RNS Number:3510T
Northgate Information Solutions PLC
17 December 2003
FOR IMMEDIATE RELEASE
17 December 2003
(Not for release, publication or distribution in or into Australia, Canada,
Japan or the United States)
NORTHGATE INFORMATION SOLUTIONS PLC
PROPOSED ACQUISITION OF REBUS HR GROUP AND SHARE PLACING
HIGHLIGHTS
* On 10 December 2003 Northgate Information Solutions plc ("Northgate" or
the "Company") purchased an exclusive option for #5 million to acquire Rebus
HR Group Limited ("RebusHR") and thereby the entire Rebus HR Group
* Northgate has today exercised this option and the terms of the proposed
acquisition (the "Acquisition") value RebusHR (including debt) at
approximately #150 million
* The aggregate consideration for the Acquisition will be satisfied by the
payment of #38 million in cash, which includes the cost of the option of #5
million which has already been paid, the issue of 115.7 million new
Northgate shares ("Consideration Shares") to the vendors and the assumption
or repayment of approximately #55 million of net external debt
* The cash component of the consideration and the expenses of the acquisition
will be satisfied by the issue to placees of 92 million new Northgate shares
(the "Placing Shares") at the placing price of 48 pence per share, payable
in cash on completion (the"Placing"). The Placing has been underwritten by
Hoare Govett
* The Rebus HR Group is one of the UK's leading HR and payroll solutions
providers, offering a range of strategic HR, payroll and employee
information systems. The Rebus HR Group provides in-house software systems,
and a range of outsourcing services such as hosting services, bureau or
fully managed payroll services, employee information services and personnel
services. The Rebus HR Group's clients comprise companies of all sizes,
ranging from small to medium enterprises (SMEs) to large organisations in
both the public and private sector. RebusHR has approximately 1,100
employees and is headquartered in London
* In the six months ended 30 September 2003, the Rebus HR Group generated
revenues of #36.8 million and EBITA of #5.8 million and as at that date had
consolidated net liabilities (before Deep Discounted Securities) of #16.3
million. For the 12 months ended 31 March 2003, the Rebus HR Group generated
revenues of #74.0 million and EBITA of #10.4 million1
* The Board believes that the Rebus HR Group represents an excellent
product fit for Northgate's core Human Resources Systems business. The
acquisition builds on Northgate's acquisitions of Prolog, Carapeople and
PWA, and will transform Northgate into one of the leading UK suppliers of
software applications and outsourcing solutions to the human resources
management market with:
* Scale to compete successfully in the UK market with global suppliers of
enterprise software and to compete internationally
* Strong positioning to take advantage of the development of the UK
IT-based human resources services market
* A strong customer base, ranging from SMEs to large organisations in both
the public and private sectors
* The Board expects the Acquisition to generate annualised cost savings of
not less than #8 million in the first full financial year, rising to at
least #11 million afterwards. The Directors anticipate that the total cost
of delivering these savings will be approximately #5 million
* The Acquisition, if completed, is also expected by the Board to be
earnings enhancing (before goodwill amortisation) for shareholders in the
year ended April 20052
* The Acquisition and the Placing are conditional, inter alia, upon
certain regulatory consents being obtained and on shareholder approval. A
circular and listing particulars setting out details of the Acquisition will
be sent to shareholders today
* Due to the size of the Rebus HR Group relative to Northgate, the
Acquisition is classed as a reverse takeover under the Listing Rules of the
UK Listing Authority and, as required by the Listing Rules, Northgate
requested that trading in its ordinary shares be temporarily suspended on 10
December 2003 when the acquisition of the option was announced. It is
expected that trading will recommence later today
* The Northgate directors will retain their positions on the board in the
enlarged group following the Acquisition, and will be joined by an
additional non-executive director, to be nominated following completion by
General Atlantic Partners
Commenting on the Acquisition, Nicholas Irens, Chairman of Northgate, said
"This announcement signals a step change for Northgate. In line with the
strategy we laid out two years ago, we have acquired a business in one of our
core areas of expertise. This transaction doubles Northgate in size and makes us
one of the leading suppliers of software applications and outsourcing solutions
in our target markets, improving our HR offer and complementing our strengths in
the police and local government segments."
