TIDMREDS
RNS Number : 4385P
RedstoneConnect PLC
29 May 2018
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the Company to constitute inside information as stipulated under
the Market Abuse Regulation (EU) No. 596/2014 ("MAR"). Upon the
publication of this announcement via a Regulatory Information
Service ("RIS"), this inside information is now considered to be in
the public domain.
29 May 2018
RedstoneConnect Plc
("RedstoneConnect" or the "Company")
Proposed GBP21.6 million cash disposal of its Systems
Integration and Managed Services divisions
and
Notice of General Meeting
RedstoneConnect (AIM: REDS), a leading provider of technology
and services for smart buildings and commercial spaces, today
announces that it has conditionally agreed to sell Comunica
Holdings Limited and Commensus Limited (which together comprise the
Company's Systems Integration and Managed Services divisions) to
Excel I.T. Services Limited, a leading IT infrastructure company
and support partner to global corporations, for a total
consideration of GBP21.6 million in cash ("the Disposal"). GBP19.6
million of the consideration is payable in cash on Completion and
up to a further GBP2 million will become payable on or before final
completion of an already contracted project by Redstone Converged
Solutions Ltd (a subsidiary of Comunica Holdings Limited) provided
such project is carried out on a profitable basis. In addition,
intercompany loans as at 31 January 2018 of, in aggregate,
approximately GBP1.4 million owed by the Company to the Sale Group
are being waived as part of the Disposal.
The Disposal is of sufficient size relative to that of the
Existing Group to constitute a disposal resulting in a fundamental
change of business pursuant to Rule 15 of the AIM Rules and
Completion is, therefore, conditional upon the approval of
Shareholders.
A circular to shareholders (the "Circular") containing a notice
of General Meeting is being posted to shareholders today and will
be available on the Company's website www.redstoneconnect.com. The
General Meeting is to be held at 10.00 a.m. on 15 June 2018 at the
offices of DAC Beachcroft LLP, 100 Fetter Lane, London EC4A 1BN.
The Company has received irrevocable undertakings from the
Directors and certain other Shareholders and a letter of intent to
vote in favour of the Resolution in respect of holdings totalling
in aggregate 7,169,351 Ordinary Shares, representing approximately
34.4 per cent. of the Company's issued share capital.
Capitalised terms in this announcement shall have the same
meaning ascribed to them in the Circular.
Background to and reasons for the Disposal
-- RedstoneConnect is focused on technologies that make real
estate more efficient and businesses more effective as a result
-- RedstoneConnect currently has three business divisions:
o Systems Integration - integrated and digital infrastructure
for buildings and commercial spaces;
o Managed Services - IT support services and hosted cloud-based
IT support services; and
o Software - software to improve building-user experience,
utilisation and efficiency, with the Connect software platform and
OneSpace occupancy management software solution.
-- Following the acquisition of Connect IB in March 2016, the
Board has been focused on both broadening and developing its
software capabilities, which includes the mapping and wayfinding of
smart buildings and occupancy management solutions
-- The Systems Integration and Managed Services divisions
operate in more mature markets and therefore the Board believes
that higher levels of growth are available to the Company's
Software division
-- Following the Disposal, management will be able to focus
exclusively on expanding the Company's Software business (the
"Continuing Group")
Deal rationale
The Board sees significant opportunities for growth in the smart
software and co-working space technology markets especially in the
agile working and the connected office environment, a core target
market for the Group's occupancy management software solution,
OneSpace.
The Board believes that there is a change in the business
environment where employee mobility and agile working is
challenging modern organisations to adapt their approach to
effective and efficient use of the workspace. This is driving
demand for workspace management solutions. In 2017, the global
market for occupancy analytics based software services was
estimated to be worth $1.5 billion with the market size forecast to
grow by a compound annual growth rate of approximately 25% to over
$4.6 billion by 2022. The Board believes that its existing OneSpace
software solution is well positioned to address this market
opportunity.
The Disposal will provide the Board with the opportunity to
accelerate the growth of the Company's Software division,
highlighted by the following:
-- It creates a focused operational base from which to execute
the Board's strategy of becoming a leading software and SaaS driven
company, focused on the high growth smart buildings and co-working
space technology markets;
-- It provides investment capital to accelerate the Company's technology platform, through the:
o further development of OneSpace to broaden the functionality
and modular offering, thereby increasing the market opportunity
from multi-national enterprises and increasing mid-market
reach;
o acceleration of the Company's routes to market by further
investment to expand its sales and marketing capability, both
through adding to the Group's direct sales capability and opening
additional indirect sales channels through partnership
arrangements; and
o balance sheet strength to capitalise on potential acquisition
opportunities that not only broaden RedstoneConnect's suite of
software products in the smart building and co-working space
markets but that also expand the Company's geographical reach
and/or bring with them a relevant established client base.
