REG - CEPS PLC - Acquisition by Subsidiary and RPTs

CepsAnnouncement

01/04/2025 15:00

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RNS Number : 1819D  CEPS PLC  01 April 2025

 

CEPS PLC

("CEPS" or the "Company")

 

Subsidiary Name Change,

Acquisition by ICA,

Restructuring of Share Capital of ICA

and

Related Party Transactions

 

Subsidiary Name Change

 

On 24 January 2025, a subsidiary trading company of CEPS, Hickton Group
Limited, changed its name to ICA Group Limited.

 

It is felt that with the expansion in the activities of the Hickton Group
Limited over the past few years, from the original Clerk of Works business,
the new name, "Inspection, Compliance and Audit", abbreviated to ICA, better
reflects the breadth of the current activities.

 

There is no effect to shareholders as a result of this name change.

 

Acquisition of Align Building Control Limited and Align Group (UK) Limited
(together "Align") by ICA Group Limited ("ICA") ("Acquisition")

 

On 1 April 2025, ICA, a 53.8% owned subsidiary of CEPS, acquired the entire
issued share capital of Align (the "Acquisition") for a total cash
consideration of up to £1,186,350 split as to an upfront cash consideration
of £898,921 payable on completion, and an additional deferred cash
consideration of up to £287,429 paid in equal quarterly instalments for the
36 months following completion.

 

Align is a reputable corporate-approved building inspector operating across a
wide variety of construction industries and sectors.  Align provides guidance
at all stages of projects, including pre-application, plan checking, site
inspection, and final approval.  Operating nationally, the business currently
offers its services to new and repeat clients.  The continued strength of
Align's service offering has ensured the longevity of its relationships with
clients, some of which now span over ten years.

 

Align Building Control Limited's operations cover building control regulations
whilst Align Group (UK) Limited covers consultancy projects.

 

For the financial year ended 31 December 2024, Align Building Control Limited
delivered unaudited revenue of £1.25 million and generated an unaudited
profit before tax of £263,163. As at 31 December 2024, the unaudited net
assets of Align Building Control Limited were £257,163. For the financial
year ended 31 December 2024, Align Group (UK) Limited delivered unaudited
revenue of £94,854 and generated an unaudited profit before tax of £93,078.
As at 31 December 2024, the unaudited net assets of Align Group (UK) Limited
were £72,163.

 

The Acquisition is expected to be immediately earnings enhancing. This
self-funded "bolt-on" acquisition aligns with CEPS' value creation strategy
for shareholders.

 

The Acquisition is being funded by a new £2.5 million Term A loan to ICA from
Santander UK plc ("Santander"). The existing £0.5 million overdraft facility
has been renewed alongside the Term A Loan with Santander (together the "Debt
Facility").  Certain creditors of ICA have entered into an intercreditor
agreement ("Intercreditor Deed") which sets out the rights of the existing
creditors ("Subordinated Lenders") and Santander ("Senior Lender").  As a
result of the Debt Facility the Subordinated Lenders' liabilities will rank
below the Senior Lender's liabilities.

 

The key terms of the Debt Facility are:

 

            Term A Loan                                               Overdraft
 Amount     £2.5 million                                              £0.5 million
 Term       48 months                                                 On demand
 Repayment  £156,250 quarterly from 30 June 2025                      n/a
 Fees       2.5% of the Term A Loan amount                            1.0% of the overdraft amount
 Interest   BoE Base Rate + 4.75%                                     BoE Base Rate + 3.25%
 Security   All assets of ICA and its subsidiaries (including Align)  All assets of ICA and its subsidiaries (including Align)

 

 

ICA Capital Restructure

 

Alongside the Acquisition, ICA has undertaken a share restructuring by buying
back 2,000 of the existing Class A Shares of £1 each in ICA ("Class A
Shares") from James Cook and 1,500 Class A Shares from Matthew Brown, both
directors of ICA. ICA has also issued 25,900 new Class B Shares at nominal
value of £0.01 ("Class B Shares") to existing shareholders in ICA (including
CEPS which was issued with 7,830 Class B Shares), directors of ICA and its
subsidiaries and certain Align employees, in order to better incentivise the
management and employees of ICA (the "ICA Capital Restructure"). Save as set
out below, the Class B Shares rank pari passu with the Class A Shares.

 

The Class B Shares only have value above an equity valuation of £12 million
for the existing Class A Shares. Therefore, upon a sale of ICA, Class A Shares
will have equal distribution of proceeds up to £12 million. Class A Shares
and Class B Shares will have equal distribution of proceeds in excess of £12
million.

 

CEPS has always been pleased to promote employee ownership of shares in the
company they work in to engage and incentivise employees.

 

The ICA Capital Restructure comprises the Director Share Repurchase (as
defined below), the issue of the Class B Shares and the subscription of the
2025 Investor Loan Notes (as defined below), all such parts being
inter-related:

 

a)     Director Share Repurchase

 

James Cook and Matthew Brown, both directors of ICA, have sold 2,000 and 1,500
Class A shares in ICA, respectively, for a total of £374,500 (£1.07 per
Class A Share), valuing ICA at an equity value of £12.0 million (the "Equity
Value"). These shares have been bought back and cancelled by ICA (the
"Director Share Repurchase"), funded by existing cash in ICA.

