TIDMPDG
RNS Number : 7425M
Pendragon PLC
18 September 2023
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN
PART, DIRECTLY OR INDIRECTLY, IN, INTO OR FROM ANY JURISDICTION
WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR
REGULATIONS OF SUCH JURISDICTION.
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION
FOR IMMEDIATE RELEASE
18 September 2023
Pendragon PLC ("Pendragon" or the "Company")
Proposed Disposal of UK Motor and PVM, transition to Pinewood
Technologies plc and Strategic Partnership with Lithia
The Boards of Directors of Pendragon and of Lithia Motors, Inc.
(NYSE: LAD), one of the largest automotive retailers in North
America , are pleased to announce they have agreed the terms of a
proposed sale by Pendragon Group Holdings Limited ("PGHL") of the
entire issued share capital of Pendragon NewCo 2 Limited
("Pendragon NewCo") which will hold, either directly or indirectly
through its wholly-owned subsidiaries, the Company's entire UK
motor business and leasing business (the "Disposal"), to Lithia UK
Holding Limited (the "Purchaser" or "Lithia"), a wholly-owned
subsidiary of Lithia Motors, Inc. for a gross aggregate
consideration of GBP250 million (subject to certain financial
adjustments) (the "Consideration").
Pendragon and Lithia Motors, Inc. have also agreed the terms of
a strategic partnership with Lithia , including the rollout of
Pinewood, the Company's dealer management software ("DMS")
business, to Lithia's existing 50 UK sites and the creation of a
joint venture to accelerate Pinewood's entry into the highly
attractive North American DMS market, underpinned by a subscription
by Lithia for 279,388,880 new Ordinary Shares in the Company (the
"Subscription Shares") for an aggregate subscription price of GBP30
million (the "Subscription Price") (the "Strategic Partnership"
and, together with the Disposal, the "Transaction").
As part of the Transaction, Pendragon's Pinewood division, which
operates the Company's proprietary DMS business, will become a
standalone entity, retaining Pendragon's existing listing on the
London Stock Exchange and creating a pure play Software as a
Service ("SaaS") business with an accelerated growth plan .
The Transaction is the value-maximising conclusion of the
strategic review announced by Pendragon last year and the Board
believes that it will deliver an attractive cash dividend to
Shareholders of c.GBP240 million .
In summary, the Transaction provides Shareholders with a total
value per share comprising:
(i) 16.5 pence in cash, to be received by way of a dividend to
be paid post completion of the Transaction (the "Transaction
Dividend");
(ii) a retained c.83.3 per cent. ownership in the continuing
Pendragon business (including Pinewood) (the "Continuing Group"),
valued initially at c.10.3 pence on a fully-diluted basis; and
(iii) an indirect interest in the North American joint venture
valued initially at c.0.6 pence.
Accordingly, in aggregate, Pendragon shareholders will initially
receive (either directly through the Transaction Dividend or via
their retained interest in Pendragon) the equivalent of
approximately 27.4 pence per share with further significant upside
expected from the Strategic Partnership. This compares to a share
price of c.18.5p as at the close of business on 15 September 2023,
being the Latest Practicable Date.
Transaction Summary
Disposal of UK Motor and PVM
-- UK motor business, consisting of Evans Halshaw, Stratstone
and Car Store, and Pendragon Vehicle Management ("PVM"),
Pendragon's leasing business, will be sold to Lithia at an
attractive valuation:
o Total cash consideration of GBP280 million (subject to
adjustments), which includes a GBP30 million subscription for
shares in Pendragon, which following completion of the Disposal,
will operate the standalone Pinewood business as the Continuing
Group.
o Lithia to assume all existing Pendragon net bank debt and
pension obligations, leaving the Continuing Group with no
indebtedness, legacy pension liabilities, or retained liabilities
from the UK motor business and leasing business.
-- The Disposal is subject to customary conditions, including Pendragon shareholder approval.
-- After costs and investment in the Strategic Partnership, the
Board intends to return c.GBP240 million, equivalent to 16.5 pence
per share, to Pendragon shareholders (excluding Lithia in respect
of its Subscription Shares).
Transition to Pinewood Technologies plc
-- Pendragon will remain listed and change its name to Pinewood Technologies plc.
-- Business to be led by Bill Berman as CEO, and Oliver Mann as
CFO, supported by a highly experienced management team.
-- Separation from Pendragon motor division provides Pinewood
with an opportunity to unlock further scale among UK retailers.
-- The Transaction recapitalises Pinewood to increase operating flexibility.
-- FY27 target for underlying EBITDA of Pinewood Technologies
plc ("Pinewood Tech") of GBP27 million from the existing business,
with further significant upside expected to be delivered through
the Strategic Partnership.
Strategic Partnership with Lithia
-- Lithia is one of the largest automotive retailers in North
America and the Board believes it is the ideal partner to unlock
and accelerate Pinewood's expansion into the North American market.
The Strategic Partnership will:
o Rollout Pinewood's software across Lithia's existing 50 UK
locations, adding c.2,500 users within the next 12 months.
o Accelerate entry into the highly attractive North American
market - estimated to be worth more than GBP2.6 billion per year.
The Strategic Partnership will be capitalised by Lithia and
Pendragon investing GBP10 million each at the outset.
o Facilitate product co-development with Lithia that will add
further capability and offer new routes to growth in key existing
markets.
o Target Lithia's c.17,500 users across 296 locations in the
medium-term alongside new third party customers.
-- The Strategic Partnership is underpinned by a GBP30 million
subscription by Lithia for the Subscription Shares such that,
immediately following completion of the Transaction, Lithia will
own 16.67 per cent. of Pinewood Technologies plc. As such, Lithia's
investment implies a day-one valuation of GBP180 million for the
equity of Pendragon. In addition, Lithia intends to acquire further
Pendragon shares from certain LTIP participants who elect to sell
the Ordinary Shares acquired on vesting of the LTIP awards to
Lithia resulting in its ownership of Pendragon increasing to up to
19.84 per cent. of Pendragon. As part of this investment, Lithia
will have the right to appoint two non-executive directors to the
seven-strong Pendragon Board post completion.
Materially Enhanced Pinewood Growth Opportunity
Today, Pinewood is a leading cloud-based DMS provider with over
30,000 users, having received strong original equipment
manufacturer ("OEM") support through partnerships with BMW and
Renault, and with integration with over 50 manufacturers . Pinewood
Tech's financial profile is highly attractive, with c.90 per cent.
recurring revenue, healthy EBITDA margin of c.60 per cent. and high
user loyalty. Lithia's investment implies a day-one value of
Pinewood Tech of approximately 10.3 pence per share on a
fully-diluted basis. The Board believes that the growth prospects
for Pinewood Tech will be materially enhanced as a result of
becoming a standalone, pure-play SaaS business as well as through
the Strategic Partnership, centred on Pinewood's three core pillars
for long-term growth:
1. Product Innovation: expand digital capabilities to existing
customers and lead innovation of DMS product globally, with the
technology developed for the US market in partnership with
Lithia
2. User Growth in Existing Territories: grow with major retail
players in the UK post separation from Pendragon and capitalise on
opportunity in Asia Pacific, Middle East and Europe
3. Access to North American Market: scale in the USA and Canada
by leveraging relationship with Lithia to develop product for North
America
The North American market is estimated to be valued at more than
GBP2.6 billion, out of a global automotive DMS market estimated to
be worth approximately GBP3.8 billion. The Board believes that
Lithia is the ideal partner to accelerate Pinewood's expansion into
this market given its size and familiarity with this technology.
Lithia currently spends approximately $100 million per year on its
DMS stack and is one of the largest automotive retailers in the US
with 296 dealerships. The combined capabilities of Pinewood and
Lithia ideally position the joint venture to target the rest of the
21,000 new car automotive dealers in the North American market as
potential customers.
The Board is targeting user growth of c.16,000 to total
approximately 48,000 by FY27 with an associated target of GBP27
million EBITDA by FY27 from existing businesses , compared to
approximately GBP15 million for FY22, even before the impact of the
North American joint venture.
Ian Filby, Non-Executive Chairman of Pendragon , said: "
Pendragon has made strong progress executing its strategy in recent
years and the business has been repositioned successfully as a
digitally-enabled automotive retailer. Today's announcement follows
an extensive strategic review undertaken by the Board of Pendragon
to maximise value for our stakeholders. The proposed transaction
provides shareholders with an immediate dividend close to the
Company's undisturbed market capitalisation as well as ongoing
ownership in an exciting technology company with improved growth
prospects."