Chris Stone, Chief Executive of Northgate, commented
"I am excited by the opportunities for growth which acquiring Rebus brings to
the Group and am looking forward to combining Rebus's fantastic customers,
first-rate employees and established software products with our existing HR
offering. This year we have already demonstrated our ability to integrate
acquisitions quickly and efficiently, and to deliver cost savings. With the
improved prospects which this transaction will bring to the enlarged group, we
look forward to the future with confidence."
This announcement should be read in conjunction with the further details set out
below.
Enquiries:
Northgate Information Solutions plc today 020 7404 5959
John Stier / Oliver Walker thereafter 01442 232424
N M Rothschild 020 7280 5000
Dominic Hollamby / Matthew Metcalfe
Hoare Govett Limited 020 7678 8000
Andrew Chapman / Andrew Foster
Brunswick Group 020 7404 5959
Tom Buchanan / Sarah Tovey
Notes to Editors:
About Northgate Information Solutions (www.Northgate-is.com)
Northgate Information Solutions is a leading supplier of software applications
and outsourcing solutions to the public sector, human resources and corporate
markets. Headquartered in Hemel Hempstead, Northgate employs over 1,300 staff
and has approximately 1,800 customers across the UK and Ireland. Northgate works
closely with many corporate organisations, as well as approximately 30% of the
UK's local authorities, and all of its police forces. Northgate's focus is on
fully understanding application-specific processes, enabling organisations to
increase their business process efficiency. Equally, Northgate manages
customers' key systems, providing a broad range of outsourced solutions -
available at client sites or hosted at its own secure data centre.
Northgate Information Solutions plc is listed on the London Stock Exchange. For
further information visit the Northgate Information Solutions Portal at http://
www.Northgate-is.com/.
(FOR IMMEDIATE RELEASE)
(17 December 2003)
(Not for release, publication or distribution in or into Australia, Canada,
Japan or the United States)
NORTHGATE INFORMATION SOLUTIONS PLC
PROPOSED ACQUISITION OF REBUS HR GROUP AND SHARE PLACING
Introduction
The Board of Northgate announced on 10 December 2003 that the Company had
acquired an option for #5 million to acquire the RebusHR (and thereby the entire
Rebus HR Group) on agreed terms for a total consideration of approximately #150
million (including debt). The option was entered into to provide a period of
exclusivity for Northgate to acquire RebusHR. The option price paid on
11 December 2003, was funded through Northgate's existing banking arrangements.
Today, Northgate announces that it has exercised its option, and has entered
into the Acquisition Agreement to acquire RebusHR.
The Board believes that the Rebus HR Group represents an excellent product fit
for Northgate's core Human Resources Systems business and is a significant step
in Northgate's transformation into one of the leading suppliers of software
applications and outsourcing solutions to its target markets. The Acquisition,
which builds on Northgate's acquisitions of Prolog, Carapeople and PWA, further
reinforces Northgate's strategy of building a business of scale in human
resources outsourcing.
The consideration for the Acquisition, after the assumption or repayment of net
external debt of approximately #55 million, will be satisfied by the payment of
#38 million in cash (#5 million of which has already been paid as the option)
and through the issue of the Consideration Shares.
Based on the mid-market closing price of Northgate's ordinary shares of 51.75
pence on 10 December 2003 (the date on which Northgate's shares were temporarily
suspended from dealings), the Consideration Shares are valued at #59.9 million.
Combined with the cash payable of #38 million, which includes the cost of the
option of #5 million that has already been paid, and the assumption or repayment
of net external debt of approximately #55 million, this values the total
consideration at #152.9 million.
The cash component of the consideration and the expenses of the Acquisition will
be satisfied by the issue to placees of 92 million Placing Shares at the placing
price of 48 pence per Placing Share (the "Placing Price"), payable in cash on
Completion. The Placing has been underwritten by Hoare Govett.
