TIDMGRC
RNS Number : 5649P
GRC International Group PLC
11 February 2019
11 February 2019
The information communicated within this announcement is deemed
to constitute inside information as stipulated under the Market
Abuse Regulations (EU) No. 596/2014.
GRC International Group plc
("GRC International", the "Company" or the "Group")
Acquisition of DQM Group Holdings Limited
Placing to raise GBP5 million
GRC International Group plc (AIM:GRC), a leading supplier of IT
governance, risk management and compliance products and services,
is pleased to announce that it has conditionally agreed to acquire
the entire issued share capital of DQM Group Holdings Limited
("DQM"), a provider of data consulting and technology solutions,
and its subsidiaries (the "Acquisition"). The Acquisition is
expected by the Board to be significantly earnings enhancing in FY
2020 and beyond and marks the completion of the majority of the
Group's investment programme intended to position the Group to
become cash generative.
In addition, and in connection with the Acquisition, the Company
proposes to raise GBP5 million by way of a conditional placing of
5,000,000 new Ordinary Shares at 100 pence per Ordinary Share (the
"Placing"). The Company intends to use the net proceeds of the
Placing to finance primarily the initial cash element of the
consideration for the Acquisition and to provide additional working
capital for the enlarged business.
Acquisition highlights
-- Conditional agreement to acquire DQM, a provider of data consulting and technology solutions.
Key aspects of DQM include:
- Four main revenue streams: Managed Services, GDPR Consulting, Third Party Auditing and GDPR
Technology Solutions
- Established earnings, with significant revenue for the year ended 28 February 2018 derived
from clients using more than one product or service
- Revenues for the financial year to 28 February 2018 of approximately GBP2.9m, with an EBITDA
of approximately GBP720k
- Organic revenue compound annual growth rate ("CAGR") of 26 per cent. over the two years to
28 February 2018
-- Initial Consideration for the Acquisition totaling GBP5,886,839 comprising a cash payment
of GBP3,532,104 and the issue of 2,021,232 Ordinary Shares, worth GBP2,354,736 based on an
issue price per Ordinary Share of 116.5 pence
-- Deferred Consideration calculated by reference to eight times DQM's adjusted EBITDA for the
financial year ended 28 February 2019, less the Initial Consideration and certain other adjustments.
The Deferred Consideration will be satisfied through a cash payment (as to 60 per cent.) and
the issue of Ordinary Shares (as to 40 per cent.) and is currently anticipated to be in the
range of approximately GBP2.5 million to GBP3.5 million, not exceeding GBP5 million
-- The Acquisition, the Board believes, will provide a number of earnings enhancing benefits
to GRC International:
- Extend the Group's existing offering to include high margin, data governance services
- Add market share to the Group, by introducing additional household name clients with on-going
contracts
- Provide cross-selling and upselling opportunities through the companies' complementary offerings
- Broaden and strengthen the Group's second tier management team, through the retention of existing
DQM management
- Add customer account management capability
- Provide strategic opportunities, such as enabling the Group to gain Data Privacy Seal accreditation
- Provide sector crossover, such as an increased financial sector exposure
-- The Acquisition is expected to be significantly earnings enhancing in FY 2020 and beyond
Placing highlights
- GRC International is proposing to raise GBP5 million (before expenses) through a placing of
5,000,000 Placing Shares at 100 pence per Ordinary Share (the "Placing Price")
- The Placing Price represents a discount of approximately 9 per cent. to the closing bid price
of 109 pence of the Ordinary Shares on 8 February 2019
Commenting on the proposed acquisition, Alan Calder, Chief
Executive Officer of GRC International, said:
"This strategic acquisition is another step forward in the
growth strategy of GRC International, enabling us to capitalise
further on the significant opportunities within the IT governance,
risk and compliance market and to extend GRC's existing
capabilities and the range of products and services we offer to our
customers.
"DQM boasts market-leading expertise in data consultancy, an
impressive customer base and unique solutions, providing us clear
opportunities for cross-selling and up-selling of our products and
services. We look forward to welcoming DQM into the GRC
International Group."
Peter Galdies, Founder and Director of DQM, also commented:
"We are looking forward to becoming part of the GRC
International Group and working with Alan Calder and the team. Our
existing offerings will complement GRC's products and services well
and the opportunities for synergy creation and cross-selling, we
believe, will significantly strengthen the future prospects for the
Group."
