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Accrol Group Holdings - Acquisition and Launch of ABB

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ACCROL GROUP HOLDINGS PLC
("Accrol", the "Group" or the "Company")

CONDITIONAL ACQUISITION OF LEICESTER TISSUE COMPANY LIMITED ("LTC")

AND

PROPOSED PLACING AND OPEN OFFER

Accrol, a UK leading independent tissue converter, announces that it has entered into a conditional agreement to acquire the entire issued share capital of the LTC Group, a UK-based tissue converter, for an enterprise value of up to £41.8 million, comprising initial consideration of £35.0 million at Acquisition Completion and up to a further £6.8 million deferred consideration due in 2021, contingent on certain performance criteria being achieved.

Founded in 2014, LTC is a well-invested, fast growing, independent tissue conversion business, supplying private label and branded toilet roll and kitchen towel to UK customers, including major supermarket multiples and value retailers.

Acquisition highlights

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LTC is a well-invested business of good scale with high-quality, modern machine assets, comprising four tissue lines, with significant capacity, highly effective systems and a strong day-to-day operational leadership team.

 

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In the unaudited financial year ended 30 September 2020, the LTC business delivered revenue of £ 28.0 million, up c.44 per cent. on the previous financial year and adjusted EBITDA* of £ 4.5 million, up c.181 per cent. LTC' s revenue grew at a CAGR of c.70 per cent. between 2017 and 2019.

 

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The Acquisition will increase Accrol's share of the total UK retail tissue market to approximately 16 per cent. of the £1.7 billion UK industry and consolidate its position in the private label retail tissue market.

 

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With c.48 per cent. of Accrol's sales currently delivered south of Leicester, LTC's central England location provides a significant opportunity for logistical synergies.

 

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LTC's product mix and customers are complementary to and enhance Accrol's existing customer relationships.

 

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The Directors estimate annualised run rate cost synergies in excess of £1.0 million from procurement and operational efficiencies.

 

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The Acquisition is expected to be immediately earnings enhancing.  Initial Consideration of £35.0 million representing an enterprise value / FY20 adjusted EBITDA* multiple of 7.8x before synergies and 5.5x when combined with the maximum Deferred Consideration (which is subject to new contract incremental EBITDA contributions of £3.1m).


* Unaudited adjusted EBITDA for year ended 
30 September 2020 under UK GAAP including adjustments for director salary costs not expected to continue and certain other non-recurring costs

Acquisition financing

The Company intends to finance the consideration for the Acquisition and Associated Costs of approximately £3.5 million via a conditional placing of new Ordinary Shares at a price of 44 pence per Ordinary Share with institutional and other investors to raise approximately £38.5 million.

Contingent on LTC achieving up to £3.1 million incremental EBITDA contribution on revenue generated from certain new contracts between March 2021 and the end of June 2021 (with the opportunity to extend this period up to the end of September 2021 in the event of any delay in respect of one specified contract), the Group will pay the Deferred Consideration of up to £6.8 million to the LTC Vendors, which will be satisfied in cash and/or by the issue of new Ordinary Shares (at the Group's discretion) to the LTC Vendors at the relevant time. 

Completion of the Acquisition is conditional upon the admission of the Primary Placing Shares to trading on AIM, which in turn, is conditional on the passing of certain Resolutions to be proposed at a General Meeting authorising the Company to allot the Primary Placing Shares. If the condition to the Acquisition is not satisfied by 11 December 2020, the Acquisition will not proceed.

Accelerated bookbuild and intention to launch the Open Offer

The Primary Placing will be conducted through an accelerated bookbuild, which will be launched immediately following the release of this Announcement. Zeus Capital and Liberum Capital are acting as the Joint Bookrunners in connection with the Placing.

It is intended that the Primary Placing will raise approximately £38.5 million in gross proceeds at a price of 44 pence per Primary Placing Share, which will be used, inter alia, to fund the Initial Consideration and Associated Costs.  Further details of the proposed Primary Placing are detailed in this Announcement.

If the Primary Placing is oversubscribed, the Directors believe the opportunity may exist for investors to acquire further Ordinary Shares from potential Selling Shareholders. The Optionholders (who are also members of the Accrol management team) may be willing to consider exercising certain of their options and selling some or all of the resultant shares via a Secondary Placing, enabling such shares to be sold to placees. If the Secondary Placing proceeds:

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any proceeds of the Secondary Placing would be received by the relevant Selling Shareholders and not by the Company; and

 

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if an Optionholder elects to sell shares in a Secondary Placing, the balance of shares resulting from the exercise of his options which are not sold to placees in a Secondary Placing, would be locked in in two tranches: the first tranche until the release by the Company of its half-year results for the six months ended 31 October 2020 (expected in January 2021) and the second tranche until 1 August 2021.

 


Accrol also intends to raise up to a further c.£4.1 million
 by way of an Open Offer to Shareholders (other than certain overseas Shareholders), primarily to provide the Company with additional working capital and to further strengthen its balance sheet. The Placing Shares will not be subject to clawback from the Open Offer. Further details of the proposed Open Offer will be provided to Shareholders in due course.

The Appendix to this Announcement (which forms part of this Announcement) contains the detailed terms and conditions of the Placing.

Dan Wright, Executive Chairman of Accrol, said:

"I am delighted to announce the conditional acquisition of the LTC Group, which is fully aligned with our "Brand Killers" growth strategy. We have been very selective about Accrol's first acquisition, and LTC's scale and quality demonstrates the ambitions we have for the Group.  Accrol has a highly experienced senior management team with proven and relevant M&A integration skills, which is committed to building a world-class, operationally efficient business of size and scale and delivering substantial shareholder returns through organic and acquisitive growth.

"With c.£25 million having been invested in the LTC business since its foundation in 2014, it is equipped with top quality machines and has highly capable day-to-day operational leadership, on which we can build. I look forward to welcoming the LTC team to the Group and to an exciting future for our combined business." 

Gareth Jenkins, Chief Executive Officer of Accrol, added:  

"This is a step change for Accrol. LTC adds significant capacity to our existing business, which is already growing ahead of the market, as well as immediately enhancing the earnings of the Group.  In addition to bringing a wider customer base, it increases the size and scale of the business, enabling greater cost efficiencies and improved market positioning.

"The Group's cash flow will also benefit from the Acquisition, not least because we are able to defer a £5 million investment in a new line, planned for Q4 FY21, and also because of the cash generative nature of LTC."