With the Continuing Group focused exclusively as a software
business, it is the Board's aspiration that through the additional
investment in the Group, complemented by value enhancing
acquisitions, the Company will benefit from anticipated growth in
the occupancy analytics sector and evolve into a leading
international workspace management software company with high
margin SaaS and licence based revenues.
Mark Braund, CEO of RedstoneConnect, commented:
"The proposed disposal of our Systems Integration and Managed
Services divisions represents another exciting development in the
evolution of our business. Since the acquisition of Connect IB in
2016, we have been developing our Smart Software solution
capabilities with a particular focus on OneSpace, our occupancy
management software solution.
Employee mobility and agile working is driving demand as
commercial real estate becomes more of a user experience business.
We firmly believe that the significant global demand for workspace
management solutions coupled with the market leading suite of
services already being deployed within our Software division,
creates an ideal base from which to accelerate our growth.
Our strategic focus on creating greater levels of recurring,
annuity based revenues, and improving the earnings visibility of
the Group, underpins the Board's commitment to becoming a
fast-growing workspace management software company delivering long
term shareholder value."
Enquiries
RedstoneConnect Plc via Vigo Communications
Mark Braund (CEO)
Spencer Dredge (CFO)
Cantor Fitzgerald Europe (Nominated Adviser
& Joint Broker)
Marc Milmo/ Catherine Leftley +44 (0)20 7894 7000
Whitman Howard Limited (Joint Broker)
Nick Lovering +44 (0)207 659 1234
Vigo Communications (Financial Public Relations)
Jeremy Garcia / Ben Simons / Antonia Pollock
reds@vigocomms.com +44 (0)20 7830 9700
RedstoneConnect Plc
("RedstoneConnect" or the "Company")
Proposed GBP21.6 million cash disposal of Comunica Holdings
Limited and Commensus Limited
and
Notice of General Meeting
The Board of RedstoneConnect are delighted to announce that it
has conditionally agreed to sell the entire issued share capital of
Comunica Holdings Limited and Commensus Holdings Limited (which
together comprise the Company's Systems Integration and Managed
Services divisions) to Excel I.T Services Limited for GBP21.6
million, of which GBP19.6 million is payable in cash on Completion
and up to a further GBP2 million will become payable on or before
final completion of an already contracted project by Redstone
Converged Solutions Ltd (a subsidiary of Comunica Holdings
Limited), provided such project is carried out on a profitable
basis. In addition, intercompany loans as at 31 January 2018 of, in
aggregate, approximately GBP1.4 million owed by the Company to the
Sale Group are being waived as part of the Disposal.
The Disposal is of sufficient size relative to that of the
Existing Group to constitute a disposal resulting in a fundamental
change of business pursuant to Rule 15 of the AIM Rules and
Completion is, therefore, conditional upon the approval of
Shareholders.
A circular to shareholders (the "Circular") containing a notice
of General Meeting is being posted to shareholders today and will
be available on the Company's website www.redstoneconnect.com. The
General Meeting is to be held at 10.00 a.m. on 15 June 2018. The
Company has received irrevocable undertakings from the Directors
and certain other Shareholders and a letter of intent to vote in
favour of the Resolution in respect of holdings totalling in
aggregate 7,169,351 Ordinary Shares, representing approximately
34.5 per cent. of the Company's issued share capital.
Background to and reasons for the Disposal
RedstoneConnect is focused on technologies that make real estate
more efficient and businesses more effective as a result. The
Company provides the infrastructure capabilities and the software
applications to deliver smart buildings and smart workspace
solutions for commercial businesses, public sector organisations,
real estate owners and managers.
RedstoneConnect currently has three business divisions:
-- Systems Integration - integrated and digital infrastructure
for buildings and commercial spaces;
-- Managed Services - IT support services and hosted cloud-based IT support services; and
-- Software - software to improve building user experience,
utilisation and efficiency with the Connect software platform and
OneSpace occupancy management software solution.