Enquiries
GRC International Group plc www.grci.group
Alan Calder (CEO) 033 3800 7000
Chris Hartshorne (Finance Director)
Grant Thornton UK LLP (Nomad)
Philip Secrett/ Jen Clarke 020 7383 5100
Dowgate Capital Stockbrokers Limited
(Broker)
James Serjeant 020 3903 7717
Citigate Dewe Rogerson (Financial
PR)
Nick Hayns / Lucy Eyles / Claire
Dansie 020 7638 9571
1. Introduction and summary
GRC International Group plc today announces that it has
conditionally agreed to acquire the entire issued share capital of
DQM, a provider of data consulting and technology solutions
headquartered in High Wycombe (the "Acquisition").
Acquisition of DQM
The original business, Data2 Limited, was founded in 1996 by
Peter Galdies and Lisa Bentall and focused on managed solutions,
such as utilising technology to track data misuse. In 2003 Data2
Limited acquired DQM which allowed it to expand into data security,
protection and consultancy services. The business has since grown
organically and in FY18 reported revenues of approximately GBP2.9
million and generated an EBITDA of approximately GBP720,000.
Following a broadening of the product range to include governance,
risk and compliance products, DQM rebranded in 2015 to DQM GRC.
Initial consideration for the Acquisition will be GBP5,886,839,
comprising a cash payment of GBP3,532,104 and the issue of
2,021,232 Initial Consideration Shares, worth GBP2,354,736
calculated on the basis of an issue price per Ordinary Share of
116.5 pence, equal to the average of the middle market quotations
for the Ordinary Shares as shown by the AIM Appendix of the Daily
Official List of the London Stock Exchange for the 10 business days
prior to and including 7 February 2019 (the "Initial
Consideration").
Deferred consideration will also be payable to the sellers (the
"Deferred Consideration") which will be calculated by reference to
eight times DQM's adjusted EBITDA for the financial year ending 28
February 2019, less the amount of the Initial Consideration and
certain other adjustments. The Deferred Consideration will be
satisfied through cash (as to 60 per cent. of the Deferred
Consideration) and the issue of Ordinary Shares (as to 40 per cent.
of the Deferred Consideration and based on an issue price per
Ordinary Share of 116.5 pence) within five business days of
completion of the audit of DQM's accounts for the financial year
ending 28 February 2019. The Deferred Consideration is currently
anticipated to be in the range of approximately GBP2.5 million to
GBP3.5 million, not exceeding GBP5 million.
Placing
It is intended that the cash element of the consideration will
be funded by way of the Placing. The Company has provisionally
placed 5,000,000 new Ordinary Shares at the Placing Price of 100
pence per share and the Directors expect that the Placing will
raise gross proceeds for the Company of GBP5 million. The Placing
Price represents a discount of 9 per cent. to the closing bid price
of 109 pence per share on 8 February 2019 (being the latest
practicable date prior to the announcement of the Placing and
Acquisition on 11 February 2019).
The net proceeds of the Placing are proposed to be used
principally to finance the initial cash consideration due in
respect of the Acquisition, together with associated transaction
costs, with the balance providing additional working capital for
the enlarged business.
General Meeting
The issue of the Placing Shares is conditional, inter alia, upon
the approval by Shareholders of the Resolutions to be proposed at
the General Meeting of the Company convened for 1 March 2019. The
Placing Shares are not being offered on a pro rata basis to
existing Shareholders and accordingly the Placing is conditional,
inter alia, upon Shareholders resolving to disapply statutory
pre-emption rights.
2. Background to and rationale for the Placing and Acquisition
Background to the Company
GRC was admitted to trading on the London Stock Exchange's AIM
market in March 2018. The Group provides a comprehensive suite of
products and services to address the IT governance, risk management
and compliance requirements of organisations seeking to comply with
a wide range of data protection and cyber security regulation. The
Company provides a range of services and products through three
divisions: Training, Consultancy and Publishing &
Distribution.
When GRC was admitted to trading on AIM, its stated intention
was to raise new equity to accelerate organic growth and allow it
to fund potential acquisitions, in addition to raising the profile
of the Group with potential customers and help with the recruitment
and retention of staff.
As announced in the Company's interim results released on 24
December 2018, the Directors viewed the first half of FY19 as a
period of strategic development, as the Company used the proceeds
raised as part of its admission to trading to accelerate the launch
of product offerings and invest in people and infrastructure. The
Directors stated that they expect to see opportunities to acquire
other businesses and pursue a roll up strategy in a market which
remains very fragmented. Following the smaller acquisition of the
domain, web platform, customer list and goodwill of www.gdpr.co.uk
during 2018, the Directors believe the Company is now well placed
to proceed with a more substantial acquisition.