Bill Berman, Chief Executive of Pendragon commented: "Pendragon
has built one of the UK's leading automotive retailing businesses,
underpinned by a market leading dealer management system, the
quality of our people, long-standing relationships with OEMs and
excellent execution for customers. The Pendragon Board considers
Lithia to be perfectly placed to build on this progress. The launch
of Pinewood as a standalone company is a unique and exciting
opportunity to create a best-in-class product for customers, which
we can market globally and drive substantial value for our
shareholders and in Lithia we have the perfect partner to help
accelerate Pinewood's push into the hugely attractive North
American DMS market."
Bryan DeBoer, Chief Executive of Lithia commented: "The
strategic partnership with Pinewood Technologies and acquisition of
Pendragon's UK motor and vehicle management divisions is a massive
step in delivering on our longer-term growth strategy. We are
excited about the great potential in Pinewood's offering and
envision our strategic partnership to further expand this SaaS
business globally. Additionally, the proposed acquisition presents
a highly synergistic growth opportunity with our existing UK
presence with Jardine Motors Group; provides a new adjacency with
PVM; and expands our brand and geographic footprint while serving
to further strengthen our existing OEM relationships."
The Directors who hold interests in Ordinary Shares have each
irrevocably undertaken (or have confirmed to the Company and the
Sponsor that they will irrevocably undertake) to vote at the
General Meeting in favour of the Resolution in respect of the
Ordinary Shares to which they are beneficially entitled
(representing in aggregate approximately 1.0 per cent. of the
entire issued share capital of the Company as at the Latest
Practicable Date).
In addition, Shareholders who hold interests in Ordinary Shares
representing, in aggregate, approximately 26.5 per cent. of the
entire issued share capital of the Company as at the Latest
Practicable Date have each irrevocably undertaken (or have
confirmed to the Company and the Sponsor that they will irrevocably
undertake) to vote at the General Meeting in favour of the
Resolution in respect of the Ordinary Shares to which they are
beneficially entitled. The Shareholders comprise Schroder
Investment Management Limited, Briarwood Capital Partners LP,
Hosking Partners LLP, Farringdon Netherlands BV, Huntington
Management LLC, and Sir Nigel Rudd.
Pendragon will report its FY23 interim results on 27 September
2023 and intends to hold a Pinewood Technologies plc Capital
Markets Day at a later date.
Transaction Timetable
In accordance with the Listing Rules, due to the size of the
Transaction in relation to the size of the Company, the Transaction
constitutes a Class 1 transaction (as defined in the Listing Rules)
and completion is therefore conditional upon, amongst other things,
the approval of Shareholders of the Resolution at the General
Meeting. In addition, the approval of Shareholders of the
Resolution at the General Meeting is required under Listing Rule
9.5.10 R to authorise the issue of the Subscription Shares at a
price per Subscription Share which exceeds a discount of 10 per
cent. of middle market price of the Ordinary Shares at the Latest
Practicable Date. Accordingly, a Circular is expected to be sent to
Shareholders shortly, containing further details of the
Transaction, the Board's recommendation and the notice convening
the General Meeting at which Shareholders will be asked to approve
the Transaction and related matters. Subject to satisfaction of the
conditions to the Transaction, completion is expected to occur in
Q4 2023. A separate announcement will be released on publication of
the Circular, setting out a detailed timetable for the General
Meeting and Transaction Completion.
Enquiries:
Jefferies International Limited (Sponsor, Financial +44 (0) 20 7029
Adviser and Joint Corporate Broker) 8000
Philip Noblet
James Thomlinson
Thomas Bective
Jordan Cameron
+ 44 (0) 20 3207
Berenberg (Joint Corporate Broker) 7800
Ben Wright
+44 (0) 20 3805
Headland Consultancy (PR & Communications) 4822
Henry Wallers
Jack Gault
CMS Cameron McKenna Nabarro Olswang LLP is acting as legal
adviser to Pendragon.
Important Notices
Information regarding forward-looking statements
This announcement contains statements which are, or may be
deemed to be, "forward-looking statements" which are prospective in
nature. All statements other than statements of historical fact are
forward-looking statements. They are based on intentions, beliefs
or current expectations and projections about future events, and
concerning, among other things, the business, results of
operations, prospects, growth and strategies of, the Company, the
Group, the Disposal Group or the Continuing Group, and are
therefore subject to risks and uncertainties which could cause
actual results to differ materially from the future results
expressed or implied by the forward-looking statements. Often, but
not always, forward-looking statements can be identified by the use
of forward-looking words such as "plans", "expects", "is expected",
"is subject to", "budget", "scheduled", "estimates", "forecasts",
"goals", "intends", "anticipates", "believes", "targets", "aims",
"hopes", "continues" or "projects". Words or terms of similar
substance or the negative thereof, are forward-looking statements,
as well as variations of such words and phrases or statements that
certain actions, events or results "may", "could", "should",
"would", "might" or "will" be taken, occur or be achieved. Such
statements are qualified in their entirety by the inherent risks
and uncertainties surrounding future expectations.
Forward-looking statements include statements relating to: (a)
future capital expenditures, expenses, revenues, earnings, economic
performance, indebtedness, financial condition, dividend policy,
losses and future prospects; (b) business and management strategies
and the expansion and growth of the Company's, the Group's, the
Disposal Group's or the Continuing Group's operations; and (c) the
effects of economic conditions on the Company's, the Group's, the
Disposal Group's or the Continuing Group's business.
Such forward-looking statements involve known and unknown risks
and uncertainties that could significantly affect expected results
and are based on certain key assumptions. Many factors may cause
actual results, performance or achievements of the Company, the
Group, the Disposal Group or the Continuing Group to be materially
different from any future results, performance or achievements
expressed or implied by the forward-looking statements. Important
factors that could cause actual results, performance or
achievements of the Company, the Group, the Disposal Group or the
Continuing Group to differ materially from the expectations of the
Company, the Group, the Disposal Group or the Continuing Group
include, among other things, general political, business and
economic conditions, industry and market trends, competition,
changes in government and changes in law, regulation and policy,
including in relation to taxation as well as political and economic
uncertainty (including, but not limited to, the Ukraine-Russia
conflict) , stakeholder perception of the Company, the Group, the
Disposal Group or the Continuing Group and/or the sectors or
markets in which it operates. Such forward-looking statements
should therefore be construed in light of such factors. Any
information contained in this announcement on the price at which
shares or other securities in the Company have been bought or sold
in the past, or on the yield on such shares or other securities,
should not be relied upon as a guide to future performance.
Neither the Company nor any of its Directors, officers or
advisers provides any representation, assurance or guarantee that
the occurrence of the events expressed or implied in any
forward-looking statements in this announcement will actually
occur. You are cautioned not to place undue reliance on these
forward-looking statements, which speak only as at the date of this
announcement.
Other than in accordance with its legal or regulatory
obligations (including under the requirements of the FCA, the
London Stock Exchange, the Listing Rules, the Disclosure Guidance
and Transparency Rules, the Prospectus Regulation Rules and MAR),
neither the Company nor the Sponsor is under any obligation to, and
each of the Company and the Sponsor expressly disclaims any
intention or obligation to, update or revise any forward-looking
statements, whether as a result of new information, future events
or otherwise .
No profit forecast
Unless otherwise stated within this announcement, no statement
in this announcement is intended as a profit forecast or a profit
estimate and no statement in this announcement should be
interpreted to mean that earnings, earnings per share or income,
for the Company, the Group, the Disposal Group or the Continuing
Group, as appropriate, for the current or future financial years
will necessarily match or exceed the historical published earnings,
earnings per share or income for the Company, the Group, the
Disposal Group or the Continuing Group, as appropriate .
Rounding
Percentages in tables have been rounded and accordingly may not
add up to 100 per cent. Certain financial data have also been
rounded. As a result of this rounding, the totals of data presented
in this announcement may vary slightly from the actual arithmetic
totals of such data.
Cautionary statement
This announcement is not intended to, and does not constitute,
or form part of, any offer to sell or an invitation to purchase or
subscribe for any securities or a solicitation of any vote or
approval in any jurisdiction. Shareholders are advised to read
carefully the formal documentation in relation to the Transaction
once it has been despatched. Any response to the Transaction should
be made only on the basis of the information in the formal
documentation to follow.
This announcement has been prepared for the purpose of complying
with the applicable law and regulation of the United Kingdom and
information disclosed may not be the same as that which would have
been disclosed if this announcement has been prepared in accordance
with the laws and regulations of jurisdictions outside the United
Kingdom.
