TIDMNCC
RNS Number : 5138Y
NCC Group PLC
13 May 2021
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR
INDIRECTLY, IN WHOLE OR IN PART, IN, INTO OR WITHIN THE UNITED
STATES, CANADA, SOUTH AFRICA, JAPAN OR AUSTRALIA.
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION
For Immediate Release
13 May 2021
NCC GROUP PLC
PROPOSED ACQUISITION OF THE INTELLECTUAL PROPERTY MANAGEMENT
BUSINESS OF IRON MOUNTAIN
Immediately provides greater global scale for NCC's Software
Resilience Division
Significantly earnings enhancing from Completion
Opportunities for further revenue synergies and growth
NCC Group plc (LSE: NCC, "NCC", the "Company" or the "Group") is
pleased to announce the signing of an agreement for the proposed
acquisition of the Intellectual Property Management business (the
"IPM Business") of Iron Mountain Inc. ("Iron Mountain"), comprising
substantially all of the assets of Iron Mountain Intellectual
Property Management, Inc. ("IPM") together with certain other
assets of affiliates of Iron Mountain exclusively related to the
IPM Business, for a cash consideration of $220 million (GBP156
million) (the "Acquisition").
Strategic Highlights
Creating a Market-Leading Escrow Business
-- IPM is a leading provider of software resilience services to
a large and diverse US market - the combination will provide
immediate additional scale to NCC's core software resilience
business, making the US region the largest contributor of the
division's revenues and profits.
o IPM reported revenue of $32.9 million (GBP23.3 million) and
EBITDA of $21.6 million (GBP15.4 million) for the 12 months ended
31 December 2020 (audited).
-- The IPM Business has built a market-leading escrow business,
serving in excess of 6,000 customers, across the full life-cycle of
escrow and verification services as well as across a range of
industries.
-- IPM has a strong, established team, led by Mr. John Boruvka
and Ms. Joy Egerton, which is expected to be retained as part of
the Acquisition. Mr. Boruvka, Ms. Egerton and the senior members of
the IPM Business team have agreed to continue in their roles
following Completion.
Strong Strategic Alignment
-- In addition to organic growth across the recurring revenue
base of IPM, the proposed Acquisition represents a compelling
opportunity for both of NCC's Assurance and Software Resilience
divisions to benefit from revenue synergies across an enlarged,
blue chip customer base which spans a majority of the Fortune
500.
-- NCC believes that these revenue synergies could be made up of:
o increased penetration of NCC's verification services into the
IPM Business customer base;
o offering the Group's nascent but fast-growing
Escrow-as-a-Service (EaaS) cloud proposition into the IPM Business
customer base; and
o satisfying IPM client demands for cyber assurance
services.
Compelling Financial Rationale
-- The proposed transaction is expected to provide the Enlarged
Group with a number of financial benefits and therefore provide
further compelling reasons for the combination:
o The Acquisition will be significantly accretive to earnings
per share from Completion, even without factoring in revenue
synergies(1);
o The Acquisition will be immediately accretive to Group EBITDA
margins(1);
o The Group will have an enlarged recurring revenue base, with
80% of IPM's revenues being recurring (against 60% of NCC's
Software Resilience division's revenues being recurring);
o The Acquisition will strengthen the Group's cash generation
owing to IPM's cash conversion ratio(2) of over 90% for the last
three years which, following cash interest and tax deductions,
should provide a rapid de-leveraging profile and enable further
organic and inorganic investment in the near term;
o Material tax savings which the Directors believe will be
created over a 15 year period as a result of intangible assets
created by the Acquisition that can be amortised for tax purposes;
and
o The provision of material additional scale to the Group - the
IPM Business reported revenue of $32.9 million (GBP23.3 million)
and EBITDA of $21.6 million (GBP15.4 million) for the 12 months
ended 31 December 2020 (audited).
Greater Strategic Strength
-- Following the Acquisition, the Software Resilience business
will have a greater global presence and is expected to achieve
critical mass and international reach that provides the Group with
enhanced scale and strategic flexibility
-- The enlarged recurring revenue profile and enhanced cash
generation will provide the Group with a platform to make further
strategic investments, if deemed appropriate and
value-accretive
o Such investments could take the form of organic initiatives,
inorganic opportunities in line with the Group's strategy or a
complementary mix across both divisions
Overview of IPM
The Intellectual Property Management division of Iron Mountain
(NYSE: IRM-US) is a leading software escrow platform in the United
States. The IPM Business, which is founded on the principles of
security and protecting companies' critical assets, serves as a
trusted and secure third party for mitigating the risk for both
software users ("beneficiaries") as well as providing higher levels
of assurance for software developers ("depositors"), through the
provision of a suite of escrow services. Such escrow services
support the beneficiaries in the event the depositor is unable to
support their software as a result of an unforeseen set of
circumstances.
Complementary to the core escrow offering, the IPM Business also
provides verification services for beneficiaries in order to assist
them in determining whether the software IP deposited in escrow is
complete and operates in line with expectations.