The Acquisition is conditional, inter alia, upon certain regulatory consents
being obtained and on the approval of Northgate's shareholders. An Extraordinary
General Meeting of the Company is being convened for this purpose and will be
held at the Lincoln Centre, 18 Lincoln's Inn Fields, London WC2A 3ED at 11 a.m.
on Monday, 12 January 2004. Notice of the Extraordinary General Meeting will
accompany the circular to shareholders.
Background to and reasons for the Acquisition
Since the rights issue of March 2000, Northgate has pursued its strategy of
building leading positions in its chosen markets of human resources management,
local government and criminal justice. The proceeds of the sale of the Group's
healthcare software activities in June 2002 facilitated the acceleration of this
strategy through a programme of acquisitions. As a result, Northgate has now
established a strong position within each of its chosen markets.
Building on the success of this expansion programme, the Acquisition will
further reinforce the Group's strategy of building a business of scale in human
resources services. The Rebus HR Group has the advantage of offering both human
resources applications and outsourcing services on a significant scale in the
UK, thus providing a strong strategic fit with Northgate.
The enlarged group will have significant scale, enabling it to compete with
global suppliers of enterprise software to even the largest application
customers. The enlarged group, with its enhanced critical mass, will be well
placed to take advantage of any opportunities to offer its human resources
applications and outsourcing services across international markets.
The Rebus HR Group has experienced some contract terminations with certain of
its important customers which will impact, in the near term, on the Rebus HR
Group's revenue growth and profitability. The directors of Northgate believe
that the Rebus HR Group will continue to face pressure on its contract renewals
as a result of its relatively large number of customers using legacy
applications and that the Rebus HR Group, on a stand alone basis, will continue
to experience this pressure.
However, the Directors also believe that, as part of the enlarged group, the
RebusHR business will benefit from:
* the availability of certain Northgate products to complement and improve
RebusHR's product offerings;
* Northgate's successful track record of winning and retaining new
business;
* the scale and market profile of the enlarged group; and
* the quality of the enlarged group's management.
Through the combination of the skills and expertise of the management of both
Northgate and the Rebus HR Group, the enlarged group will be a leading supplier
in IT-based human resources outsourcing, which is forecast to grow strongly over
the coming years.
Northgate's management team has a strong track record of delivering operational
improvements and integrating acquisitions. Since the major restructuring of
McDonnell Information Systems Group into Northgate Group, which was completed
after a period of only 3 months in March 2000, the management of Northgate has
completed several acquisitions, all of which have been integrated according to
plan. Whilst the Acquisition is a significant step for Northgate, the Directors
believe that Northgate's management has the experience and expertise to
integrate the RebusHR business successfully into the enlarged group.
Financial effects of the Acquisition
The combination of RebusHR's business with Northgate's existing Human Resources
Systems business is expected by the Board to generate annualised cost savings of
not less than #11 million with #8 million being delivered by the end of the
first full financial year. The Directors anticipate that the total cost of
delivering these savings will be approximately #5 million.
The cost savings are expected to result from:
* the rationalisation of product lines;
* efficiencies in development, payroll processing and other managed
service activities;
* more efficient overhead and back office functions;
* the rationalisation of sales and marketing resources; and
* better utilisation of property.
The Board also expects to realise synergies from cross-selling products and
services from the two offerings to the combined customer base. Whilst there is
some overlap in products, services and customer groups, the Rebus HR Group's
offering will complement Northgate's offering. For example, Northgate's strength
in HR software will provide Rebus HR Group's customers with one of the leading
HR products in the UK, while RebusHR will provide to Northgate experience and
expertise in processing large customer payrolls.
As a result of the combination of Northgate and the Rebus HR Group, together
with the cost savings described above, the Board of Northgate expects the
Acquisition to be earnings enhancing (before goodwill amortisation) for
Northgate's shareholders in the year ended April 2005.1
Information on the Rebus HR Group
The Rebus HR Group was founded in 1963 and is one of the UK's leading HR and
payroll solutions providers, offering a range of strategic HR, payroll and
employee information systems.
RebusHR offers in-house software systems and a range of outsourcing services
such as hosting services, bureau payroll, fully managed payroll services,
employee information services and personnel services. Its customers comprise
companies of all sizes, ranging from SMEs to large organisations in both the
public and private sector.