Following the acquisition of Connect IB, a company that had
developed and deployed solutions in the mapping and wayfinding of
smart buildings, in March 2016, the Board has been focused on
developing the Company's software offering. The Systems Integration
and Managed Services divisions operate in more mature markets and
therefore the Board believes that higher levels of growth are
available to the Company's Software division. In addition, the
Systems Integration division has high levels of project-related
work and therefore less predictable revenues and, as has been
evidenced in the year to 31 January 2018, demonstrates greater
working capital requirements as projects commence. Therefore, the
Board's view is that the Company's capital resources would be
better utilised in growing the technology-led intellectual property
part of the Company, focusing on evolving over the coming years
into a higher value-added SaaS recurring income model. The Board
sees significant opportunities for growth in the smart software and
co-working office technology markets especially in the agile
working and the connected office environment, a core target market
for the Group's occupancy management software solution, OneSpace.
In addition, the Board sees the potential to increase its
geographic reach through international sales of its software
solutions.
In May 2017, the Board acquired Anders and Kern U.K. Limited
("A+K") which not only brought with it an experienced sales and
marketing team but also helped expand the Company's customer reach
for its software offering. In conjunction with the acquisition of
A+K, the Company raised funds which financed the acquisition and
also provided additional working capital, part of which was used to
accelerate the development and functionality of OneSpace,
especially in improving the platform architecture and developing
its meeting room management module functionality. The Software
division has grown considerably over the past 12 months and in the
interim results for the period ended 31 July 2017 and announced in
October 2017, the Software division represented approximately 31%
of the Group's adjusted EBITDA (before unallocated central costs).
For the year ended 31 January 2018, the Software division
represented approximately 37% of the Group's adjusted EBITDA
(before unallocated central costs).
The Disposal will provide the Board with the opportunity to
focus on continuing the excellent progress being made by the
Company's Software division by:
-- providing a clear and focused platform to execute the Board's
strategy of becoming a software company focused on the attractive
smart buildings and co-working office technology markets;
-- providing funds for investment in the Company's technology
through ongoing development of new modules and functionality;
-- providing the Continuing Group with the flexibility to take
advantage of potential acquisition opportunities of complementary
businesses that broaden its software suite of products and extend
the Continuing Group's customer reach in the smart building and
co-working space technology markets; and
-- strengthening the Continuing Group's balance sheet, leaving it in a strong cash position.
The Board believes that the terms of the Disposal represent good
value for Shareholders and appropriately value the future growth
potential of the Sale Companies against the risks associated with
the nature and timing of delivering that growth. The Disposal also
provides the Board with the opportunity to focus on accelerating
the execution of its strategy for the Continuing Group.
Information on the Sale Companies
The Company's Systems Integration division operates under the
"Redstone" brand. Its work is project based, lower margin than the
Group's other divisions and involves design work for new builds as
well as retro-fit projects. Services designed and installed range
from bespoke solutions such as lighting projects through to much
broader network, cabling and cellular based projects within office
building developments. The delivery of its offering is typically
achieved using multi-disciplined project and contract management
teams.
The Managed Services division which also operates under the
"Redstone" brand provides a range of desktop and data centre ICT
support services through to network infrastructure and management
(including move/add/change and break and fix services) and general
support services either on premise or hosted as a cloud offering.
In addition, the Managed Services division under the "Commensus"
brand offers fully managed cloud hosted IT support services.
Combined, the two divisions have over 280 customers with
approximately 120 using the combined managed services offering. The
Managed Services division's largest customers operate in the
financial services sector but the division also has long standing
customers in the oil & gas and legal sectors.
For the year ended 31 January 2018, the Sale Group generated
pro-forma revenue of approximately GBP41.6 million and an adjusted
pro forma EBITDA (before central Group costs) of approximately
GBP3.0 million. At 31 January 2018, the Sale Group had gross assets
of approximately GBP15.9 million and net assets of approximately
GBP8.8 million (excluding goodwill and intangible assets held in
the consolidated accounts).
Principal terms of the Disposal
Pursuant to the terms of the Share Purchase Agreement, the
Company has conditionally agreed to sell the entire issued share
capital of each of the Sale Companies, comprising the Systems
Integration and Managed Services divisions of the Existing Group,
to the Purchaser for GBP21.6 million, of which GBP19.6 million is
payable in cash on Completion and up to a further GBP2 million will
become payable on or before final completion of an already
contracted project by Redstone Converged Solutions Ltd, provided
such project is carried out on a profitable basis. In addition,
intercompany loans as at 31 January 2018 of, in aggregate,
approximately GBP1.4 million owed by the Company to the Sale Group
are being waived as part of the Disposal.