The IPM Business benefits from minimal client concentration and
attractive market dynamics, including increasing corporate spend
and focus on software, IT resilience, security and risk
management.
The business currently serves over 6,000 customers and in excess
of 15,000 beneficiaries across a diverse range of end markets, with
a client retention rate of 86%.
For the 12 months ended 31 December 2020, the IPM Business
reported revenues of $32.9 million (GBP23.3 million), of which
escrow services comprised 86% with verification services accounting
for the remaining 14%. 80% of the IPM Business's revenues are
recurring or re-occurring. EBITDA of $21.6 million (GBP15.4
million) in 2020 equates to an EBITDA margin of 65.7%.
Financing of the Acquisition
The consideration for the Acquisition of $220 million will be
satisfied entirely in cash. The consideration and all related
transaction costs will be funded through a combination of:
-- approximately $99 million (GBP70 million), being the
estimated gross proceeds of the Placing announced on the date of
this Announcement(3);
-- $70 million (GBP50 million) from a new three-year Term Facility Agreement;
-- existing cash balances of $10 million (GBP7 million); and
-- the balance from the Company's existing Revolving Credit Facility Agreement.
The Directors expect leverage to be approximately 1.5x net debt
to Enlarged Group EBITDA immediately following the Acquisition.
Timetable to Completion
The size of the Acquisition means that it constitutes a Class 1
transaction for the purposes of the Listing Rules and accordingly
is conditional on the approval of Shareholders at a General
Meeting. A circular containing further details of the Acquisition,
the Directors' recommendation, the notice of the General Meeting
and the Resolutions (the "Circular"), is expected to be published
on 14 May 2021. Assuming Shareholders approve the Acquisition at
the General Meeting, the Acquisition is expected to be completed a
few days thereafter.
Trading update
The Directors reaffirm their current expectation that the
Group's Pre-IFRS 16 Adjusted EBIT for the year ending 31 May 2021
will be no less than market consensus of GBP33 million . Pre-IFRS
16 Adjusted EBIT is defined as the Group's operating profit before
adjusting items to assist in the understanding of the Group's
performance. Adjusting items represent amortisation of acquired
intangibles, the impact of IFRS 16, share-based payments and
individually significant items.
Adam Palser, Chief Executive Officer, NCC, commented:
"This acquisition will transform NCC Group's Software Resilience
business, making it a market leader, and deliver immediate
financial and operational benefits to the whole of the Group. The
IPM Business shares many similarities with our own Software
Resilience business, including a commitment to providing exemplary
service for clients. There are tremendous opportunities to grow the
combined business by offering IPM's blue-chip clients the choice of
new services and support.
Following completion, NCC Group will be a stronger and broader
business with an even greater ability to support clients in the
ceaseless struggle against cyber-crime in all its forms."
The preceding summary should be read in conjunction with the
full text of the following Announcement and its appendices. The
defined terms set out in Appendix II apply to this
Announcement.
A virtual meeting for analysts and investors relating to the
Acquisition will take place at 09:30am (UK) today, 13 May 2021. The
details for this can be obtained from Maitland/AMO using the
following email address: NCCGroup-maitland@maitland.co.uk.
Lazard is acting as financial adviser to NCC and Peel Hunt is
acting as sponsor to NCC, in each case in relation to the
Acquisition. Baird is acting as financial adviser to Iron Mountain
in connection with the Acquisition.
For further enquiries please contact:
NCC Group plc
Adam Palser, Chief Executive
Officer
Tim Kowalski, Chief Financial
Officer +44 (0)161 209 5432
Lazard
Cyrus Kapadia
Louise Campbell +44 (0)207 187 2000
Peel Hunt
Edward Knight
Charlie Batten
Nick Prowting +44 (0)20 7418 8900
Maitland/AMO
Neil Bennett
Sam Cartwright +44 (207) 379 5151
About NCC Group plc
NCC Group exists to make the world safer and more secure. As
global experts in cyber security and risk mitigation, NCC Group is
trusted by over 14,000 customers worldwide to protect their most
critical assets from the ever-changing threat landscape. With the
company's knowledge, experience and global footprint, it is best
placed to help organisations assess, develop and manage their cyber
resilience posture.
To support its mission, NCC Group continually invests in
research and innovation and is passionate about developing the next
generation of cyber scientists. With circa 2,000 colleagues in 12
countries, NCC Group has a significant market presence in North
America, Europe and the UK, and a rapidly growing footprint in Asia
Pacific with offices in Australia, Japan and Singapore.
About Iron Mountain
Iron Mountain Incorporated (NYSE: IRM) is the global leader in
innovative storage and information management services, storing and
protecting billions of valued assets, including critical business
information, highly sensitive data, and cultural and historical
artifacts. Founded in 1951 and trusted by more than 225,000
customers worldwide, Iron Mountain helps customers CLIMB HIGHER(TM)
to transform their businesses. Through a range of services
including digital transformation, data centers, secure records
storage, information management, secure destruction, and art
storage and logistics, Iron Mountain helps businesses bring light
to their dark data, enabling customers to unlock value and
intelligence from their stored digital and physical assets at speed
and with security, while helping them meet their environmental
goals.