RebusHR has approximately 1,100 employees and is headquartered in London.
RebusHR is predominantly a UK business, but has overseas operations in
Australia, China (Hong Kong), New Zealand and Singapore.
Since a public to private buy-out in February 1999, RebusHR has been wholly
owned by the Vendor, which in turn is jointly owned and controlled by funds
managed by GAP and WP.
The following summary financial information relates to the Rebus HR Group for
the three years ended 31 March 2003 and six months ended 30 September 2003.
Six months Year ended 31
ended March
30 September ---------------------
2003 2003 2002 2001
#000 #000 #000 #000
--- --- --- ---
Turnover 36,831 74,009 73,377 70,199
Earnings before interest, taxation
and amortisation ("EBITA") 5,846* 10,411 7,009 6,462
Operating margin (EBITA as % of
turnover) 15.9% 14.1% 9.6% 9.2%
*Excludes a #4.4m compensation payment received on early termination of a
customer contract and re-organisation charges
Note: restated in line with Northgate's accounting policies
The Acquisition
Under the Acquisition Agreement, the Company has agreed to acquire RebusHR from
the Vendor for a total consideration of approximately #150 million (including
debt), less the option price of #5 million paid on 11 December 2003. The
consideration for the Acquisition, after the assumption or repayment of net
external debt of approximately #55 million, will be satisfied by the payment of
approximately #38 million in cash (#5 million of which has already been paid as
the option price) and through the issue of the Consideration Shares.
Following completion, through their respective holdings in the Vendor, GAP will
have an indirect interest in approximately 13.90 per cent. of Northgate's
enlarged share capital and Warburg Pincus ("WP") will have an indirect interest
in approximately 9.47 per cent. of Northgate's enlarged share capital. Pursuant
to the Shareholding Agreement (a) GAP will undertake, subject to certain
exceptions, that for a period of 12 months from completion it will not dispose
of any of its Consideration Shares and that it will not dispose of any of its
Consideration Shares for a further 6 months thereafter if such disposal would
reduce its interest in Consideration Shares to below 50 per cent. of the
interest it held immediately following completion and (b) WP will undertake,
subject to certain exceptions, that during such 18 month period following
completion, all or some of its Consideration Shares shall only be disposed of by
Northgate's brokers, in order to ensure that an orderly market in Northgate's
ordinary shares is maintained. The exceptions permit unrestricted disposals of
Consideration Shares in connection with offers made for the Company's ordinary
shares under the City Code, disposals under schemes of arrangement and corporate
reconstructions and disposals to satisfy claims pursuant to a Shareholders
Support Deed, the Acquisition Agreement and/or the option agreement.
The enlarged group will assume or repay the Rebus HR Group's net external debt
of approximately #55 million. The enlarged group's debt will be funded through a
new #88 million facility agreement with Barclays.
The net external debt of the Rebus HR Group to be repaid or assumed by Northgate
excludes approximately #181 million of deep discount securities which will be
capitalised and repaid by RebusHR using the subscription monies owing from a
re-capitalisation on or prior to completion by the issue of new shares in
RebusHR to the holders of the deep discount securities. These shares will be
acquired by Northgate as part of the Acquisition.
Pursuant to the Shareholding Agreement, GAP will have a contractual right to
appoint one non-executive director to the board of Northgate provided that it
and its affiliates have an aggregate interest in not less than 10 per cent. of
the ordinary share capital of Northgate.
Completion (save for admission) is expected to take place on 30 January 2004
subject to, inter alia, certain regulatory conditions having been fulfilled, the
passing of all resolutions at the Extraordinary General Meeting and the placing
agreement becoming unconditional in all respects. Admission is expected four
business days thereafter on 5 February 2004.
The option price is refundable in certain circumstances by the Vendor if the
Acquisition is referred to the Competition Commission or if the Vendor fails to
complete the Acquisition.
Confirmation of whether the conditions to completion relating to the Competition
Commission and the Office of Fair Trading have been satisfied is expected to be
received on 30 January 2004. However, such confirmation may be received earlier.
