideration is linked to the EBITDA performance of Fidelis. We
therefore intend to fund any further consideration payable from a
combination of existing resources and cash generated by the
enlarged REACT group post acquisition.
"The combination of our recent organic growth and the Fidelis
acquisition leaves us well positioned to deliver material growth in
the current financial year.
"We welcome Lloyd and the Fidelis team into the REACT group and
look forward to working with them."
About Fidelis
Fidelis is a successful commercial cleaning, hygiene and
facility support services company headquartered in Birmingham
providing services to customers across England and Wales. Fidelis
provides services ranging from daily housekeeping and washroom
hygiene services through to building and caretaker services. It
also provides specialist services such as kitchen and duct
cleaning, industrial deep cleaning, pest control and barrier
matting for flooring in buildings. Fidelis provides services to a
diverse range of sectors with a particular strength in education,
healthcare and associated industries.
Fidelis was founded by Lloyd Ansermoz over 10 years ago. Lloyd
Ansermoz will remain a shareholder in the enlarged business and,
along with his colleagues at Fidelis, an integral part of the
management team going forward. Fidelis was majority owned by Lloyd
Ansermoz and his wife Naomi.
Reasons for and benefits of the Acquisition
The Group's strategy for growth is to build a leading position
in the provision of specialist cleaning, decontamination and
hygiene services through organic growth and strategic
acquisitions.
The businesses of Fidelis and REACT complement each other,
providing expertise and operational strength in their respective
specialisms in sectors strategically important to both companies.
The combination of both REACT and Fidelis represents a unique
consolidation of services, that the enlarged business will seek to
develop with its customers.
Principal terms of the Acquisition
REACT SC Holdings Limited ("REACT SC"), a wholly owned operating
subsidiary of REACT, has entered into an agreement to acquire the
entire issued share capital of Fidelis (the "Acquisition") (on a
cash free, debt free basis with normalised working capital) for an
initial consideration of GBP1.70 million.
The initial consideration comprises GBP1.50 million in cash and
GBP0.20 million satisfied by the issue of 9,496,676 new ordinary
shares of 0.25 pence each in the capital of the Company ("Ordinary
Shares") at 2.1 pence per share (being the average mid-market price
of REACT's ordinary shares for the five business days prior to
completion of the Acquisition) (the "Consideration Shares"). The
Consideration Shares will be issued to Lloyd Ansermoz and his wife
Naomi.
The cash element of the initial consideration has been satisfied
from the Group's existing cash resources.
Further deferred consideration is payable subject to Fidelis
achieving certain EBITDA performance targets in FY 2021 and FY
2022.
The total consideration payable is capped at GBP4.75 million on
a cash free and debt free basis with normalised working
capital.
The first deferred consideration payment of up to GBP700,000
will be payable to the vendors of Fidelis in cash and will be paid
in full subject to Fidelis achieving EBITDA of c. GBP0.5 million in
FY 2021.
The second deferred consideration payment of up to GBP2,264,578
will be payable to the vendors of Fidelis in cash and will be paid
in full subject to Fidelis achieving EBITDA of GBP1.0 million in FY
2022.
REACT SC has issued loan notes to the vendors of Fidelis for an
amount totalling GBP85,422 (the "Loan Notes") and with a coupon of
5%. The aggregate value of the loan notes will be reduced to the
extent that Fidelis does not achieve EBITDA of c. GBP0.5 million in
FY 2021 and will otherwise be repaid on 1 April 2022. The Loan
Notes are guaranteed by REACT.
The Consideration Shares will be subject to a lock-in for a
period of 24 months following completion of the Acquisition.
Financial information on Fidelis
For FY 2020, management accounts for Fidelis recorded revenue of
GBP3,296,952 and a profit before tax of GBP253,289. Unaudited
statutory accounts for FY 2020 showed gross assets as at 31 March
2020 of GBP794,044.
Issue of equity and change to total voting rights
Application will be made for the Consideration Shares to be
admitted to trading on AIM and it is expected that admission will
take place on or around 1 April 2021 ("Admission").
Upon Admission, the issued share capital of the Company will
consist of 508,006,026 Ordinary Shares. The Company does not hold
any shares in treasury. Therefore, the total number of voting
rights in the Company from Admission will be 508,006,026. This
figure may be used by shareholders as the denominator for the
calculations by which they 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.
For more information:
REACT Group plc
Mark Braund, Chairman Tel: +44 (0) 798 222
Shaun Doak, Chief Executive Officer 0001
Andrea Pankhurst, Chief Financial Officer
Allenby Capital Limited
(Nominated Adviser and Broker)
Nick Athanas / Liz Kirchner (Corporate Tel: +44 (0) 203 328
Finance) 5656
Amrit Nahal / Tony Quirke (Sales &
Corporate Broking)
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END
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