Important notices
This Announcement contains inside information. The person
responsible for arranging and authorising the release of this
Announcement is Tim Kowalski, Chief Financial Officer and Company
Secretary of NCC Group plc.
This Announcement is issued at 7:00 am BST on 13 May 2021. This
Announcement is not intended to, and does not constitute, or form
part of, any offer to sell or issue or any solicitation of an offer
to purchase, subscribe for, or otherwise acquire, any securities or
a solicitation of any vote or approval in any jurisdiction. NCC
Group shareholders are advised to read carefully the Circular once
it has been published. Any response to the Acquisition should be
made only on the basis of the information in the Circular to
follow.
Lazard & Co., Limited ("Lazard") is acting as financial
adviser to NCC and Peel Hunt LLP ("Peel Hunt") is acting as sponsor
to NCC in connection with the Acquisition. Each of the Lazard and
Peel Hunt is authorised and regulated by the FCA in the United
Kingdom and is acting exclusively for NCC and no one else in
connection with the Acquisition and will not regard any other
person (whether or not a recipient of this Announcement) as a
client in relation to the Acquisition or the matters described in
this Announcement. Neither Lazard or Peel Hunt will be responsible
to anyone other than NCC for providing the protections afforded to
its clients or for providing advice in relation to the matters
described in this Announcement. Neither Lazard or Peel Hunt nor any
of their subsidiaries or affiliates owes or accepts any duty,
liability or responsibility whatsoever (whether direct or indirect,
whether in contract, in tort, under statute or otherwise) to any
person who is not its client in connection with this the
Acquisition and the matters referred to in this Announcement, any
statement contained in this Announcement or otherwise. Apart from
the responsibilities and liabilities, if any, which may be imposed
on Peel Hunt as sponsor by FSMA or any other regulatory regime
established under FSMA, neither of Lazard and Peel Hunt accepts
responsibility for the contents of this Announcement, and no
representation or warranty, express or implied, is made by either
Lazard or Peel Hunt in relation to the contents of this
Announcement, including its accuracy, completeness or verification
of any other statement made or purported to be made by it, or on
its behalf, in connection with NCC, the Acquisition or the matters
described in this Announcement. To the fullest extent permissible
by law, each of Lazard and Peel Hunt accordingly disclaims all and
any responsibility or liability whether arising in tort, contract
or otherwise (save as referred to above) which it might otherwise
have in respect of this Announcement or any such statements.
The Company's securities have not been and will not be
registered under the U.S. Securities Act of 1933, as amended (the
"Securities Act"), or under the securities laws of any state or
other jurisdiction of the United States, and may not be offered,
sold, pledged or transferred, directly or indirectly, in, into or
within the United States except pursuant to an exemption from, or
in a transaction not subject to, the registration requirements of
the Securities Act and in compliance with any applicable securities
laws of any relevant state or other jurisdiction of the United
States. There has been and will be no public offering of the
securities of the Company in the United States.
Cautionary statement regarding forward-looking statements
This Announcement includes statements that are, or may be deemed
to be, "forward-looking statements". These forward-looking
statements can be identified by the use of forward-looking
terminology, including the terms "believes", "estimates", "plans",
"anticipates", "targets", "aims", "continues", "expects",
"intends", "may", "will", "would" or "should" or, in each case,
their negative or other variations or comparable terminology. These
forward-looking statements include all matters that are not
historical facts. They appear in a number of places throughout this
Announcement and include statements regarding the Group's and/or
the Directors' intentions, beliefs or current expectations
concerning, among other things, the Group's results, operations,
financial condition, prospects, growth strategies and the markets
in which the Group operates. By their nature, forward-looking
statements involve risk and uncertainty because they relate to
future events and circumstances. A number of factors could cause
actual results and developments to differ materially from those
expressed or implied by the forward-looking statements, including
without limitation: conditions in the markets, the market position
of the Group, earnings, financial position, return on capital,
anticipated investments and capital expenditure, changing business
or other market conditions and general economic conditions. These
and other factors could adversely affect the outcome and financial
effects of the events described herein and the Group.
Forward-looking statements contained in this Announcement based on
these trends or activities should not be taken as a representation
that such trends or activities will continue in the future.
These forward-looking statements speak only as at the date of
this Announcement. Except as required by the Listing Rules, the
Disclosure Guidance and Transparency Rules and any applicable law,
NCC does not have any obligation to update or revise publicly any
forward-looking statement, whether as a result of new information,
further events or otherwise. Except as required by the Listing
Rules, the Disclosure Guidance and Transparency Rules and any
applicable law, NCC expressly disclaims any obligation or
undertaking to release publicly any updates or revisions to any
forward-looking statement contained herein to reflect any change in
NCC's expectations with regard thereto or any change in events,
conditions or circumstances on which any such statement is based.
In light of these risks, uncertainties and assumptions, the
forward-looking events discussed in this Announcement might not
occur.