Important information relating to financial adviser
Jefferies International Limited ("Jefferies"), which is
authorised and regulated in the United Kingdom by the Financial
Conduct Authority, is acting solely for the Company, and for no-one
else, as financial adviser in connection with the Transaction and
as sponsor in connection with the Disposal and will not be
responsible to anyone other than the Company for providing the
protections afforded to its clients or for providing advice to any
other person in relation to the Disposal and the Transaction, the
content of this announcement or any other matters described in this
announcement. To the fullest extent permitted by law, neither
Jefferies nor any of its affiliates assumes any responsibility
whatsoever for or makes any representation or warranty express or
implied, in relation to the contents of this announcement,
including its accuracy, completeness or verification or for any
other statement made or purported to be made by it, or on its
behalf and nothing contained in this announcement is, or shall be,
relied upon as a promise or representation in this respect whether
as to the past, present or future, in connection with the Company,
the Group, the Disposal Group, the Continuing Group or the
Transaction. Jefferies and its affiliates accordingly disclaims to
the fullest extent permitted by law all and any duty,
responsibility and liability whether arising in tort, contract or
otherwise which it might otherwise be found to have in respect of
this announcement or any such statement or otherwise.
Inside information
This announcement contains inside information. The person
responsible for arranging this announcement on behalf of Pendragon
is Richard Maloney, Group General Counsel and Group Company
Secretary.
Details of the Transaction
1. Introduction
Pendragon plc (the "Company" or "Pendragon") announces the
conclusion of the Board's strategic review, which is expected to
result in a value maximising transformation of Pendragon into
Pinewood Technologies plc. In order to achieve this, the Company
has entered into a series of agreements that result in its exit
from the UK motor business (sale and servicing of vehicles in the
UK) and leasing business (fleet and contract hire provider and used
vehicle supply) (the "Business") and at the same time beginning a
broader strategic partnership to accelerate the growth in Pinewood
("Pinewood"), the Company's dealer management systems ("DMS")
business. Reflecting the change in the Company's business model to
become a pure-play, independent Software as a Service ("SaaS")
business, following Transaction Completion, the Company will change
its name to Pinewood Technologies plc.
To effect this, the Company has entered into an agreement for
the sale by Pendragon Group Holdings Limited ("PGHL") of the entire
issued share capital of Pendragon NewCo 2 Limited ("Pendragon
NewCo") which will hold, either directly or indirectly through its
wholly-owned subsidiaries, the Company's entire UK motor business
and leasing business (the "Disposal"), to Lithia UK Holding Limited
(the "Purchaser" or "Lithia") for a gross aggregate consideration
of GBP250 million (subject to certain financial adjustments) (the
"Consideration"). The Disposal will result in the transfer of the
Group's pension plan and also the Company's defined benefit pension
scheme (the "DB Pension Scheme"). In addition, under the terms of
the Disposal, Lithia will repay the net bank debt of the Company on
Disposal Completion, leaving the Company debt and cash free .
The Strategic Partnership (as defined below) comprises two key
aspects:
First, the Company and the Purchaser will commit to completing
the rollout of Pinewood software across Lithia's existing 50 UK
sites (the "UK Rollout"), adding approximately 2,500 users. The UK
Rollout is to commence within 6 months of Disposal Completion and
is intended to be completed within 12 months.
Second, the Company and the Purchaser intend to enter into the
North American Pinewood Agreement for the principal purpose of
co-developing and commercialising in the United States of America
and Canada the North American version of Pinewood (the "North
American Pinewood Opportunity"). The ambition is to customise
Pinewood's software to unlock the highly attractive North American
market, which includes Lithia's c.17,500 users across 296 locations
and additional third-party users; a market that is estimated to be
worth more than GBP2.6 billion per year. It is believed that the
co-development will also aid Pinewood's global expansion across key
markets notably covering, Western European countries, Nordics,
Asia-Pacific, Middle East and South Africa, in addition to North
America.
To underpin the partnership between the two companies, Lithia
will subscribe for 279,388,880 new Ordinary Shares (the
"Subscription Shares") for an aggregate amount of GBP30 million
(the "Subscription Price"), to be effected by way of a "cash box"
structure such that immediately following Transaction Completion,
Lithia will own not less than 16.67 per cent. of the issued share
capital of the Company (the "Subscription"). As such, Lithia's
investment implies a day-one valuation of GBP180 million for the
equity of Pendragon.
In addition to subscribing for the Subscription Shares, Lithia
may acquire further Ordinary Shares in connection with certain
proposals that are being made to participants in the LTIP as a
result of the Transaction. Those additional Ordinary Shares may be
acquired by Lithia from LTIP participants pursuant to private
arrangement(s) to be entered into between the Employee Benefit
Trust, certain of the LTIP participants who accept such proposals
and Lithia. If the maximum number of Ordinary Shares available
pursuant to those proposals are acquired by Lithia, then following
Transaction Completion and the Subscription, Lithia will own up to
19.84 per cent. of the issued share capital of the Company.
Participants in the LTIP will be sent a letter in due course
explaining the effect of the Transaction on their awards and the
proposal being offered to them.
The Company will use such amount of the Subscription Price as is
equal to 9.99 per cent. of the issued share capital of the Company
immediately prior to the issuance of the Subscription Shares, being
GBP15 million, to finance its GBP10 million capital investment in
the North American Pinewood Opportunity (the "North American
Pinewood Commitment") with the remaining GBP5 million to be
invested in the Continuing Group, establishing the Company as a
high-growth standalone entity (the "Pinewood Investment") . Lithia
will also invest GBP10 million into the North American Pinewood
Opportunity at the outset.
The North American Pinewood Opportunity, the UK Rollout and the
Subscription together constitute the "Strategic Partnership" and
the Strategic Partnership together with the Disposal constitute the
"Transaction".
After adjustment for estimated transaction costs, the
recapitalisation of Pendragon, the North American Pinewood
Commitment and the retention of GBP10 million for the working
capital of the Continuing Group, the Company expects to receive net
aggregate proceeds from the Disposal (including, for the avoidance
of doubt, the net proceeds of the Subscription) of GBP240 million,
equivalent to 16.5 pence per Ordinary Share for Shareholders ,
which t he Board intends to distribute to Shareholders following
Transaction Completion (the "Transaction Dividend"). The
Transaction Dividend, when made, will exclude Lithia in respect of
the Subscription Shares only (taking into account any relevant tax
and legal considerations to the making of such a distribution).
Disposal Completion is conditional, amongst other requirements,
on the transfer of the DB Pension Scheme to a member of the
Disposal Group and, accordingly, the Board is engaging in
discussions with the trustees of the DB Pension Scheme to
substitute the Company with Pendragon NewCo (or another member of
the Disposal Group) as the principal employer for the purposes of
the DB Pension Scheme and to put in place new flexible
apportionment arrangements in substitution for the existing
arrangement. The new arrangements are subject to reaching agreement
with the trustees of the DB Pension Scheme.
2. Background to and reasons for the Transaction
The Board remains confident about the future operating prospects
of the Group. Under the leadership of the current management team,
the Company has delivered exceptional operational performance and
made significant progress towards achieving its medium-term targets
originally announced in September 2020. Having restructured the
Group's cost base and implemented a number of strategic, financial
and operational improvements in recent years, the Company has
achieved impressive financial performance in its recent
results.
At all times, the Board has focused on maximising value for the
Shareholders as well as the interests of all stakeholders, and this
has included exploring strategic options for the Group.
Notwithstanding the operational and financial resilience of the
Group and the positive strategic developments demonstrated during
the last three years, the Ordinary Shares have persistently traded
at a discount to what the Directors consider to be reflective of
the value of the Business. In addition, the limited liquidity of
the Ordinary Shares makes it challenging for Shareholders to
monetise their shareholdings in the Company. During 2022, the
Company received expressions of interest and subsequently entered
into advanced discussions regarding a potential sale of the Company
on two separate occasions, neither of which led to a firm
offer.
Against this backdrop, the Board announced a Review of Strategic
Options on 27 September 2022 which led to multiple expressions of
interest for the potential acquisition of parts of the Group. The
Transaction is the value-maximising conclusion of this review and
the Board believes that it will deliver an attractive cash dividend
to Shareholders in the form of the Transaction Dividend, while
retaining an ongoing interest in a pure-play SaaS business with an
accelerated growth plan and broader strategic partnerships, which
provides a strong value proposition to Shareholders that is in line
with previous possible offers for the Company. The Transaction
Dividend is expected to be paid in Q1 2024 to those Shareholders
who hold Ordinary Shares (other than Lithia in respect of the
Subscription Shares) at the relevant record time. Further details
in respect of the intended Transaction Dividend, including the
record time for participating in such Transaction Dividend, will be
announced by the Company in due course.