Information on DQM
Data Quality Management Group Limited, trading as DQM GRC, is a
provider of GDPR consulting and technology solutions. The original
business, Data2 Limited, was founded in 1996 by Peter Galdies and
Lisa Bentall and its initial product offering was data protection
to commercial data owners, utilising its "watermarking"
technology.
In 2003, Data2 Limited acquired DQM, which enabled the directors
to expand into data security, protection and consultancy services.
Following a broadening of the product range to include governance,
risk and compliance products, DQM rebranded in 2015 to DQM GRC. The
business now provides GDPR consulting, which has recorded strong
growth since the introduction of GDPR legislation, which took
effect in May 2018.
DQM has four main revenue streams:
-- Managed Services - constituting approximately 40 per cent. of revenue for the year to 28 February
2018. This was the original activity of DQM, and primarily helps clients track compliance
with a range of data regulations, which can include the use of DQM's data watermarking application,
a tool to help identify data loss, misuse and to prove ownership;
-- GDPR Consulting - constituting approximately 41 per cent. of revenue for the year to 28 February
2018. This includes GDPR Radar(TM) Compliance Risk Assessments, the tool DQM uses to determine
where potential GDPR non-compliance issues are within a client's business, provide follow
up work including writing policy documentation and process notes for clients, and additionally
provide training and compliance testing for the implementation of GDPR. More recently DQM
has also offered the services of a Data Protection Officer to a client. DQM utilises associated
businesses and consultants to outsource work on most projects;
-- Third Party Auditing - constituting approximately 14 per cent. of revenue for the year to
28 February 2018. DQM carries out approximately 160 data audits for clients to help them to
understand whether the level of royalty they receive for distribution of their data is in
line with contracted terms. This helps ensure contract terms are being followed and can improve
third party relationships. DQM are the exclusive audit partner of the DMA (Direct Marketing
Association);
-- GDPR Technology Solutions - constituting approximately 5 per cent. of revenue for the year
to 28 February 2018. This service helps clients manage data preferences. DQM acts as a distributor
of the software. Also within this category is Secure Hub, a technology used to transfer data
securely.
DQM has reported an organic revenue CAGR of 26 per cent. over
the two years to 28 February 2018, with an EBITDA margin of 26 per
cent. over the 10 months to 31 December 2018. DQM's revenue for the
year to 28 February 2018 was approximately GBP2.9 million, EBITDA
was approximately GBP720,000 and profit before tax for the year
ended 28 February 2018 was approximately GBP500,000. DQM's net
asset value as at 28 February 2018 was approximately GBP783,000.
DQM has high margin revenue and a number of customers use more than
one product or service. Its client base includes household name
customers such as Royal Mail, Thames Water and the Telegraph Media
Group. The Board believes that the acquisition will be
significantly earnings enhancing in the first full year of
ownership.
Rationale for the Acquisition
The Board believes that the Acquisition will provide a number of
earnings enhancing benefits to GRC International and will also:
- Extend the Group's existing offering to include high margin, data governance services;
- Add market share to the Group, by introducing additional household name clients with on-going
contracts;
- Provide cross-selling and upselling opportunities through the companies' complementary offerings;
- Provide additional second tier management support to the existing management structure;
- Add customer account management capability;
- Provide strategic opportunities, such as enabling the Group to gain Data Privacy Seal accreditation;
and
- Provide sector crossover, such as an increased financial sector exposure.
3. The Placing
The Company proposes to raise approximately GBP5 million (before
expenses) through the issue of the Placing Shares at the Placing
Price to fund principally the initial cash consideration payable
for the Acquisition, which represents a discount of 9 per cent. to
the closing bid price of 109 pence per Ordinary Share on 8 February
2019, being the latest practicable date prior to the announcement
of the Placing and Acquisition on 11 February 2019. The Placing
Shares will represent 7.6 per cent. of the Company's Enlarged Share
Capital.
The terms of the Placing
Dowgate Capital, as agent for the Company, has agreed to use its
reasonable endeavours to procure subscribers for the Placing
Shares. Dowgate Capital has conditionally placed the Placing Shares
with certain existing and new institutional and other investors at
the Placing Price. The Placing has not been underwritten by Dowgate
Capital. Completion of the Placing is conditional upon, inter alia,
the Resolutions being duly passed at the General Meeting and
Admission becoming effective on or before 8.00 a.m. on 5 March 2019
(or such later time and/or date as the Company and Dowgate Capital
may agree, but in any event by no later than 8.00 a.m. on 31 March
2019).