NCC GROUP PLC
PROPOSED ACQUISITION OF THE INTELLECTUAL PROPERTY MANAGEMENT
BUSINESS OF IRON MOUNTAIN
13 May 2021
1. Introduction
NCC Group plc (LSE: NCC, "NCC", the "Company" or the "Group") is
pleased to announce the signing of an agreement for the proposed
acquisition of the Intellectual Property Management business (the
"IPM Business") of Iron Mountain Inc. ("Iron Mountain"), comprising
substantially all of the assets of Iron Mountain Intellectual
Property Management, Inc. ("IPM") together with certain other
assets of affiliates of Iron Mountain exclusively related to the
IPM Business, for a consideration of $220 million (GBP156 million)
(the "Acquisition"). The consideration for the Acquisition will be
satisfied entirely in cash.
The IPM Business, operating from Boston, Massachusetts, USA, is
a leading software escrow providers with operations primarily in
the United States. The IPM Business serves a large and diverse blue
chip customer base which spans a majority of the Fortune 500, as
well as many other prominent US institutions. The IPM Business is
part of the wider Iron Mountain data and records management
business and is proposed to be combined with NCC's existing
Software Resilience business.
2. Summary information on NCC and NCC's strategy
NCC's shares are listed on the Main Market of the London Stock
Exchange and NCC is a constituent of the FTSE 250 index.
NCC is a global cyber security and software resilience business
operating across a range of different sectors, geographies and
technologies. By utilising its global insights into the cyber
threats facing our increasingly connected society, NCC enables
organisations to assess, manage and develop their cyber security
resilience and posture. In turn, this affords clients the ability
to operate safe in the knowledge that their business, software, and
personal data are both protected and secure.
NCC comprises two divisions: "Assurance" which focuses on cyber
security consultancy and technical services and "Software
Resilience" which provides software escrow and verification
services.
Over the past three years NCC has been executing its
transformation programme, Securing Growth Together, which is
focused on solidifying the core strategic and operational
foundations required to underpin:
-- the mission to make the world safer and more secure; and
-- the vision to be the leading cyber security advisor globally
- trusted to protect and secure customers' critical assets as well
as being sought after for complete people-led, technology-enabled
cyber resilience solutions that enable customers to thrive.
As part of this transformation, NCC has focused on improving the
performance of the Software Resilience division which has resulted
in a number of investments in new technology, services, and
people.
Despite an unprecedented year of global challenges as a result
of the COVID-19 pandemic, not just for NCC but all stakeholders and
clients alike, the Directors are delighted that NCC continues to
make material progress on the execution of its strategy, as
demonstrated by the most recent reported financial performance and
outlook for the Group published in its interim results on 4
February 2021. This progress provides the Group with the foundation
to undertake a successful acquisition of the IPM Business and
integration thereafter.
3. Summary Information on the IPM Business
The Intellectual Property Management division of Iron Mountain
(NYSE: IRM-US) is a leading software escrow platform in the United
States. The IPM Business, which is founded on the principles of
security and protecting companies' critical assets, serves as a
trusted and secure third party for mitigating the risk for both
software users ("beneficiaries") as well as providing higher levels
of assurance for software developers ("depositors"), through the
provision of a suite of escrow services. Such escrow services
support the beneficiaries in the event the depositor is unable to
support their software as a result of an unforeseen set of
circumstances.
Complementary to the core escrow offering, the IPM Business also
provides verification services for beneficiaries in order to assist
them in determining whether the software IP deposited in escrow is
complete and operates in line with expectations.
The IPM Business benefits from minimal client concentration and
attractive market dynamics, including increasing corporate spend
and focus on software, IT resilience, security and risk
management.
The business currently serves over 6,000 customers and in excess
of 15,000 beneficiaries across a diverse range of end markets, with
a client retention rate of 86%.
For the 12 months ended 31 December 2020, the IPM Business
reported revenues of $32.9 million (GBP23.3 million), of which
escrow services comprised 86% with verification services accounting
for the remaining 14%. 80% of the IPM Business's revenues are
recurring or re-occurring. EBITDA of $21.6 million (GBP15.4
million) in 2020 equates to an EBITDA margin of 65.7%.
The IPM Business' headline financials over the past three years
to 31 December 2020 comprise:
Year ended Year ended Year ended
31 December 31 December 31 December
2018 2019 2020
----------------------------- ------------- ------------- -------------
Revenue ($ million) 32.8 33.2 32.9
EBITDA ($ million) 22.5 21.9 21.6
Costs allocated from Parent
undertaking ($ million) 3.0 3.2 3.4
EBITDA margin (%) 68.6% 66.0% 65.7%
Cash conversion ratio(1)
(%) 95.4% 93.9% 91.7%
This financial information has been extracted without material
adjustment from the audited historical financial information for
IPM for the three years ended 31 December 2020, prepared in
accordance with International Financial Reporting Standards as
adopted by the European Union in a form consistent with the
accounting policies adopted by NCC in its own annual consolidated
accounts, and which will be set out in the Circular when it is
published.
4. Reasons for the proposed Acquisition
The Directors believe that the strategic and financial rationale
for the Acquisition are compelling and that the Acquisition is
strongly aligned with the Group's existing strategy.