The additional GBP2 million will be retained by the Purchaser
for working capital purposes relating to the project, the contract
for which is currently due to complete by 31 December 2018, with
the settlement process to follow thereafter. In the event that this
GBP2 million is not sufficient to cover the ongoing working capital
relating to the project, the Company may be required to provide
additional working capital equal to any such deficit, subject to
the terms of the Share Purchase Agreement. In the event that the
work carried out by Redstone Converged Solutions Ltd in connection
with the project is not profitable in the period beginning on 1
February 2018 and ending on the date of final settlement, the
Company has agreed to indemnify the Purchaser in respect of an
amount equal to the total loss in that period.
As the equity value for the Sale Group has been determined by
reference to the Locked Box Accounts, the Share Purchase Agreement
contains a "locked box" mechanism whereby it has been agreed that
only certain categories of leakage from the Sale Group to the
Company are permitted to take place from 31 January 2018 to
Completion. If there is any leakage, the Company will be required
to pay an amount necessary to put the relevant member of the Sale
Group into the position it would have been in if there had not been
any leakage (including, without limitation, the costs and expenses
reasonably incurred).
Completion is conditional upon the approval of the Disposal by
Shareholders and none of the Sale Companies nor the Company having
suffered an insolvency event
Information on Excel I.T. Services Limited
With 25 years' experience, Excel I.T. Services Limited has grown
into a leading IT infrastructure company and support partner to
global corporations. Working with clients across Europe, the Middle
East and Africa, Excel I.T. Services Limited has developed a range
of services in the delivery of IT infrastructure and infrastructure
support services. They deliver new-build, refurbishment, upgrade
and renewal projects of all sizes as well as providing clients with
technology and strategic support for building network automation
and optimisation.
For the year ended 31 March 2017, Excel I.T. Services Limited
had revenues of approximately GBP23.4 million and operating profit
of approximately GBP2.5 million.
Financial effects of the Disposal and use of proceeds
As at 31 January 2018, the Consolidated Net Assets of the Group
were approximately GBP22.4 million. The value of the Sale Group's
audited net assets, including goodwill and intangible assets held
in the consolidated accounts, as at the Locked Box Accounts Date,
being the date used as the reference point to agree with the
Purchaser the value of net assets that will be transferred on
Completion, was approximately GBP20.2 million.
It is expected that the net proceeds of the Disposal on
Completion (and excluding the GBP2 million that will become payable
on or before 30 November 2018 subject to the completion of an
already contracted project by Redstone Converged Solutions Ltd),
after payment of transaction costs, will be approximately GBP19.2
million. In addition, upon Completion the Board will repay all of
its outstanding debt and overdrafts save for a mortgage of
approximately GBP450,000 (amounting to approximately GBP4.3 million
as at 23 May 2018) so that the Continuing Group will be debt free.
As at 23 May 2018, the Company (excluding the Sale Group) had cash
and cash equivalents of approximately GBP0.4 million.
As set out below in the strategy for the Continuing Group, the
Board believes that there are excellent growth opportunities for
the Software division. The balance sheet strength afforded to the
Group from the net proceeds of the Disposal will enable the
Continuing Group to develop its software offering in the occupancy
management space by adding new functionality and modules as well as
complementing this development with strategic acquisitions. Part of
the cash will therefore be applied for additional investment into
the continued development of the software offering as well as
seeking to expand its sales and marketing capability, both through
adding to the Group's direct sales capability but also opening
additional indirect sales channels through partnership
arrangements.
Importantly, the Directors believe that the occupancy management
software sector remains very fragmented and therefore there are
good opportunities to accelerate the Continuing Group's growth by
applying part of the cash proceeds to capitalise on acquisition
opportunities and conclude transactions in an expeditious manner.
In the event that the Company is unable to conclude suitable
acquisitions or that some or all of the cash received from the
Disposal has not been deployed and is still left in the business
after 2 years, the Board will consider returning funds to
Shareholders.
Strategy for the Continuing Group
The Board believes that the Disposal will provide it with an
excellent opportunity to focus exclusively on capturing the
opportunity it believes exists for a software offering targeting
the smart building and co-working space markets. This opportunity
is not just in the UK but also in international markets such as the
USA and Europe.