The Company has given limited warranties to Dowgate Capital in
relation to, inter alia, the accuracy of the information in this
document. In addition, the Company has agreed to indemnify Dowgate
Capital in relation to certain liabilities it may incur in respect
of the Placing. Dowgate Capital has the right to terminate its
engagement (but not the Placing) in certain circumstances prior to
Admission, in particular, in the event of a material breach of the
warranties given to Dowgate Capital in its engagement letter, the
failure of the Company to comply in any material respect with any
of its obligations under the engagement letter or the occurrence of
a force majeure event in respect of the Company.
The Directors believe that raising new funds by way of the
Placing is the most appropriate method of funding the Company at
the present time. The Board considers that a general offer to
existing Shareholders by way of rights or other pre-emptive issue
is not appropriate at this stage of the Company's development due
to the significant additional costs that would be incurred and the
delay that would be caused by the production and approval of a
prospectus if required.
Settlement and dealings
Application will be made to the London Stock Exchange for the
Placing Shares to be admitted to trading on AIM. It is expected
that Admission of the Placing Shares will become effective at 8.00
a.m. on 5 March 2019. The Placing Shares will, when issued, rank
pari passu in all respects with the Existing Ordinary Shares
including the right to receive dividends and other distributions
declared following Admission.
4. Sale and Purchase Agreement
On 11 February 2019, the Company entered into the Sale and
Purchase Agreement pursuant to which the Company agreed,
conditionally, to purchase the entire issued share capital of DQM
from its three shareholders. Completion of the Sale and Purchase
Agreement is conditional, inter alia, upon the Resolutions being
passed at the General Meeting and is expected to occur on the day
of Admission. The Initial Consideration for the Acquisition will be
GBP5,886,839, constituting a cash payment of GBP3,532,104 and the
issue of the issue of 2,021,232 Initial Consideration Shares, worth
GBP2,354,736 calculated on the basis of an issue price per share of
116.5 pence, equal to the average of the middle market quotations
for the Ordinary Shares as shown by the AIM Appendix of the Daily
Official List of the London Stock Exchange for the 10 business days
prior to and including 7 February 2019. The Initial Consideration
is to be satisfied on completion of the Acquisition.
Deferred Consideration will also be payable under the Sale and
Purchase Agreement to the sellers, pursuant to the terms of an
agreed earn-out which will be calculated by reference to eight
times DQM's adjusted EBITDA for the financial year ended 28
February 2019, less the amount of the Initial Consideration and
certain other adjustments. The Deferred Consideration will be
satisfied in cash (as to 60 per cent. of the Deferred
Consideration) and Ordinary Shares (as to 40 per cent. of the
Deferred Consideration and based on an issue price per Ordinary
Shares of 116.5 pence). The Deferred Consideration is currently
anticipated to be in the range of approximately GBP2.5 million to
GBP3.5 million, not exceeding GBP5 million.
The Sale and Purchase Agreement contains warranties and a tax
covenant given by all the sellers in relation to DQM and its
business, subject to certain customary limitations.
5. Use of proceeds
The net proceeds of the Placing will be used by the Company
principally to finance the cash element of the Initial
Consideration and Deferred Consideration due in respect of the
Acquisition, together with associated transaction costs, and to
provide additional working capital for the enlarged business.
6. Current trading and prospects
As announced in the Company's interim results to 30 September
2018, published on 24 December 2018, the Group demonstrated
year-on-year organic revenue growth of 54 per cent. to GBP8.9
million (H1 2018: GBP5.8 million), with a particularly strong Q1
performance attributable to the General Data Protection Regulation
("GDPR") compliance deadline of 25 May 2018. Gross profit increased
by 49 per cent. to GBP5.1 million (H1 2018: GBP3.4 million) with
margins broadly stable at 57 per cent.
Underlying EBITDA declined to a GBP1.8 million loss (H1 2018:
GBP0.8 million profit), following investment in new business lines,
infrastructure and people as the Company built a platform for
future growth.
Net cash at the period end was GBP1.7 million (FY2018: GBP5.6
million). Subsequent to the period end, the Group's investment
policy continued which is reflected in further losses, and the
Group secured a sterling overdraft facility and a loan facility
agreement in order to ensure sufficient headroom for working
capital requirements.