The Directors believe that the Acquisition and combination of
NCC's Software Resilience division with the IPM Business will:
-- scale-up the Group's core business to create a global
business and platform for further growth;
-- generate revenue synergies through allowing the enlarged
division to offer NCC's broader suite of established verification
services as well as the newer Escrow-as-a-Service (EaaS) cloud
offering to the IPM Business's existing customer base;
-- present an exciting new opportunity to sell NCC's cyber
security services from its Assurance division into the IPM
Business's broad and blue chip customer base;
-- be immediately accretive to earnings(1); and
-- result in greater strategic strength for the future.
In summary, the Acquisition will bring opportunity to both of
NCC's divisions and enable NCC to deploy its complete service
offering at scale in the US market to the ultimate benefit of all
of its stakeholders.
The combined business will have increased operational reach and
stronger financial performance. This is expected to provide
opportunities for the Enlarged Group to pursue further organic and
inorganic investments both within the software resilience market,
including adjacent sectors, but also across the broader cyber
assurance landscape.
Scaling NCC's software resilience division to create a global
business and platform for growth
The IPM Business is a leading software escrow provider within a
large and diverse US market. The Directors believe that a
combination of the IPM Business with the existing NCC Software
Resilience division will provide immediate scale-up of the core
business while making the US region NCC's largest contributor of
divisional revenues and profits. In addition, the IPM Business
represents a stable platform for NCC to deliver accretive revenue
growth in the growing EaaS cloud and cyber market. Combined, NCC
and the IPM Business are estimated to have a leading share of the
total current addressable US market for software resilience of $180
million, offering a strong platform to accelerate growth.
More broadly, the Directors believe that the introduction of a
new, diversified and international contracted customer set will
present a further opportunity to extend the NCC footprint globally
and in doing so grow its recurring revenue base.
Exciting potential for revenue synergies and growth
The Directors believe that the proposed Acquisition represents a
compelling opportunity for both of NCC's Assurance and Software
Resilience divisions to benefit from an enlarged, blue chip
customer base and in doing so to generate revenue synergies
alongside organic growth from NCC's core offering. The Directors
believe that these revenue synergies could be made up of:
-- increased penetration of established verification services
into the IPM Business's customer base;
-- offering the Group's nascent but fast-growing EaaS cloud
proposition to the IPM Business's customer base; and
-- satisfying demand for cyber services in the IPM Business's customer base.
The Group generates approximately 32% of revenue in its Software
Resilience division from verification services whereas the IPM
Business generates 14%. The Directors believe that NCC currently
offers a broader set of verification solutions than the IPM
Business and believes that there is potential to sell these broader
solutions to the IPM Business's large customer base.
In addition to long-established verification services, the
Directors are pleased that the Group's flagship EaaS cloud
offering, which was launched in 2019, is experiencing significant
customer demand with over 100 users now using the service. The
Directors are therefore excited by the potential opportunity of
offering this product to the customer base of the IPM Business,
which spans a majority of the Fortune 500 as well as many other
prominent US institutions.
NCC's Assurance division is also anticipated to benefit from the
ability to offer its broad range of cyber security consulting and
managed services directly to the same client base of the IPM
Business. The Directors believe that providing a holistic service
offering which covers some of the most pressing corporate cyber and
security requirements represents an attractive proposition for US
customers and therefore creates new growth opportunities for the
Assurance Division.
Strong financial rationale for shareholders
The Directors have thoroughly reviewed and considered the
prospects of the Enlarged Group, as well as the expected revenue
synergy benefits and associated costs of achieving them, and
believe that the financial rationale for the combination is
strong.
The Enlarged Group, and more specifically the Software
Resilience division, will be of considerably greater scale than
today, which the Directors believe will give rise to improved
growth prospects as described above. NCC's current management team
has good relevant experience in integrating acquisitions,
delivering revenue synergies and driving new monetisation models.
These factors give the Directors confidence that this Acquisition
will have a positive impact on the Enlarged Group's financial
profile.
The Directors believe that the notable financial consequences of
the deal are:
-- The Acquisition will be significantly accretive to earnings
per share from Completion(1), even without factoring in revenue
synergies;
-- The Acquisition will be immediately accretive to margins(1);
-- The Group will have an enlarged recurring revenue base, with
80% of IPM's revenues being recurring (against 60% of NCC's
Software Resilience division's revenues being recurring);
-- The Acquisition will strengthen the Group's cash generation
owing to IPM's cash conversion ratio(2) of over 90% over the last
three years which, following cash interest and tax deductions,
should provide a rapid de-leveraging profile and enable further
organic and inorganic investment in the near term;
-- Material tax savings which the Directors believe will be
created over a 15 year period as a result of intangible assets
created by the Acquisition that can be amortised for tax purposes;
and
-- The provision of material additional scale to the Group - the
IPM Business reported revenue of $32.9 million (GBP23.3 million)
and EBITDA of $21.6 million (GBP15.4 million) for the 12 months
ended 31 December 2020 (audited).