The Transaction provides Shareholders with a total value per
Ordinary Share amounting to 16.5 pence in cash dividend, a retained
approximately 83.3 per cent. ownership in the Remaining Business
(including Pinewood Tech) valued initially at approximately 10.3
pence on a fully-diluted basis, and a share in North America JVCo
of approximately 0.6 pence. In aggregate, Shareholders will
initially receive the equivalent of approximately 27.4 pence per
Ordinary Share with further significant upside expected from the
Strategic Partnership.
The Board has also taken into consideration the valuation of
publicly-traded comparable companies with similar revenue growth,
earnings margin, recurring revenue and cash conversion including
Ansys, Aspen, Autodesk, Bentley, CCC Intelligent, Constellation,
Meridianlink, Powerschool, Temenos and Veeva. Public markets have
historically rewarded the strong performance of this profitable
software sector with correspondingly attractive revenue, EBITDA and
EBITDA-capex multiples of enterprise value. This peer group
currently trades at a median enterprise value to 2022 revenue
multiple, 2022 EBITDA multiple and 2022 EBITDA-capex multiple of
c.10 times, c.25 times and c.25 times respectively. In addition,
within the DMS sector, acquisitions of competitors to Pinewood have
occurred at attractive multiples, notably Francisco Partner's
acquisition of CDK International and Brookfield's acquisition of
CDK Global at approximately 15 times and 13.3 times last twelve
months' adjusted EBITDA to enterprise value respectively. These
transactions further validate the potential for the shares of the
Company to trade well as an independent SaaS business. Pinewood
Tech's EBITDA for the financial year ended 31 December 2022 was
GBP15.3 million.
3. Principal terms and conditions of the Transaction
The Reorganisation
Prior to completion of the Disposal, the Company will effect the
Reorganisation. The Reorganisation will result, amongst other
things, in a newly incorporated wholly-owned subsidiary of the
Company, Pendragon NewCo, holding, either directly or indirectly,
the Target Companies and each of the Subsidiaries. Following
completion of the Reorganisation, Pendragon NewCo, together with
the Target Companies and each of the Subsidiaries shall be the
Disposal Group. The Company will also undertake an exercise prior
to Transaction Completion to transfer any assets required to
operate the Business to the Disposal Group, to the extent such
assets are not already within the Disposal Group.
The Disposal
On 18 September 2023, the Company, PGHL and the Purchaser
entered into the Sale Agreement, pursuant to which the Company and
PGHL agreed, subject to the satisfaction (or waiver, where
applicable) of certain conditions, to sell the entities comprising
the Disposal Group to the Purchaser. The Sale Agreement is governed
by the laws of England and Wales.
The aggregate consideration payable (including the Subscription
Price) is GBP280 million (subject to certain financial adjustments)
payable in cash on Disposal Completion.
Completion of the Sale Agreement is conditional upon the
satisfaction (or waiver, where applicable) of the following
conditions:
(a) the CMA Condition;
(b) the Shareholder Condition;
(c) the Reorganisation Condition;
(d) the FCA Conditions;
(e) the Pensions Condition; and
(f) the OEM Condition.
The Sale Agreement contains certain warranties and a tax
covenant given by the Company that are customary for a transaction
of this nature and, in addition, limited warranties given by PGHL.
The Sale Agreement also contains warranties given by the Purchaser
which are customary for this type of transaction.
Any warranty claims or tax covenant claims brought against the
Company and PGHL under the Sale Agreement are subject to customary
limitations, including a maximum financial liability cap of
GBP1.00. The Purchaser expects to take out a warranty and indemnity
insurance policy to provide it with recourse in respect of warranty
claims or tax covenant claims in excess of this cap. The aggregate
liability of the Company for all other claims under the Sale
Agreement shall not exceed an amount equal to 25 per cent. of the
Consideration .
The Subscription Agreements
The allotment and issue of new Ordinary Shares to the Purchaser
pursuant to the Subscription will be effected by way of a "cash
box" structure, which is expected to have the effect of increasing
the Company's distributable reserves and providing the Company with
the subscription proceeds it requires in order to make the North
American Pinewood Commitment and the Pinewood Investment. The
ability to realise distributable reserves in the Company will also
facilitate payment of the Transaction Dividend.
As part of the cash box structure, the Company , JerseyCo and
the Purchaser intend to enter into (i) an initial subscription and
put and call option agreement (the "Option Agreement"); and (ii) a
subscription, transfer and relationship agreement (the
"Subscription, Transfer and Relationship Agreement" and together
with the Option Agreement, the "Subscription Agreements").
In addition, in accordance with the terms of the Subscription,
Transfer and Relationship Agreement, Lithia shall have the right to
nominate up to two directors ("Lithia Nominee Directors") to be
appointed to the Board. The Subscription, Transfer and Relationship
Agreement will include customary terms, which will regulate the
relationship between the Company and the Purchaser (in its capacity
as a Shareholder) including, inter alia, the appointment of the
Lithia Nominee Directors.
The Subscription is conditional upon the following
conditions:
(a) Disposal Completion; and
(b) Admission occurring or becoming effective by 8.00 a.m.
(London time) on or prior to 20 September 2024 (or such later time
and/or date as the Purchaser and the Company may agree).
In addition, pursuant to the terms of the Subscription, Transfer
and Relationship Agreement, Lithia agrees to waive all rights and
entitlement to the Transaction Dividend in respect of its entire
holding of Subscription Shares.
The Subscription Shares will be issued at a price of c.10.74
pence per Subscription Share, which represents a discount of
approximately 41.9 per cent. to the middle market price of the
Ordinary Shares at the Latest Practicable Date. Accordingly, as
this discount will exceed 10 per cent. of the middle market price
as at the Latest Practicable Date, the issue of the Subscription
Shares requires approval of Shareholders under Listing Rule 9.5.10
R. In setting the price per Subscription Share, the Directors have
considered the process by which the Subscription Shares need to be
offered to the Purchaser to reflect the total amount required
pursuant to the Transaction to pay the Transaction Dividend and to
ensure the success of the Transaction as a whole and for the
benefit of the Company. The Directors believe that both the
Subscription Price and the discount to the Subscription Shares are
appropriate.
In accordance with the terms of the Subscription, Transfer and
Relationship Agreement, the Purchaser will undertake to the Company
that subject to certain limited exceptions, it will not dispose of
the Subscription Shares held by it for a period of two years from
the date of Admission.
The North American Pinewood Opportunity
The Company (and/or a wholly-owned subsidiary of the Company)
and Lithia (and/or a wholly-owned subsidiary of Lithia) intend to
enter into the North American Pinewood Agreement for the principal
purpose of co-developing and commercialising in the United States
of America and Canada the North American version of Pinewood
through investment in a Delaware incorporated limited liability
company, North America JVCo. The Company (or its wholly-owned
subsidiary) will hold 49 per cent. of the equity interest in North
America JVCo and Lithia (or its wholly-owned subsidiary) will hold
51 per cent..
The board of directors of North America JVCo will be responsible
for the management of North America JVCo and its business, subject
to, inter alia, the terms of the constitutional documents of North
America JVCo and any reserved matters in respect of the strategic
decisions and operation of North America JVCo, which shall require
the consent of members holding 85 per cent. of the equity interests
of North America JVCo. Each of Lithia and the Company shall be
entitled to appoint two managers to the board of directors of North
America JVCo. Lithia shall have the right to appoint the
chairperson of the board of directors of North America JVCo. The
chairperson shall have a casting vote.
Other than as permitted in certain limited circumstances, no
transfer, allotment or issue of the securities in North America
JVCo shall be permitted until the fifth anniversary after
completion of the North American Pinewood Agreement (the "Lock-Up
Period").
The North American Pinewood Agreement provides for customary
exit provisions for a joint venture of this nature, which apply
following expiry of the Lock-Up Period, including transfers to
affiliates, drag rights for the majority member and mutual tag
rights. The North American Pinewood Agreement provides for
customary mandatory transfer events whereby, at any time, if a
mandatory transfer event occurs in respect of a member, the other
member has the right to acquire their shares for fair market
value.
It is expected that, at Transaction Completion, North America
JVCo will enter into certain arrangements with the Company for,
inter alia, the distribution and licensing of the Pinewood software
into the United States of America and Canada, including the Licence
and Framework Services Agreement.
The rTSA
The rTSA will be entered into between the Company and a member
of the Disposal Group to govern the separation and transition of
several services and functions required by the Continuing Group
from the Disposal Group.
