Styles&Wood Group plc Acquires Keysource Limited

Styles&Wood, the integrated property services and project delivery specialist, is pleased to announce that it has acquired the entire issued share capital of specialist critical facilities and data centre services provider, Keysource Limited ("Keysource"), for an initial consideration of approximately £2.0 million to be satisfied in cash and shares (the "Acquisition"). An additional payment will be made to reflect any excess working capital over and above the ongoing requirements of the business. The Board expects this to amount to £2.5 million; such payment will be covered by the cash inherited in Keysource at the completion date. The Board envisages the Acquisition to be earnings enhancing in FY 2017.

Highlights of the Acquisition

• Initial consideration to be satisfied by a cash payment of £1.0 million and the issue of 257,365 new ordinary shares to the vendors of Keysource, who will remain with the business;
• Potential further deferred consideration of up to £5.0 million, to be satisfied in cash and shares, subject to the achievement of certain financial performance criteria over the three year period ending 31 December 2018;
• Acquisition in line with Styles&Wood's strategic focus on diversifying its service offering across key sectors;
• Enhances the Group's service line capabilities in technologies and critical facilities including data centres;
• Provides new opportunities to broaden work streams to both existing and new customers;
• Overall market for data centres is forecast to reach over £1.1bn by the end of 2020, representing annual growth of 3-4%*;
• Acquisition funded from the Group's existing financial resources; and
• Expected to be earnings enhancing in FY 2017.

Note: *AMA Research: Data Centre Construction Market Report UK 2016-2020 Analysis

Information on Keysource

Based in Horsham, Sussex and incorporated in 1998, Keysource currently employ in excess of 60 staff and is one of the UK's leading critical facilities and data centre services providers. The company specialises in delivering engineering and technology services and solutions for customers in their business critical environments. The management team has over 30 years' experience working with some of the world's leading organisations to support critical applications and facilities across a diverse range of sectors, including commercial, banking, education and industrial. 

In the audited financial year ended 31 December 2015, Keysource delivered revenues of £18.7 million, and underlying pre-tax profits of £0.1 million. Net assets as at 31 December stood at £2.2 million.

As part of the Acquisition, all Keysource employees will remain employed by Keysource Limited which will be positioned within Styles&Wood Group.

Rationale for the Acquisition

The Acquisition presents Styles&Wood with an opportunity to further expand its services to include data centre and critical facilities work to its customers. The new national framework appointment of the Group by one of the world's leading financial institutions, announced on 31 August 2016, includes work on critical facilities and data centres. Keysource were Styles&Wood's partner on this successful tender, and the on-going relationship was beneficial in obtaining the appointment. The Board envisage being able to offer Keysource's services to its other banking framework customers.

Terms of the Acquisition

Keysource has been acquired for an initial consideration of £2.0 million, net of £2.5 million of free cash acquired, and with no borrowings. The initial consideration is to be satisfied by a cash payment of £1.0 million funded through the Group's existing cash resources and the issue of 257,365 new ordinary shares in the capital of Styles&Wood (the "Consideration Shares").  The Consideration Shares are being issued to the founder of Keysource, Mike West, and certain senior management who will remain with the enlarged group. Following the Acquisition Mike West will hold 232,944 ordinary shares.  

Further contingent consideration of up to £5.0 million ("Deferred Consideration") may be payable, in cash and shares ("Earn-out Shares"), subject to the achievement of certain financial performance criteria for the three year period ending 31 December 2018, details of which are set out below. The Deferred Consideration, if payable, is expected to be self-funding from future cash-flows generated by the enlarged Group based on the challenging financial targets set.

Deferred Consideration

The level of Deferred Consideration due is dependent on the future profitability of Keysource:

• FY 2016 - Subject to the achievement of a minimum adjusted* profit before tax ("PBT") of £0.49 million, the Group will pay 100% of PBT generated (capped at £1.0 million);
• FY 2017 - Subject to the achievement of a minimum PBT of £0.86 million, the Group will pay 90% of PBT generated (capped at £2.0 million); and
• FY 2018 - Subject to the achievement of a minimum PBT of £0.94 million, the Group will pay 75% of PBT generated (capped at £2.0 million).

Note: *Adjusted for transaction and associated restructuring costs

The first £500,000 of any deferred consideration payable will be satisfied in cash.  Thereafter, any excess over £500,000 will be satisfied in cash and shares at the discretion of Styles&Wood up to a maximum of 50% in shares. 

Lock-in and orderly market provision

Under the terms of the acquisition agreement, Mike West has entered into an irrevocable undertaking not to dispose (save in certain specified circumstances) of any interest in his Consideration Shares for a period of one year from issue and for a period of one year from the date of issue in respect of his Earn-out Shares (in each case, the "Lock-in period").

Mike West has also undertaken that he will not dispose of any interest in Consideration Shares or Earn-out Shares for a period of 12 months following expiry of the relevant Lock-in period unless such disposal is effected through Shore Capital.

Application has been made to London Stock Exchange plc for the Consideration Shares to be admitted to trading on AIM. Admission of the Consideration Shares to trading on AIM is expected to take place on 26 September 2016. On admission of the Consideration Shares, the enlarged issued share capital of the Group will be 7,334,950 ordinary shares of 1p each.

Tony Lenehan, Chief Executive Officer, commented:

"We are delighted to announce the acquisition of Keysource. The data centre market is a sector we have been looking to access for some time and believe it has strong growth prospects driven by a combination of macro and regulatory factors.

The acquisition follows our successful consortium arrangement with Keysource on an ongoing major banking framework and we have been very impressed with the team's expertise and project delivery capabilities.

Styles&Wood has a proven diversification strategy which has strengthened our client relationships across our focus sectors. This acquisition further reinforces our strategic vision and will enable us to widen our service offering to both existing and new customers and create new sustainable business opportunities for the group as a whole."