The IPM Business has historically relied upon Iron Mountain and
its affiliates to provide certain key services via its central
operations. A certain number of these services, such as accounting,
legal, risk and security, IT, HR and facilities, will continue to
be supported under the terms of the Master Services Agreements and
the Transition Services Agreement, while others will be integrated
with NCC's own central corporate functions. The team that will
transfer with the IPM Business is already relatively streamlined
and is expected to be retained as part of the Acquisition. As a
result, the cost synergies arising from the Acquisition are
anticipated to be minimal. NCC has developed a detailed integration
plan for the Acquisition to ensure the continuity of NCC and the
IPM Business' day-to-day operations which is estimated to involve
one-off costs of approximately GBP2 million.
Proven leadership team with significant industry experience
The IPM Business has a strong, established team, led by Mr. John
Boruvka and Ms. Joy Egerton, which is expected to be retained as
part of the Acquisition. Mr. John Boruvka is the Vice President of
Sales for the IPM Business and has been part of a software escrow
business since 1987, which was subsequently acquired by Iron
Mountain. Ms. Joy Egerton is Director, Operations for the IPM
Business. Mr. Boruvka, Ms. Egerton and the senior members of the
IPM Business team have agreed to continue in their roles following
Completion.
The IPM Business is well known to the NCC management team,
having been identified as a strategic fit in recent years, which
the Directors believe will help in facilitating the integration
process.
Currently the IPM Business primarily operates from its
headquarters in Boston, Massachusetts, and its premises in North
Atlanta, Georgia employing approximately 50 employees as of 30
April 2021. Given the highly complementary nature of the IPM
Business to NCC's existing Software Resilience division, NCC
intends to operate the IPM Business as part of an enlarged US
Software Resilience business within the global NCC Software
Resilience operation.
Future investment optionality and strategic strength
Following the Acquisition and combination with the IPM Business,
the Software Resilience business will have expanded its global
presence and is expected to achieve a scale that provides it with
greater stability and strategic flexibility in the medium-term.
The Directors believe that the enlarged recurring revenue
profile and enhanced cash generation will provide the Group with a
platform to make further strategic investments, if deemed
appropriate and value-accretive to the Group. Such investments
could take the form of organic initiatives, inorganic opportunities
in line with the Group's strategy or a complementary mix across
both divisions.
5. Principal Terms of the Acquisition
On 13 May 2021, NCC Group Software Resilience (NA) LLC, a
subsidiary of NCC, (the "Purchaser"), NCC Services Limited, a
subsidiary of NCC (the "UK Purchaser"), NCC Group (Solutions)
Limited (as guarantor) (solely with respect to the guarantee
therein), the Company (solely with respect to the Resolution and
the financing provisions therein), IPM, Iron Mountain UK plc ("UK
Iron Mountain" and together with IPM, the "Sellers"), Iron Mountain
Information Management LLC ("Iron Mountain IM") and Iron Mountain
(solely with respect to the confidentiality and restrictive
covenant provisions therein), entered into an asset purchase
agreement (the "Purchase Agreement") pursuant to which the
Purchaser and the UK Purchaser have agreed to acquire the IPM
Business, comprising of substantially all of the assets of IPM,
together with certain other assets of affiliates of Iron Mountain
exclusively related to the IPM Business. The total consideration
for the acquisition of the IPM Business on a cash-free and
debt-free basis with a normalised level of working capital is $220
million, subject to adjustment.
Under the Purchase Agreement, Iron Mountain IM and the Sellers
have made customary representations and warranties to the Company,
and Purchasers have made customary representations and warranties
to the Sellers. All of the representations and warranties of Iron
Mountain IM and, the Sellers survive until the earlier of (a) the
date of Completion (the "Completion Date") and (b) the termination
of the Purchase Agreement; provided that certain fundamental
representations will survive for six years following the Completion
Date. The representations and warranties of the Purchasers survive
until the earlier of (a) one year after the Date of Completion and
(b) the termination of the Purchase Agreement. The Purchaser has
obtained a buy-side representation and warranty insurance policy
with coverage of up to $22 million (the "R&W Insurance Policy")
in respect of Iron Mountain IM and the Seller's representations and
warranties contained in the Purchase Agreement, subject to certain
specified retention, exclusions and limitations agreed with the
insurer.
Completion of the Acquisition is subject to the approval (as a
Class 1 transaction under the Listing Rules) by Shareholders
passing an ordinary resolution (the "Resolution") without amendment
at the General Meeting or any adjournment thereof by the Outside
Date and other customary conditions. Subject to satisfaction of the
conditions, Completion is expected to occur on 7 June 2021.
Under the Purchase Agreement, the Purchaser is required to pay a
termination fee of $10 million, equal to one per cent of the market
capitalisation of the Company as at the close of business of the
Business Day prior to the date of this Announcement, to Iron
Mountain if the Purchase Agreement is terminated (i) as a result of
the Company failing to obtain financing sufficient to consummate
the Acquisition prior to the Outside Date while all other
conditions to the Completion of the Acquisition have been
satisfied; (ii) due to the Board changing its recommendation that
Shareholders vote in favour of the Resolution; (iii) as a result of
the Resolution not being passed by the Shareholders prior to the
Outside Date; or (iv) due to the Company not issuing this document
to its Shareholders within seven days of the date of the Purchase
Agreement.