The IP Assignment
The IP Assignment will be entered into between the Company and
Pendragon Management Services Limited to effect the assignment of
certain trade marks, domain names and associated trading names used
in the business operated by the Disposal Group from the Company to
Pendragon Management Services Limited.
The Licence and Framework Services Agreement
The Licence and Framework Services Agreement will be entered
into between Pinewood Tech and North America JVCo and will operate
as a framework to facilitate the development, customisation and
sale of the software in the North American market.
Transaction Completion
The Disposal is conditional upon the satisfaction (or waiver,
where applicable) of the conditions set out in the Sale Agreement.
The Subscription will be conditional on completion of the Disposal,
and the arrangements relating to the North American Pinewood
Opportunity will complete immediately following the Subscription.
Therefore, the Subscription will only proceed, and the North
American Pinewood Opportunity will only be pursued, if the Disposal
completes.
The Board expects that, subject to the satisfaction and/or
waiver (where applicable) of the conditions precedent to the
Disposal, the Subscription and the North American Pinewood
Opportunity, Transaction Completion will occur in Q4 2023.
4. Information on the Purchaser
Lithia Motors, Inc. is one of the largest automotive retailers
in North America providing a wide array of products and services
throughout the ownership lifecycle with a proven track record as a
pragmatic disruptor providing transparent, convenient experiences
for customers and diverse consumer solutions. With over 340 stores
as of 30 June 2023 and approximately 22,000 employees as of 31
December 2022, Lithia has generated approximately $28 billion in
revenue and $1.8 billion in adjusted EBITDA over the trailing
twelve months and has demonstrated a consistent ability to compound
growth including a 10-year revenue growth CAGR of c.21 per cent.
and 10-year EPS growth CAGR of c.31 per cent. (10 years through to
31 December 2022) .
In addition to a full-suite of easy and convenient solutions to
serve customers through all aspects of the vehicle ownership
lifecycle with omni-channel optionality, Lithia's long-term
strategy includes expanding and diversifying within
mobility-related adjacencies such as consumer finance, fleet
management, logistics (charging) and software .
The acquisition of Pendragon NewCo will build upon Lithia's
already significant scale in the UK, following the March 2023
acquisition of Jardine Motors Group, including more than 50 premium
luxury retail locations and is expected to generate over $2 billion
in annualized revenues.
As of 30 June 2023, Lithia had over 45 OEM brands, with over 340
stores worldwide at period end and more than 75,000 vehicles in
inventory .
Summary financial information of the Purchaser
(Unaudited)
($ in millions, Year ended Year ended Year ended
except per share 31 December 31 December 31 December
data) 2020 2021 2022
-------------------- ------------- ------------- -------------
Revenue 13,127 22,832 28,188
Cost of Sales 10,902 18,573 23,035
-------------------- ------------- ------------- -------------
Gross Profit 2,224 4,259 5,152
Operating Income 693 1,663 1,941
Net Income 470 1,063 1,262
Earnings Per Share
(Diluted) 19.53 36.54 44.17
5. Information on Pendragon
Pendragon , one of the UK's premier automotive retailers, is
headquartered in Nottingham, UK and its shares are admitted to
listing on the premium segment of the Official List and to trading
on the London Stock Exchange's main market for listed securities.
As at 31 December 2022, the Company employed 5,334 people helping
to serve customers across more than 160 sites across the UK and
online. The Company currently operates three key business
divisions: UK Motor, Pinewood and Pendragon Vehicle Management.
UK Motor : The UK Motor division focuses on the sale and
servicing of new and used cars and vans via its retail network in
the UK and its online platform. New car retail operates through two
main consumer brands in the UK:
a) Evans Halshaw is one of the UK's leading volume motor car and
commercial vehicle retailer, providing national coverage with
approximately 89 retail locations. Evans Halshaw holds franchises
to retail and service brands for cars and vans, including Citroen,
Dacia, DS, Ford, Hyundai, Kia, Nissan, Peugeot, Renault and
Vauxhall; and
b) Stratstone is one of the UK's largest premium motor car
retailers, with 45 franchise points nationwide. Stratstone holds
franchises to retail and service some of the world's most
prestigious brands, including Aston Martin, BMW, Ferrari, Jaguar,
Land Rover, Mercedes-Benz, MINI, Porsche, Smart and BYD .
The Group is also a leading retailer of used cars, through its
extensive store network and through the Car Store brand, which was
relaunched in May 2022 as a market leading, omni-channel hybrid
proposition. CarStore.com is an online market-place for used car
inventory which lists over 10,000 used vehicles on a single
transactional website. CarStore.com is a market leading digital
proposition and is supported by a growing network of physical
CarStore sites, which combine with the national franchise store
footprint.
PVM : PVM is a vehicle leasing business that offers a complete
range of fleet leasing and contract hire solutions. It supplies
fleet vehicles and management services to help businesses manage
their fleets, improve efficiency, reduce costs and save time. The
fleet of vehicles is financed through third party asset
funders.
Pinewood : Pinewood is a leading cloud-based DMS provider that
provides innovative software solutions to the automotive industry
both in the UK and internationally. Pinewood has received strong
OEM support through partnerships with BMW and Renault, and with
integration with over 50 manufacturers .
6. Summary of the Disposal Group
The Disposal Group is made up of the Company's entire UK Motor
and PVM divisions, as outlined above.
Disposal Group Income Statement
Year ended Year ended Year ended
31 December 31 December 31 December
2020 2021 2022
GBPm GBPm GBPm
--------------------------- --------------- ------------- -------------
Revenue 2,749.7 3,401.8 3,600.9
Cost of Sales (2,435.0) (2,982.4) (3,160.8)
--------------------------- --------------- ------------- -------------
Gross profit 314.7 419.4 440.1
Operating expenses (314.3) (321.3) (356.6)
--------------------------- --------------- ------------- -------------
Operating profit / (loss)
before other income 0.4 98.1 83.5
Other income (0.4) 1.8 7.7
--------------------------- --------------- ------------- -------------
Operating profit / (loss) - 99.9 91.2
Notes:
1. The income statements presented above are unaudited.
2. The income statements presented above exclude the impact of
intercompany transactions between the Disposal Group and the
Continuing Group.
3. The income statements presented above include the Disposal
Group's share of the Group's corporate and head office costs in
line with the actual allocations recognised historically through
intercompany recharges. Total recharges recognised within the
Disposal Group were GBP2.5 million, GBP3.0 million and GBP3.8
million in the years ended 31 December 2020, 31 December 2021 and
31 December 2022 respectively. Following the Transaction, the
obligation for all retained corporate and head office costs will
remain with the Continuing Group, which could result in a cost base
materially different to that represented through the actual
historical intercompany allocations.
4. The income statements presented above do not include an
allocation of tax or finance expense / income as it is not possible
to provide a meaningful allocation to the Disposal Group.
7. Summary of Pinewood
Pinewood is a vertically integrated technology platform that
provides SaaS in the UK and in a number of countries worldwide. The
UK DMS market for franchised motor dealers is estimated to be worth
over GBP100 million. Three DMS providers dominate the UK market, of
which Pinewood is one. The global automotive DMS market is
estimated to be worth approximately GBP3.8 billion. Pinewood's
approach to the DMS market is characterised by:
-- a single product capable of global deployment, which
simplifies future developments to the system and reduces operating
costs;
-- a feature-rich cloud-based solution, with no need for costly
third-party add-ons;
-- focus on strong manufacturer partnerships and supporting
dealer profitability; and
-- commitment to using the latest technology to reshape motor
retail.
The Pinewood management team led by Paul Hopkinson, who joined
Pinewood when the Pinewood business was founded in 1981 and has
been Managing Director of Pinewood since 1998, is highly
experienced and has been broadly operating independently of the
wider Group since Pinewood was acquired in 1998. Pinewood was an
early adopter of the SaaS business model and has focused on
developing recurring revenue streams with approximately 90 per
cent. of Pinewood's DMS revenues being on a recurring basis.
Pinewood currently services over 30,000 users globally with a
current focus on Europe, Africa, and Asia. Whilst the Company
remains an important customer to Pinewood, as Pinewood has grown,
the Company's proportion of the Pinewood total user base has been
diluted to approximately 17 per cent. with intra-group charging
maintained at a competitive market rate. During FY22, overall net
user numbers increased by 4 per cent. to approximately 31,700.