Following the Q1 surge in GDPR-related billings, as companies
looked to make themselves compliant ahead of the 25 May 2018
deadline, there was a slowdown in Q2 as expected. By 30 September
2018, revenues from GDPR had reached more normalised levels of
growth. The impact of the reduction in GDPR revenues was in part
counteracted by strong growth from cyber security products and
services during the period.
Good progress was made during the first half of FY2019 with the
strategic development of the Group, with net proceeds of GBP4
million raised through the Group's admission to trading on AIM in
March 2018 used to progress the launch of new products and services
and invest in people and infrastructure.
In August 2018, the Group acquired the domain, web platform,
customer list and goodwill of www.gdpr.co.uk. The Group has
enhanced the platform by offering relevant books, e-learning and
Data Protection Officer services through the website. The
acquisition is fully integrated and trading in line with
expectations. In addition, operations were established in Europe
(Drogheda, Eire), the United States (New York) and the Gulf, with
all businesses performing well, including significant contract wins
with Kubota and Microsoft.
The Directors are confident that the investments made in new
business areas and geographies following the Group's admission to
trading on AIM will provide momentum to deliver revenue growth
across FY2019 as a whole and underpin the Group's long-term growth
into FY2020 and beyond.
7. Posting of circular
A circular seeking the approval of Shareholders to issue and
allot the Placing Shares and Consideration Shares will today be
sent to shareholders convening a General Meeting of the Company to
be held at the offices of Citigate Dewe Rogerson, 3 London Wall
Buildings, London Wall, London, EC2M 5SY on 1 March 2019 at 11.00
a.m.
Expected timetable
2019
Publication of this shareholder circular 11 February
Latest time and date for receipt of Forms of 11.00 a.m. on
Proxy and CREST voting instructions 27 February
General Meeting 11.00 a.m. on
1 March
Admission and dealings in the New Ordinary 8.00 a.m. on 5
Shares expected to commence on AIM March
Expected date for CREST accounts to be credited 5 March
in respect of the New Ordinary Shares in uncertificated
form
Completion of the Acquisition 5 March
Where applicable, expected date for despatch by 19 March
of definitive share certificates for New Ordinary
Shares in certificated form
This Announcement contains inside information for the purposes
of Article 7 of EU Regulation 596/2014 ("MAR"). In addition, market
soundings (as defined in MAR) were taken in respect of the Placing
with the result that certain persons became aware of inside
information (as defined in MAR), as permitted by MAR. This inside
information is set out in this Announcement. Therefore, those
persons that recei'ved inside information in a market sounding are
no longer in possession of such inside information relating to the
Company and its securities.
Information to Distributors
Solely for the purposes of the product governance requirements
contained within: (a) EU Directive 2014/65/EU on markets in
financial instruments, as amended ("MiFID II"); (b) Articles 9 and
10 of Commission Delegated Directive (EU) 2017/593 supplementing
MiFID II; and (c) local implementing measures (together, the "MiFID
II Product Governance Requirements"), and disclaiming all and any
liability, whether arising in tort, contract or otherwise, which
any "manufacturer" (for the purposes of the MiFID II Product
Governance Requirements) may otherwise have with respect thereto,
the Placing Shares have been subject to a product approval process,
which has determined that the Placing Shares are: (i) compatible
with an end target market of retail investors and investors who
meet the criteria of professional clients and eligible
counterparties, each as defined in MiFID II; and (ii) eligible for
distribution through all distribution channels as are permitted by
MiFID II (the "Target Market Assessment"). Notwithstanding the
Target Market Assessment, distributors should note that: the price
of the Placing Shares may decline and investors could lose all or
part of their investment; the Placing Shares offer no guaranteed
income and no capital protection; and an investment in the Placing
Shares is compatible only with investors who do not need a
guaranteed income or capital protection, who (either alone or in
conjunction with an appropriate financial or other adviser) are
capable of evaluating the merits and risks of such an investment
and who have sufficient resources to be able to bear any losses
that may result therefrom. The Target Market Assessment is without
prejudice to the requirements of any contractual, legal or
regulatory selling restrictions in relation to the Placing.
For the avoidance of doubt, the Target Market Assessment does
not constitute: (a) an assessment of suitability or appropriateness
for the purposes of MiFID II; or (b) a recommendation to any
investor or group of investors to invest in, or purchase, or take
any other action whatsoever with respect to the Placing Shares.
Each distributor is responsible for undertaking its own target
market assessment in respect of the Placing Shares and determining
appropriate distribution channels.
End.
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of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
ACQDGGDDIDBBGCG
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