The Company will make a further announcement to its shareholders once it has
received confirmation whether or not these conditions have been satisfied.
The Placing
The cash component of the consideration and the expenses of the acquisition will
be satisfied, pursuant to the placing agreement, by the issue to placees of 92
million Placing Shares at the Placing Price, payable in cash on Completion. The
Placing has been underwritten by Hoare Govett.
Northgate has entered into a placing agreement with Hoare Govett on 17
December 2003 under which, inter alia, Hoare Govett has agreed to procure
placees for 92 million Placing Shares at the Placing Price (or failing which to
subscribe itself), the proceeds of which shall be used to satisfy the cash
element of the consideration payable pursuant to the Acquisition and the
expenses of the Acquisition. The Placing has been underwritten by Hoare Govett
and is conditional, inter alia, upon the passing of all of the resolutions by
the shareholders, admission of the Placing Shares and completion of the
Acquisition Agreement.
The directors of Northgate have agreed to subscribe for the following numbers of
Placing Shares at the Placing Price: (i) Chris Stone, 104,200 Placing Shares
(being 0.02 per cent. of the enlarged share capital); (ii) John Stier, 20,900
Placing Shares (being 0.01 per cent. of the enlarged share capital); (iii) Nick
Irens, 104,200 Placing Shares (being 0.02 per cent. of the enlarged share
capital); (iv) Jack Fryer, 104,200 Placing Shares (being 0.02 per cent. of the
enlarged share capital); and (v) Duncan Hine, 52,100 Placing Shares (being 0.01
per cent. of the enlarged share capital).
The Placing will be conducted on a non pre-emptive basis and accordingly the
consent of Northgate's shareholders is required to allow the Directors to allot
the Placing Shares. Immediately following completion, the placing shares
together with the Consideration Shares will represent approximately 42.00 per
cent. of Northgate's enlarged share capital.
The new Placing Shares and the Consideration Shares will be credited as fully
paid and will rank pari passu in all respects with Northgate's existing ordinary
shares, including the right to receive all future dividends and other
distributions declared, paid or made in respect of ordinary shares from the date
of issue. The Placing Shares and Consideration Shares are not being made
available in whole or in part to the public.
Current trading and prospects
The Directors believe that the prospects for the enlarged group are promising.
The enlarged group's operating performance will benefit from the expected cost
and revenue synergies and the increased opportunities provided by having
sufficient scale to compete in both domestic and overseas markets.
Northgate has seen strong levels of organic and acquisitive growth for the first
six months of its current financial year and anticipates this to continue
through to the full year. The Group now has a good portfolio of products and
services, and is focused on managing its businesses effectively and leveraging
the benefits of the recent acquisitions. The Board is pleased with the growth
being achieved as a result of the strategic focus of the Group, and will
continue to seek further opportunities to deliver value to its Shareholders
going forward. Since the period end Northgate has signed one more new Front
Office contract and is currently preferred supplier in a further 14 local
authority contracts.
The Directors believe that the Acquisition will be a significant step in
Northgate's transformation into one of the leading suppliers of software
applications and outsourcing solutions to its target markets and provides
further opportunities to deliver value to its shareholders. The Board is
confident in the prospects for the enlarged group.
Board Composition
Dr Duncan Hine resigned as a director on 25 September 2003 in anticipation of
the appointment of a director to replace him. This appointment did not however
take place. Following Dr Duncan Hine's resignation as a director, the Board of
Directors of the Company has been comprised of only four directors, although the
Company's Articles specify that the Board of Directors shall comprise not less
than five directors. The Company has been actively seeking a suitable candidate
to replace Duncan Hine and the Directors believe that they will be in a position
to make an appointment soon, but currently they are not able to do so. Duncan
Hine was therefore reappointed as a non-executive Director by the Board on
9 December 2003 to fill the vacancy. In light of this, it is necessary to take
steps to ratify the actions of the Directors during the period from 25 September
2003 to 9 December 2003 and to release them from any liability they might have
incurred in respect of their actions as a consequence of their being unable to
comply with the provision of the Articles.