Across Pinewood's international markets there was a 13 per cent.
net increase in user numbers to a record high of approximately
6,400 users. All international markets grew user numbers in FY 22
with Pinewood benefiting from both the expansion of existing
customers and new sales. Growth was further supported by launches
in Singapore and the Middle Eastern market. Pinewood systems now
operate in a total of 19 different countries. In the UK and Ireland
market (excluding the Company) there was an increase in user
numbers in FY22 to approximately 20,000. The full benefit of these
user additions will be seen on an annualised basis in FY23 result.
A breakdown of users by region is as follows:
-- UK & Ireland (approximately 25,000);
-- Rest of Europe (approximately 2,000); and
-- Rest of World (approximately 5,000).
Pinewood's growth benefits not just from sales to new customers
but also from the expansion of its existing highly loyal customer
base. In FY22 external net user churn was less than 1 per cent., in
line with the average of approximately 2 per cent. over the last 5
years, and in international markets (excluding UK and Ireland) it
was negative, as the rate at which existing customers grew more
than offset user reductions. There has also been further progress
in terms of OEM support at an international level with
long-standing partnerships with 50 OEM brands. Pinewood continues
to build a strong partnership with Volkswagen AG and Porsche, which
has enabled constructive dialogue and, in some cases, initial user
implementations with large international dealer groups in both the
European and the Asia Pacific market.
Pinewood has an experienced, developer orientated workforce with
approximately 220 employees of which approximately 130 are software
developers.
Financial Review
Total revenues increased by 4.1 per cent. to GBP25.4 million
compared to FY21. International DMS recurring revenues increased by
27 per cent., reflecting the underlying user growth and expansion
of the direct sales model in the European and Asia Pacific markets.
UK and Ireland DMS recurring revenues fell slightly in the period,
driven by the amortization impact of two exceptional customer exits
at the end of the prior year and reduced user numbers in the first
half of FY22. User growth returned by the end of FY22 leaving
Pinewood well placed for growth in its home market heading into the
FY23.
In addition to recurring revenues, there was a 9 per cent.
increase in external DMS transactional charges, system training and
implementation revenues. This was driven by an increase in system
implementations in the UK and Ireland in the second half of FY22.
Gross profit increased by 0.9 per cent. to GBP22.7 million. There
was a reduction in gross margins driven by the expanded use of the
Microsoft Azure platform. This transition is a one-off event, and
the related cost increase will not recur in future periods.
Operating costs increased by GBP1.7 million or 17.0 per cent.
compared to FY21. In FY22 the amortization charge of GBP4.2 million
(increased from GBP3.7 million in the previous year) made up over a
third of operating costs. Alongside rising personnel costs, the
higher amortization charge drove the operating cost increase, both
reflecting increased investment in the development of the DMS
platform and Pinewood's operational capabilities. Further cost
increases arose from higher travel expenditure following the
reduction in COVID-19 restrictions, as well as higher energy costs.
As a result of these movements, underlying operating profit was
GBP11.0 million. There was approximately GBP6 million of invested
capital in FY22.
Year ended Year ended Year ended
31 December 31 December 31 December
2020 2021 2022
GBPm GBPm GBPm
--------------------------- --------------- ------------- -------------
Revenue 22.3 24.4 25.4
Cost of Sales (1.8) (1.9) (2.7)
--------------------------- --------------- ------------- -------------
Gross profit 20.5 22.5 22.7
Operating expenses (8.4) (10.0) (11.7)
--------------------------- --------------- ------------- -------------
Operating profit / (loss)
before other income 12.1 12.5 11.0
Other income - - -
--------------------------- --------------- ------------- -------------
Operating profit / (loss) 12.1 12.5 11.0
Notes:
1. The income statements presented above are unaudited.
2. The Pinewood income statements presented above relate to the
software operating segment only and have been extracted without
material adjustment from the 2022 Annual Report and Accounts and
the 2021 Annual Report and Accounts.
3. The Continuing Group also includes the US Motor operating
segment, which is excluded from the Pinewood income statements
presented above. The US Motor operating segment was presented as a
discontinued operation in the 2022 Annual Report and Accounts and
the 2021 Annual Report and Accounts.
For the year ended 31 December 2022, the US Motor operating
segment was no longer revenue generating and incurred an operating
loss of GBP1.5 million. Following the Transaction, operating
expenses incurred by the Continuing Group in relation to the US
motor operating segment are expected to reduce as the business
continues to wind down.
4. The income statements presented above include the impact of
intercompany transactions between Pinewood and the Disposal
Group.
5. The income statements presented above include Pinewood's
share of the Group's corporate and head office costs in line with
the actual allocations recognised historically through intercompany
recharges. Total recharges recognised within Pinewood were GBP0.3
million, GBP0.3 million and GBP0.3 million in the years ended 31
December 2020, 2021 and 2022, respectively. This excludes the share
of the Group's corporate and head office costs related to the US
Motor operating segment (totalling GBP0.3 million, GBP 0.1 million
and GBPnil million in the years ended 31 December 2020, 2021 and
2022 respectively) which also forms part of the Continuing
Group.
6. The income statements presented above do not include an
allocation of tax or finance expense / income as it is not possible
to provide a meaningful allocation to Pinewood.
8. Use of proceeds, financial effects of the Disposal and
strategy of the Continuing Group
The Company will use such amount of the Subscription Price as is
equal to 9.99 per cent. of the issued share capital of the Company
immediately prior to the issuance of the Subscription Shares, being
GBP15 million, to finance its GBP10 million capital investment in
the North American Pinewood Opportunity with the remaining GBP5
million to be invested in the Continuing Group, establishing the
Company as a high-growth standalone entity. The Company shall
retain GBP10 million of the Consideration for the working capital
of the Continuing Group. The Board intends to use as much as
possible of the remaining balance of the Consideration to make a
distribution to Shareholders following Transaction Completion
(taking into account any relevant tax and legal considerations to
the making of such a distribution) in an amount equal to the
Transaction Dividend. The Transaction Dividend is expected to be
paid in Q12024 to those Shareholders (other than Lithia in respect
of the Subscription Shares) who hold their Shares at the relevant
record time. Further details in respect of the intended Transaction
Dividend, including the record time for participating in such
Transaction Dividend, will be announced by the Company in due
course. The Continuing Group, which is expected to be cashflow
positive will have an unencumbered balance sheet, following the
repayment of all existing net bank debt by Lithia. The Board will
look to assess the appropriateness of any dividend policy following
Transaction Completion.
A board and executive management team appropriate for a publicly
listed company are required to accelerate growth in Pinewood but
the associated costs will become fully absorbed within the
Continuing Group. In addition, certain existing group services will
be required by the Continuing Group and the costs associated with
the ongoing management of the US wind-up will also be retained. The
anticipated incremental cost to Pinewood's current operating profit
is between approximately GBP2 million and GBP2.5 million, which is
expected to be largely offset by the aforementioned addition of
approximately 2,500 new users as a result of the UK Rollout, based
on an assumption of a revenue per user equivalent to that paid by
the Company.
Following Transaction Completion, the Continuing Group will also
retain its US motor division, which comprises entities relating to
historical retail operations in California in the United States.
This segment ceased trading in 2021 following the sale of its
remaining stores, however the Group continues to retain the
associated entities in order to wind-up legacy liabilities. For the
year ended 31 December 2022, the Group incurred a profit before tax
loss of GBP1.5 million from the US motor division. The level of
cost associated with US motor is expected to substantially decrease
over the coming years, in line with the reduction in
liabilities.
After Transaction Completion, the Continuing Group intends to
focus on the growth prospects of Pinewood as well as the Strategic
Partnership with increased operating flexibility following the
recapitalisation. The business of the Continuing Group will be led
by William Berman as Chief Executive Officer and Oliver Mann as
Chief Financial Officer, supported by a highly experienced
management team.
9. Current trading, trends and future prospects for the Continuing Group
Pinewood's existing growth plans are focused on three core
pillars:
1. product innovation:
(i) opportunity remains to expand digital capabilities to
existing customers as bolt on applications and create tools to
enhance the customer experience to attract new customers;
(ii) Pinewood is well positioned to fundamentally simplify auto
retail working from its existing capability and there is
opportunity to scale in US with the product developed for the US
market in partnership with Lithia;
(iii) opportunity to lead innovation of DMS product globally in
partnership with Lithia, in areas such as eCommerce, valuation and
equity mining,
2. user growth in existing territories:
(i) opportunity to grow with major retail players in the UK post
separation from Pendragon motor division;
(ii) exciting opportunity for growth in markets such as Asia
Pacific, Middle East and Europe in particular;
(iii) targeting approximately 16,000 new users over the next
five years in markets outside of North America, and
3. access to North American Market through North America JVCo :
(i) the Board believes Lithia is the ideal partner to
turbocharge Pinewood's expansion into North America and North
America JVCo provides access to approximately 17,500 initial users
across Lithia's current store estate of 296 dealerships and a total
addressable US market of approximately 18,000 new car
dealerships;
(ii) leverage Lithia relationship to develop product for the
North American markets where other European based DMS providers do
not currently have a presence;
(iii) Pinewood's cloud-based technology to grow locally in North
America without hardware limitations;
(iv) Lithia currently spends approximately $100 million annually
on their technology stack and by partnering with Lithia there is an
opportunity to generate a revenue stream from DMS and customer
relationship management functions alone of more than double
Pinewood Tech's current annual revenues.