 

b)    Issue of Class B Shares

 

In addition to the 7,830 Class B Shares issued to CEPS, 1,200 Class B Shares
are being issued to Michael Clemence (the vendor of Align) and a further 100
Class B Shares to an Align employee.

 

Certain directors of ICA and its subsidiaries (the "ICA and ICA Subsidiary
Directors") are being issued Class B Shares as set out in the table below:

 

 Name            Position                                                                       Number of Class B Shares held following the ICA Restructure  Percentage of Class B Shares held following the ICA Restructure (%)
 James Cook      Director of ICA                                                                4,000                                                        15.4
 Matthew Brown   Director of ICA                                                                4,000                                                        15.4
 Janet Pryke     Director of ICA                                                                4,800                                                        18.5
 Rebecca Hanson  Director of ICA                                                                300                                                          1.2
 Lee Bradshaw    Director of Morgan Lambert Limited, a wholly owned subsidiary of ICA           300                                                          1.2
 Tom Connelly    Director of Morgan Lambert Limited, a wholly owned subsidiary of ICA           300                                                          1.2
 Dave Hartill    Director of Cook Brown Building Control Ltd, a wholly owned subsidiary of ICA  300                                                          1.2
 Paul Armstrong  Director of Cook Brown Building Control Ltd, a wholly owned subsidiary of ICA  300                                                          1.2
 Laura Bradshaw  Director of Cook Brown Building Control Ltd, a wholly owned subsidiary of ICA  300                                                          1.2

 

The remaining 2,170 Class B Shares have been distributed to the remaining ICA
shareholders in accordance with their existing ICA shareholding proportion.

 

Whilst CEPS' combined shareholding in ICA has been diluted from 53.8% to 50.7%
of the total issued share capital, on a future sale value of ICA of £12
million CEPS would receive 55.6% of the consideration and on increasing sale
values of ICA above £12 million the percentage of consideration would be
50.7%.  Therefore, the percentage of any future sale value of ICA will be
between 55.6% and trend towards 50.7%.

 

For the Year ended 31 December 2023 ICA reported an audited revenue of £19.4
million and an audited profit before tax of £0.5m. For the six-month period
ended 30 June 2024, ICA reported an unaudited revenue of £10.4 million and an
unaudited profit before tax of £0.6m. As at 30 June 2024, unaudited net
assets were £4.0 million.

 

c)     The Loan Note Issue

 

ICA is issuing 203,300 8% fixed rate unsecured B loan notes in integral
multiples of £1 ("2025 Investor Loan Notes"). Janet Pryke is subscribing for
85,600 2025 Investor Loan Notes and Michael Clemence is subscribing for the
remaining 117,700 2025 Investor Loan Notes.

 

Interest is due on the 2025 Investor Loan Notes quarterly from 30 June 2025.
The 2025 Investor Loan Notes have no fixed repayment date, but must be repaid
by the interest payment date following the date all pre-existing ICA loan
notes have been paid in full.  ICA intends to use the proceeds to provide
additional balance sheet support for general working capital purposes.

 

 

Related Party Transactions

 

1.     ICA Capital Restructure

 

The ICA Capital Restructure is deemed to be a related party transaction
pursuant to AIM Rule 13 given the participation by the ICA and ICA Subsidiary
Directors. The directors of CEPS, all of whom are considered independent for
the purposes of the ICA Capital Restructure, having consulted with the
Company's nominated adviser, Cairn Financial Advisers LLP, consider the terms
of the ICA Capital Restructure to be fair and reasonable insofar as the
Company's shareholders are concerned.

 

2.     Intercreditor Deed

 

Certain directors of ICA being James Cook, Matthew Brown and Janet Pryke, as
well as Prydis SSAS Trustees Ltd as trustees of the JNP Consultancy Pension
Scheme, a trust connected to Janet Pryke, and Macaulay Management Limited, a
company connected to David Horner, executive director of CEPS, are all party
to an the Intercreditor Deed, upon which the Debt Facility (details of which
are set out above) is dependent.

 

The Intercreditor Deed is deemed to be a related party transaction pursuant to
AIM Rule 13 given that James Cook, Matthew Brown and Janet Pryke (including
the participation in the agreement by Prydis SSAS Trustees Ltd as trustees of
the JNP Consultancy Pension Scheme, a trust connected to Janet Pryke) are
directors of ICA and Macaulay Management Limited is connected to David Horner,
a director of CEPS . The directors of CEPS, excluding David Horner, all of
whom are considered independent for the purposes of the Intercreditor Deed,
having consulted with the Company's nominated adviser, Cairn Financial
Advisers LLP, consider the terms of the Intercreditor Deed to be fair and
reasonable insofar as the Company's shareholders are concerned.

 

The Directors of the Company take responsibility for the content of this
announcement.

 

Enquiries

 

 CEPS PLC

 Vivien Langford, Group Finance Director   +44 1225 483030

 Cairn Financial Advisers LLP

 Sandy Jamieson / Emily Staples            +44 20 7213 0880

 

The information contained within this announcement is deemed by the company to
constitute Inside Information as stipulated under the Market Abuse Regulation
(E.U.) No. 596/2014, as it forms part of U.K. domestic law under the European
Union (Withdrawal) Act 2018, as amended. Upon the publication of this
announcement via a regulatory information service, this information is
considered to be in the public domain.

 

 

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