Resolutions will therefore be proposed at the Extraordinary General Meeting
pursuant to which Shareholders will be asked to ratify the Directors' actions
during the relevant period and direct the Company to enter into a Deed of
Release in favour of the Directors (excluding Duncan Hine) to release such the
Directors from any relevant liability they may have incurred by reason of the
minimum number of Northgate directors being less than as required by Northgate's
articles of association. Because of such Directors' interests in these
resolutions, they will not vote any ordinary shares held by them (representing
approximately 0.24 per cent. of the issued share capital of the Company) on
these resolutions.
The 1999 Executive Scheme
Since December 1999 the Company has been using the 1999 Executive Scheme as part
of its overall compensation strategy. The Directors believe that the 1999
Executive Scheme continues to provide an effective tool to help attract retain
and motivate key executives. Following best practice the 1999 Executive Scheme
contains a limit on the number of Ordinary Shares which may be used under it.
This limit was increased to 41,880,000 Ordinary Shares representing 15 per cent.
of the issued Ordinary Share capital following the rights issue in 2000. It is
proposed to increase the number of Ordinary Shares again in proportion to the
Consideration Shares and Placing Shares which will be issued in connection with
the Acquisition. As a result, the overall percentage of the issued Ordinary
Share capital which may be used for the 1999 Executive Scheme will remain capped
at 15 per cent. but the actual number of Ordinary Shares that can be used will
increase to 72,155,000. The Company believes that this limit will give it
sufficient scope to use the 1999 Executive Scheme moving forward. This change
requires Shareholder approval.
The remuneration committee has also reviewed the performance condition which
needs to be satisfied to ensure that the exercise of share options are linked to
an improvement in the performance of the Company. It proposes that, moving
forward, options will only be exercisable if there is an increase in the
Company's total shareholder return over the 3 year performance period of 8 per
cent. per annum or more than the increase in the retail prices index over the
same period. To the extent that the condition has not been met over the
performance period the options will lapse.
It is intended to grant options over 6,791,910 ordinary shares to a number of
key executives on 17 December 2003 under the 1999 Executive Scheme with an
option price of 50.9 pence, being equal to the market value of the ordinary
shares on grant, as calculated in accordance with the rules of the 1999
Executive Scheme including options over 1,666,667 ordinary shares to Christopher
Stone and over 520,833 ordinary shares to John Stier.
Extraordinary General Meeting
Due to its size in relation to the Group, the Acquisition is classified under
the Listing Rules as a reverse takeover and accordingly is conditional, inter
alia, on the approval of Shareholders. A notice convening an Extraordinary
General Meeting for 12 January 2004 to be held at The Lincoln Centre, 18
Lincoln's Inn Fields, London WC2A 3ED will accompany the Circular to
Shareholders. The Resolutions to be proposed are as follows:
* to approve the Acquisition;
* to increase the authorised share capital of the Company by 86.67 per
cent. from #37,500,000 to #70,000,000 by the creation of 325,000,000
additional Ordinary Shares;
* to approve changes to the rules of the 1999 Executive Scheme;
* to authorise the Directors to allot the Consideration Shares and Placing
Shares and to disapply pre-emption rights such that the Directors may allot
the Placing Shares for cash;
* to ratify the Directors' actions during the period from 25 September
2003 to 9 December 2003; and
* to direct the Company to execute a Deed of Release; and
Other than in connection with the Acquisition and Placing, and upon the exercise
of options under the Northgate share option schemes, the Board has no present
intention of issuing any of the authorised but unissued share capital of
Northgate.
--------------------------
1 Financial information on the Rebus HR Group has been adjusted to conform with
Northgate's accounting policies
2 This statement should not be interpreted to mean that, if the Acquisition
proceeds, the Company's earnings per ordinary share after the Acquisition will
necessarily match or be greater than its historical published earnings per
ordinary share
1 This statement should not be interpreted to mean that, if the Acquisition
proceeds, the Company's earnings per ordinary share after the Acquisition will
necessarily match or be greater than its historical published earnings per
ordinary share.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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