The Board believes that the growth prospects for the Continuing
Group will be materially enhanced as a result of becoming an
independent, pure-play SaaS business as well as through the
Strategic Partnership. As such, the Board is targeting user growth
of approximately 16,000 to approximately 48,000 by FY27 with an
associated target of GBP27 million EBITDA by FY27 from existing
Pinewood opportunities and the UK Rollout, with specific user
targets as follows:
(i) UK Rollout (c.2,500);
(ii) Other UK & Ireland (c.3,500);
(iii) Europe (c.4,000);
(iv) Middle East (c.1,500);
(v) Asia-Pacific (c.4,000); and
(vi) Africa (c.500).
The North American market is both highly attractive and stable,
with approximately 21,000 new car automotive dealers in the US
(approximately 18,000) and Canada (approximately 3,000), which have
been consistently operating over approximately the last 10 years.
It is also highly fragmented with the largest 10 dealership groups
representing approximately only 10 per cent. share of new vehicle
volumes in 2022 . Lithia is one of the largest automotive retailers
with 296 dealerships providing significant scale and opportunity.
The Board estimates the monthly DMS spend per dealership at
approximately GBP12,000, which implies a significant market
opportunity of approximately GBP2.6 billion for the US and further
upside into North America and used cars. The Board, based on its
discussions with Lithia, believes that Pinewood's cloud-based
single system, agile approach, provides a competitive
advantage.
10. Board changes
It was previously announced that Martin Casha would be stepping
down as Director and Chief Operating Officer of the Company on 7
November 2023 to take up a position as Chief Executive Officer of
Marshall Motor Group. It has been agreed between the Company and
Martin Casha that his resignation will be accelerated to 7 October
2023.
Ian Filby will be stepping down as Non-Executive Chairman of the
Company but will continue in his role until Pendragon identifies
and appoints Ian's successor.
Mark Willis will be stepping down as Director and Chief
Financial Officer of the Company subject to and conditional on
Transaction Completion and his successor will be Oliver Mann who
will be appointed as Director and Chief Financial Officer of the
Company subject to and conditional on Transaction Completion.
Oliver Mann has been at the Company for 18 years, holding roles
including Director of Group Finance and Investor relations, Group
Financial Controller and Head of Financial Planning and
Analysis.
On and following Subscription Completion, and in accordance with
the terms of the Subscription, Transfer and Relationship Agreement,
Lithia shall have the right to nominate the Lithia Nominee
Directors to be appointed to the Board.
Following Transaction Completion, the Board is expected to
comprise a majority of independent non-executive directors.
11. Irrevocable undertakings
The Directors who hold interests in the Ordinary Shares have
each irrevocably undertaken (or have confirmed to the Company and
the Sponsor that they will irrevocably undertake) to vote at the
General Meeting in favour of the Resolution in respect of the
Ordinary Shares to which they are beneficially entitled
(representing in aggregate approximately 1.0 per cent. of the
entire issued share capital of the Company as at the Latest
Practicable Date).
In addition, Shareholders who hold interests in the Ordinary
Shares representing, in aggregate, approximately 26.5 per cent. of
the entire issued share capital of the Company as at the Latest
Practicable Date have each irrevocably undertaken (or have
confirmed to the Company and the Sponsor that they will irrevocably
undertake) to vote at the General Meeting in favour of the
Resolution in respect of the Ordinary Shares to which they are
beneficially entitled. The Shareholders comprise Schroder
Investment Management Limited, Briarwood Capital Partners LP,
Hosking Partners LLP, Farringdon Netherlands BV, Huntington
Management LLC, and Sir Nigel Rudd.
Appendix - Definitions and Glossary
The following definitions apply throughout this announcement,
unless the context otherwise requires:
"2021 Annual the annual report and accounts prepared by the Company
Report and for the financial year ended 31 December 2021.
Accounts"
"2022 Annual the annual report and accounts prepared by the Company
Report and for the financial year ended 31 December 2022.
Accounts"
"Admission" the admission of the Subscription Shares to the
premium segment of the Official List and to trading
on the London Stock Exchange's main market for listed
securities.
"Board" or the board of directors of the Company.
"Directors"
"Business" the Company's UK motor business (sale and servicing
of vehicles in the UK) and leasing business (fleet
and contract hire provider and used vehicle supply).
"CAGR" compound annual growth rate.
"Circular" the circular to be posted to Shareholders in connection
with the Transaction, including the Notice of General
Meeting
"CMA" the United Kingdom's Competition and Markets Authority.
"CMA Condition" confirmation from the CMA, in response to a briefing
paper to be submitted by the Purchaser to the CMA
in relation to the Disposal, that: (i) it has no
further questions on the briefing paper and/or does
not intend to launch a CMA Phase 1 Investigation
in relation to the Disposal, or alternatively (ii)
it does not intend to launch a Phase 2 Reference
in relation to the Disposal or the period within
which the CMA can make a Phase 2 reference having
expired .
"CMA Phase an investigation by the CMA to determine whether
1 Investigation" to make a CMA Phase 2 Reference.
"CMA Phase a reference of the Disposal to the chair of the
2 Reference" CMA under article 33 of the EA02 for the constitution
of a group under schedule 4 to the Enterprise and
Regulatory Reform Act 2013.
"Combined DMS the agreement to be entered into in respect of licensing
Software Licence" the Pinewood DMS software, including the UK Rollout.
"Companies the Companies Act 2006, as amended.
Act"
"Company" or as the context requires, prior to Transaction Completion,
"Pendragon" Pendragon plc, a company incorporated in England
and Wales with registered number 02304195 and, subject
to and conditional upon Transaction Completion and
following Transaction Completion, to be renamed
Pinewood Technologies plc.
"Conditions" the conditions to the Disposal.
"Consideration" the consideration payable by the Purchaser on Disposal
Completion.
"Continuing the Group (excluding at and from Disposal Completion,
Group" the Disposal Group).
"DB Pension the Pendragon Group Pension Scheme, currently governed
Scheme" by the DB Pension Scheme Rules.
"DB Pension the definitive deed and rules governing the DB Pension
Scheme Rules" Scheme dated 24 September 2012 (as amended from
time to time).
"Disclosure the disclosure guidance and transparency rules made
Guidance and by the FCA under section 73A of FSMA, as amended
Transparency from time to time.
Rules"
"Disposal" the proposed disposal of the Disposal Group pursuant
to the Sale Agreement.
"Disposal Completion" completion of the Disposal in accordance with the
provisions of the Sale
Agreement.
"Disposal subject to the Reorganisation and as at Disposal
Group" Completion, Pendragon NewCo and the Target Group
.
"DMS" dealer management systems.
"EA02" the United Kingdom Enterprise Act 2022 (as amended).
"EBITDA" earnings before interest, taxation, depreciation
and amortisation.
"Employee Benefit the Company's employee benefit trust, established
Trust" by a trust deed dated 17 June 1999.
"FCA" the UK Financial Conduct Authority.
"FCA Conditions" together, the FCA Reorganisation Condition and FCA
Transaction Condition.
"FCA Reorganisation the approval under FSMA from the FCA being obtained
Condition" or deemed to have been obtained in respect of the
change of control of PFIS (an FCA regulated entity)
which will occur as a result of completion of the
Reorganisation.
"FCA Transaction the approval under FSMA from the FCA being obtained
Condition" or deemed to have been obtained in respect of the
change of control of PFIS (an FCA regulated entity)
which will occur as a result of completion of the
Disposal.
"FSMA" the Financial Services and Markets Act 2000, as
amended.
"FY21" the Company's financial year ended 31 December 2021.
"FY22" the Company's financial year ended 31 December 2022.
"FY23" the Company's financial year ending 31 December
2023.
"FY27" the Company's financial year ending 31 December
2027.
"General Meeting" the general meeting of the Company at which the
Resolution will be proposed and considered.