The Acquisition is subject to the requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the
related rules and regulations (the "HSR Act"), which provide that
certain transactions may not be completed until required
information has been furnished to the US Federal Trade Commission
Bureau of Competition ("FTC") and the US Department of Justice
Antitrust Division ("DOJ") and until certain waiting periods have
been terminated or have expired or approval has been obtained. The
HSR Act requires the Company and Iron Mountain to observe a 30-day
waiting period after the submission of their filings under the HSR
Act before consummating the Acquisition, unless the waiting period
is terminated early, or unless it is extended by a request for
additional information or documentary material from the FTC or the
DOJ. Each of the Company and Iron Mountain filed a Pre-Merger
Notification and Report Form under the HSR Act with the FTC and the
DOJ in connection with the Acquisition, and on 21 December 2020,
the waiting period under the HSR Act expired.
6. Financial impact of the Acquisition
The Board believes that the Acquisition will generate
considerable value for Shareholders. The key financial implications
of the Acquisition are expected to be:
-- Significantly accretive to earnings per share from
Completion(1), even without factoring in revenue synergies;
-- Immediate accretion to Group EBITDA margins(1);
-- Strong cash generation owing to IPM's cash conversion
ratio(2) of over 90% over the last three years which, following
cash interest and tax deductions, should provide a rapid
de-leveraging profile and enable further organic and inorganic
investment in the near term;
-- The Directors expect leverage to be approximately 1.5x net
debt to Enlarged Group EBITDA immediately following the
Acquisition; and
-- Provision of material additional scale to the Group - the IPM
Business reported revenue of $32.9 million (GBP23.3 million) and
EBITDA of $21.6 million (GBP15.4 million) for the 12 months ended
31 December 2020 (audited).
7. Financing of the Acquisition
The consideration for the Acquisition will be satisfied entirely
in cash. The consideration of $220 million and all related
transaction costs will be funded through a combination of:
-- approximately $99 million (GBP70 million), being the
estimated gross proceeds of the Placing announced on the date of
this Announcement(3);
-- $70 million (GBP50 million) from a new three year Term Facility Agreement;
-- existing cash balances of $10 million (GBP7 million); and
-- the balance from the Company's existing Revolving Credit Facility Agreement.
As announced on the date of this Announcement, the Company
intends to conduct a placing of up to 27,906,400 new Ordinary
Shares (the "Placing Shares") which is estimated to realise gross
proceeds of approximately GBP70 million(3) for the purposes of
funding the Acquisition. It is expected that results of the Placing
will be announced later today, and that completion of the Placing
and settlement of the Placing Shares is expected to take place on
17 May 2021. The Placing is not conditional on the completion of
the Acquisition. In the unlikely event the Acquisition is not
completed by the Outside Date, the Company may, at its option,
decide to use the funds for alternative acquisitions or consider a
tax efficient way to return capital to Shareholders.
8. Current trading and prospects
The Group
The Directors reaffirm their current expectation that the
Group's Pre-IFRS 16 Adjusted EBIT for the year ending 31 May 2021
will be no less than market consensus of GBP33 million . Pre-IFRS
16 Adjusted EBIT is defined as the Group's operating profit before
adjusting items to assist in the understanding of the Group's
performance. Adjusting items represent amortisation of acquired
intangibles, the impact of IFRS 16, share-based payments and
individually significant items.
IPM Business
Since 31 December 2020, trading has been in line with
expectations and there has been no significant change in the in the
financial or trading position of the IPM Business since that
date.
9. Dividend policy
The Board's view on dividend policy remains unchanged as per the
interim results statement released on 4 February 2021. The Board is
conscious of the need to invest in certain initiatives to support
longer term growth and therefore the dividend policy will continue
to remain under review.
10. Publication of the Circular and General Meeting
The size of the Acquisition means that it constitutes a Class 1
transaction for the purposes of the Listing Rules and accordingly
is conditional on the approval of the Shareholders at the General
Meeting. The Circular containing further details of the
Acquisition, the Directors' recommendation, the notice of the
General Meeting and the Resolutions are expected to be sent to
Shareholders on 14 May 2021.
APPIX I
Definitions
The definitions set out below apply through this Announcement,
unless the context requires otherwise.