The Board believes that there is a change in the business
environment where employee mobility and agile working is
challenging modern organisations to adapt their approach to
effective and efficient use of the work space. This is driving
demand for workspace management solutions. In 2017, the global
market for occupancy analytics based software services was
estimated to be worth $1.5 billion with the market size forecast to
grow by a compound annual growth rate of approximately 25% to over
$4.60 billion by 2022. The Company believes that its existing
OneSpace software solution is well positioned to address this
market opportunity.
Through its OneSpace software solution and the Connect software
platform, the Company can already deliver software solutions for
utilisation and efficiency, occupancy management, access control,
location-based services, wayfinding and meeting room management and
the Company is working to develop an advanced suite of other
resource management functionality. The software suite is built to
an open-architecture standard, can be deployed either on-premise or
in the cloud and has a secure API layer that permits easy
integration with third party applications. The data gathering,
analytics and dashboard functionality provide clients with the
information required to deploy mobile and agile working strategies
and configure space to achieve increased engagement with the
workforce whilst making the most efficient use of the workspace. In
addition, the Board believes that it can complement the existing
application of its OneSpace software solution by targeting
additional market segments such as the fast-growing co-working
space sector.
To date, the Software division has already won blue chip
customers such as UBS and UBM on multi-year contracts and other
clients include GlaxoSmithKline, the Rugby Football Union and the
Munich Smart City project. Contracts have been both license sales
and SaaS based per user contracts and whilst the ambition is to
increase the proportion of revenues from SaaS recurring revenue
contracts, in the near term, the Board believes that there are
still strong opportunities to deliver licence-based sales aligned
to the buying requirements of its target audience.
As noted above, the Directors intend to deploy part of the
proceeds from the Disposal in ongoing investment in the software to
continue to add to its functionality and modular offering thereby
increasing the market opportunity from the multi-national
enterprises it is currently engaged with and increasing its reach
into the mid-market. Furthermore, the Company will look to
accelerate its routes to market by investment in sales, both direct
and through indirect sales/partnership channels.
In addition to utilising the proceeds of the disposal to deliver
continued organic growth, the Company will seek opportunities to
grow through acquisition that will enhance the Continuing Group's
software proposition and its suite of products. In addition,
acquisitions that broaden the Continuing Group's accessible markets
(such as into the co-working space sector) will provide increased
opportunities to promote its complete solutions concept. The
Company will be looking at acquisition opportunities that not only
provide technology in adjacent and/or complementary areas to the
Continuing Group but also ones which bring with them an existing
and established client base as well as broadening the Continuing
Group's geographical reach. The Board's acquisition strategy will
therefore principally focus on further developing the Continuing
Group's strategy of software sales into the smart building and
co-working space markets.
With the Continuing Group focused exclusively as a software
business, it is the Board's aspiration that through the additional
investment in the Group, complemented by value enhancing
acquisitions, the Company will benefit from anticipated growth in
the smart buildings and occupancy analytics sector and evolve into
a leading international workspace management software company with
high margin SaaS and licence based revenues.
Irrevocable undertakings
The Directors and Keith Jump (the Company's chief technology
officer) have given irrevocable undertakings to the Company to vote
in favour of the Resolution (and, where relevant, to procure that
such action is taken by the relevant registered holders if that is
not them), in respect of their entire beneficial holdings
totalling, in aggregate, 491,204 Ordinary Shares, representing
approximately 2.3 per cent. of the Company's issued share
capital.
In addition, certain other Shareholders, being JO Hambro Capital
Management Ltd and Canaccord Genuity Wealth Limited, have given
irrevocable undertakings to the Company to vote in favour of the
Resolution to be proposed at the General Meeting (and, where
relevant, to procure that such action is taken by the relevant
registered holders if that is not one of them) in respect of their
beneficial holdings totalling, in aggregate, 5,066,160 Ordinary
Shares, representing approximately 24.3 per cent. of the Company's
existing issued share capital. A letter of intent to vote in favour
of the Resolution has also been obtained from Herald Investment
Management Limited in respect of 1,611,987 Ordinary Shares
representing approximately 7.8 per cent. of the Company's issued
share capital.
In total, therefore, the Company has received irrevocable
undertakings and a letter of intent to vote in favour of the
Resolution in respect of holdings totalling in aggregate 7,169,351
Ordinary Shares, representing approximately 34.5 per cent. of the
Company's issued share capital.
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END
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