"Group" the Company and its consolidated subsidiaries and
subsidiary undertakings from time to time, with
Group or Continuing Group being used as the context
requires.
"IP Assignment" the agreement to be entered into in respect of the
IP to be assigned to the Disposal Group.
"Jefferies" Jefferies International Limited, the Sponsor and
or "Sponsor" financial adviser to the Company.
"JerseyCo" Pendragon Funding Limited, a company to be incorporated
in Jersey.
"Latest Practicable 15 September 2023 (being the last business day before
Date" the date of publication of this announcement).
"Licence and the agreement to be entered into in respect of the
Framework Services licence to be granted to North America JVCo.
Agreement"
"Listing Rules" the listing rules made by the FCA under section
73A of FSMA, as amended from time to time.
"Lithia Nominee the directors to be appointed to the Board by Lithia.
Directors"
"Lock-Up Period" other than as permitted in certain limited circumstances,
the period from completion of the North American
Pinewood Agreement until the fifth anniversary after
such completion in which no transfer, allotment
or issue of the securities in North America JVCo
shall be permitted.
"London Stock London Stock Exchange plc.
Exchange"
"LTIP" Pendragon plc Long Term Incentive Plan.
"MAR" the UK version of the Market Abuse Regulation (EU)
No. 596/2014 as it forms part of UK domestic law
by virtue of the European Union (Withdrawal) Act
2018.
"North America a Delaware incorporated limited liability company
JVCo" to be formed by the Company (or a wholly-owned subsidiary
of the Company) and Lithia Motors, Inc. (or a wholly-owned
subsidiary of Lithia Motors, Inc..
"North American the agreement to be entered into in respect of the
Pinewood Agreement" North American Pinewood Opportunity.
"North American the amount used by the Company to finance its capital
Pinewood Commitment" investment in the North American Pinewood Opportunity.
"North American completion of the North American Pinewood Opportunity
Pinewood Completion" in accordance with the provisions of the North American
Pinewood Agreement.
"North American co-development and commercialisation in the United
Pinewood Opportunity" States of America and Canada of the North American
version of Pinewood pursuant to the North American
Pinewood Agreement.
"Notice of the notice of General Meeting to be contained in
General Meeting" the Circular to be posted to Shareholders in connection
with the Transaction.
"OEM" original equipment manufacturer.
"OEM Agreements" the agreements (excluding any stock finance agreements)
entered into between the Group and its OEMs in relation
to the business of the Disposal Group.
"OEM Condition" receipt of consents to the Disposal from such number
of counterparties to the OEM Agreements, representing,
in aggregate, not less than 70 per cent. of the
profit before tax (including notional central income
allocation) generated by the trading dealerships
of the Disposal Group as described in the audited
consolidated financial statements of the Group for
the financial year ended 31 December 2022.
"Option Agreement" the initial subscription and put and call option
agreement to be entered into between the Company,
JerseyCo and the Purchaser.
"Ordinary Shares" the ordinary shares of five pence each in the share
capital of the Company.
"Pendragon Pendragon NewCo 2 Limited, a company incorporated
NewCo" in England and Wales with registered number 15112552,
and subject to the Reorganisation and as at Disposal
Completion, a wholly-owned subsidiary of PGHL and
the sole shareholder of the Target Group.
"Pensions Condition" the Company and the trustees of the DB Pension Scheme,
among others, entering into documents providing
for (i) a new entity to become the principal employer
of the DB Pension Scheme in substitution for the
Company ; (ii) the amendment of the DB Pension Scheme
Rules; and (iii) a flexible apportionment arrangement
for the purposes of Regulation 6E of the Occupational
Pension Scheme (Employer Debt) Regulations 2005.
"PFIS" Pendragon Finance and Insurance Services Limited,
a company incorporated in England and Wales with
registered number 00875460.
"PGHL" Pendragon Group Holdings Limited, a company incorporated
in England and Wales with registered number 14776858.
"Pinewood" the Company's DMS business.
"Pinewood Investment" the Company 's GBP5 million to be invested in the
Continuing Group, establishing the Company as a
high-growth standalone entity.
"Pinewood Tech" as the context requires, prior to Transaction Completion,
Pinewood Technologies plc, a company incorporated
in England and Wales with registered number 03542925,
(a subsidiary of the Company) and, subject to and
conditional upon Transaction Completion and following
Transaction Completion, to be renamed concurrently
with the renaming of the Company.
"Prospectus the prospectus regulation rules made by the FCA
Regulation under Part VI of FSMA.
Rules"
"Purchaser" Lithia UK Holding Limited, a company incorporated
or "Lithia" in England and Wales with registered number 14523998
.
"Remaining the Company, PGHL, Pinewood Tech and Pendragon Overseas
Business" Limited (and each of their affiliates but excluding,
for the avoidance of doubt, the Disposal Group).
"Reorganisation" the reorganisation of the Group in anticipation
of the Disposal (resulting in Pendragon NewCo holding,
either directly or indirectly, the Target Companies
and each of the Subsidiaries) to be undertaken prior
to Disposal Completion.
"Reorganisation completion of the Reorganisation.
Condition"
"Resolution" the resolution approving the Transaction, to be
proposed and considered at the General Meeting which
will be set out in the Notice of General Meeting.
"rTSA " the reverse transitional services agreement to be
entered into between the Company and a member of
the Disposal Group to govern the separation and
transition of several services and functions required
by the Continuing Group from the Disposal Group.
"SaaS" Software as a Service.
"Sale Agreement" the conditional sale agreement in respect of the
Disposal Group.
"Shareholder" a holder of Ordinary Shares from time to time.
"Shareholder the approval of the Resolution to be passed by Shareholders
Condition" at the General Meeting.
"Strategic together, the North American Pinewood Opportunity,
Partnership" the UK Rollout and the Subscription.
"Subscription" the proposed subscription by the Purchaser for the
Subscription Shares.
"Subscription together, the Option Agreement and the Subscription,
Agreements" Transfer and Relationship Agreement.
"Subscription completion of the Subscription in accordance with
Completion" the provisions of the Subscription Agreements.
"Subscription an aggregate price of GBP30,000,000 which is 10.74
Price" pence per Ordinary Share.
"Subscription, the subscription, transfer and relationship agreement
Transfer and to be entered into between the Company and the Purchaser.
Relationship
Agreement"
"Subscription 279,388,880 new Ordinary Shares.
Shares"
"Subsidiaries" subject to the Reorganisation and as at Disposal
Completion, the subsidiaries and subsidiary undertakings
of the Target Companies.
"Target Companies" Pendragon General Partner Limited (company no. SC403382);
Pendragon Limited Partner Limited (company no. 07702039);
Pendragon Group Pension Trustees Limited (company
no. 08153049); Stratstone Motor Holdings Limited
(company no. 03836139); Evans Halshaw (Dormants)
Limited (company no. 01838867); Pendragon Automotive
Services Limited (company no. 03836134); C D Bramall
Limited (company no. 00444795); Pendragon Group
Services Limited (company no. 03836123); Pendragon
Finance and Insurance Services Limited (company
no.00875460); and Reg Vardy Limited (company no.
00611190).
"Target Group" subject to the Reorganisation and as at Disposal
Completion, the Target Companies and each of the
Subsidiaries.
"Transaction" the Disposal and the Strategic Partnership.
"Transaction together, Disposal Completion, Subscription Completion
Completion" and North American Pinewood Completion.
"Transaction the proposed distribution to be made following Transaction
Dividend" Completion by the Company to Shareholders (other
than Lithia in respect of the Subscription Shares)
in order to return an amount currently estimated
at GBP240 million, equivalent to 16.5 pence per
Ordinary Share for Shareholders.
"Transaction the Sale Agreement, the rTSA, the Subscription Agreements,
Documents" the IP Assignment, the North American Pinewood Agreement,
the Licence and Framework Services Agreement and
the Combined DMS Software Licence.
"UK" or "United the United Kingdom of Great Britain and Northern
Kingdom" Ireland.
"UK Rollout" the rollout of the Pinewood DMS software across
all of the Purchaser's UK dealerships following
Transaction Completion.
All references to legislation in this announcement are to the
legislation of England and Wales unless the contrary is indicated.
Any reference to any provision of any legislation shall include any
amendment, modification, re-enactment or extension of it.
For the purpose of this announcement, "subsidiary" and
"subsidiary undertaking" have the meanings given by the Companies
Act.
Words importing the singular shall include the plural and vice
versa, and words importing the masculine gender shall include the
feminine or neutral gender.
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MSCGSGDCLDBDGXI
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September 18, 2023 02:00 ET (06:00 GMT)
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