"Acquisition" the acquisition of the Intellectual
Property Management business of Iron
Mountain on the terms and conditions
set out in the Purchase Agreement
"Acquisition Agreements" the Purchase Agreement, the Bill
of Sale and Assignment and Assumption
Agreement, the Transition Services
Agreement and the Master Services
Agreements
"Announcement" this announcement
"Baird" Robert W. Baird & Co., Incorporated
"Board" or "Directors" the directors of NCC as at the date
of this document
"Completion" completion of the Acquisition pursuant
to the terms of the Purchase Agreement
"Enlarged Group" the Group as enlarged by the Acquisition
"FCA" or "Financial Conduct the Financial Conduct Authority of
Authority" the UK in its capacity as the competent
authority for the purposes of Part
VI of FSMA and in the exercise of
its functions in respect of Admission
to the Official List otherwise than
in accordance with Part VI of FSMA
"FSMA" the Financial Services and Markets
Act 2000 (as amended)
"General Meeting" the general meeting of NCC proposed
to be held at 9:30 a.m. on 1 June
2021
"Group" NCC and its subsidiary undertakings
from time to time
"IPM Business" the Intellectual Property Management
business of Iron Mountain, comprising
substantially all of the assets of
IPM, together with certain other
assets of affiliates of Iron Mountain
exclusively related to such business
"Iron Mountain" Iron Mountain Inc.
"Iron Mountain IM" Iron Mountain Information Management
LLC
"Lazard" Lazard & Co., Limited
"Listing Rules" the listing rules of the Financial
Conduct Authority made pursuant to
Part VI of FSMA
"London Stock Exchange" London Stock Exchange plc
"Master Services Agreements" collectively, (i) the master services
agreement between Iron Mountain Information
Management, LLC and the Purchaser;
(ii) the global data center customer
agreement between Iron Mountain Data
Centers, LLC and the Purchaser; (iii)
an e-vaulting-as-a-service agreement
with Iron Mountain Information Management,
LLC; and (iv) the lease agreement
between Iron Mountain Information
Management, LLC and the Purchaser
to be entered into at Completion
"NCC" or "Company" NCC Group plc (incorporated in England
and Wales with registered number
04627044)
"Official List" the Official List of the FCA
"Ordinary Shares" the ordinary shares of GBP0.01 each
in the capital of NCC
"Outside Date" 28 June 2021, or such other date
as the parties to the Purchase Agreement
may agree in writing
"Peel Hunt" Peel Hunt LLP
"Placing" the placing of up to 27,906,400 new
Ordinary Shares in NCC with placees
as announced on the date of this
Announcement
"Placing Agreement" the agreement among NCC, Jefferies
International Limited, Jefferies
GmbH and Peel Hunt and dated 13 May
2021 relating to the Placing
"Purchase Agreement" the asset purchase agreement dated
13 May 2021 by and among the Purchaser,
the UK Purchaser, NCC Group (Solutions)
Limited (solely with respect to the
guarantee therein), the Company (solely
with respect to the Resolution and
the financing provisions therein),
Iron Mountain IM, the Sellers and
Iron Mountain (solely with respect
to the confidentiality and restrictive
covenant provisions therein)
"Purchaser" NCC Group Software Resilience (NA)
LLC, as purchaser under the Purchase
Agreement
"Resolution" the ordinary resolution to approve
the Acquisition as set out in the
notice of General Meeting
"Revolving Credit Facility the GBP100 million revolving credit
Agreement" facility agreement entered into among
National Westminster Bank Plc, HSBC
UK Bank Plc, ING Bank N.V., NCC Group
plc, NCC Group (Solutions) Limited,
originally dated 10 June 2019 as
amended and restated on 12 May 2021
"R&W Insurance Policy" the representation and warranty and
insurance policy issued to the Purchaser
"Sellers" Iron Mountain Intellectual Property
Management, Inc. and Iron Mountain
UK plc, as sellers under the Purchase
Agreement
"Shareholders" the holder(s) of Ordinary Shares
"Target" or "IPM" Iron Mountain Intellectual Property
Management, Inc.
"Target Group" Iron Mountain IM, the Sellers and
its affiliates that hold assets comprising
the IPM Business
"Term Facility Agreement" the $70 million term loan facility
agreement entered into among National
Westminster Bank Plc, HSBC UK Bank
plc, ING Bank N.V., NCC Group plc,
and NCC Group (Solutions) Limited,
dated 12 May 2021
"Transition Services Agreement" the transition services agreement
to be entered into at Completion
between Iron Mountain Information
Management, LLC and the Purchaser
"UK Purchaser" NCC Services Limited, as purchaser
of certain UK assets under the Purchase
Agreement
"United Kingdom" or "UK" the United Kingdom of Great Britain
and Northern Ireland
"United States" or "US" the United States of America, its
territories and possessions, any
state of the United States and the
District of Columbia
APPENDIX II
Key Notes
1. Based on reported results stated before the IFRS 3 and IFRS
13 impact of the fair value treatment of deferred revenue on
acquisition.
2. Cash conversion is calculated in line with NCC methodology of
net cash flow from operating activities before interest and
taxation divided by Adjusted EBITDA on a post IFRS16 basis.
3. Assuming a placing of approximately 9.9% of the Company's
current issued share capital at the mid-market closing price of
NCC's shares as at the close of business on the date prior to the
date of this Announcement.
4. As outlined within the Consensus Forecasts 2021/22 as of 10
February 2021 that is available at
www.nccgroupplc.com/investor-relations/results-media/
5. As disclosed in Note 1 of the Target Group's historical
financial information for the three years ended 31 December 2018,
2019 and 2020.
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END
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