REG - Elixirr Intnl PLC - Acquisition of Hypothesis Group, LLC

Elixirr InternationalAnnouncement

21/10/2024 07:00

For best results when printing this announcement, please click on link below:
https://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20241021:nRSU8338Ia&default-theme=true

RNS Number : 8338I  Elixirr International PLC  21 October 2024

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF
REGULATION 596/2014 AS IT FORMS PART OF UK DOMESTIC LAW BY VIRTUE OF THE
EUROPEAN UNION (WITHDRAWAL) ACT 2018, AS AMENDED.

21 October 2024

 

ELIXIRR INTERNATIONAL PLC

 

Acquisition of US-based insights and strategy firm Hypothesis Group, LLC

Elixirr International plc (AIM: ELIX) ("Elixirr", the "Company" and together
with its subsidiaries, the "Group"), the established, global award-winning
challenger consultancy, is pleased to announce the acquisition by its US
subsidiary, Elixirr Inc. of all of the issued and outstanding membership
interests of Hypothesis Group, LLC ("Hypothesis") for a maximum consideration
payable of US$45.0m (the "Consideration") (the "Acquisition").

The Board is also pleased to update its guidance for the financial year
ending 31 December 2024 ("FY24") to reflect its current expectation
including c.2 months' impact of the Acquisition. The Board's current
expectation is that full year FY24 revenue will be in the range
of £108m - £111m. Our previous Adjusted EBITDA margin guidance for FY24
of 27-29% is maintained, inclusive of the dilutive effect of Hypothesis' lower
EBITDA margin at acquisition.

 

Acquisition highlights

 

 ●    Hypothesis is a US-based insights and strategy firm founded in 2000. Its 60+
      personnel are specialised in research, strategic insights and design and have
      experience supporting some of the world's largest and best-known brands as
      strategic thought partners.
 ●    Hypothesis has an impressive roster of premium clients, the majority of which
      it has had a relationship with for over a decade. The firm's top clients
      include five of the Magnificent Seven mega cap technology companies,
      highlighting the importance and quality of Hypothesis' offering. Their
      client-list overall consists of multiple Fortune 500 companies, offering an
      exciting cross-sell opportunity for Elixirr.
 ●    The Acquisition is the Group's sixth since its IPO in July 2020 and reflects
      Elixirr's commitment to its programmatic acquisition strategy. It is the
      Group's fourth acquisition in the US and Hypothesis' strong US presence and
      excellent reputation will add immediate scale as well as help to accelerate
      Elixirr's growth in the region.
 ●    In the 12 months to August 2024 (unaudited), Hypothesis recorded revenue of
      US$28.1m, normalised EBITDA of US$5.1m and normalised profit before tax of
      US$5.0m.
 ●    The transaction is immediately earnings-enhancing.
 ●    The Acquisition brings specialist expertise in qualitative research,
      quantitative research and strategic insights, complementing the Group's
      existing service offerings and enhancing the Elixirr Group's ability to
      support clients from initial research and discovery through to strategy
      definition and delivery.
 ●    In addition to an expansion of capabilities, Hypothesis has deep expertise in
      additive industries for Elixirr, particularly as a result of its significant
      presence in the technology, media and entertainment, and retail and CPG
      industries.
 ●    During due diligence and client interviews, Hypothesis was found to be rated
      17% better than their competition and scored higher than competitors across 11
      of 14 performance categories. Together with Hypothesis, Elixirr will be able
      to enhance its existing service offering to its global client base, providing
      additional services that are highly complementary to Elixirr's established
      strategy, digital, data, AI and innovation offering.
 ●    The Group has already worked closely alongside Hypothesis on a client
      engagement prior to the Acquisition, validating the cross-sell potential of
      our combined proposition. This engagement involved conducting research to
      inform the brand strategy for a UK-based wealth and insurance client.
 ●    The US acquisition goodwill will be tax-deductible, resulting in an estimated
      tax benefit of US$7.5m-$10m to be realised over 15 years.

 

Information on Hypothesis and reasons for the Acquisition

 

Hypothesis helps companies to better understand their customers by providing
insights, competitor intelligence and strategic advice to inform the design of
products and services. Its offering includes quantitative research,
qualitative research, advanced analytics, strategic brand and marketing
services and consulting and design. Its "mixed methodology" approach
integrates qualitative and quantitative capabilities in a single engagement to
combine human insights with large-scale data analysis - an approach that is
viewed as a key differentiator by clients. Through its dual focus on providing
high-quality research and insights whilst being a strategic thought partner
for clients, Hypothesis differentiates itself from competitors in the market.
This distinctive positioning is a key reason for the Acquisition, especially
when viewed in conjunction with Elixirr's complementary expertise in strategy,
digital, data, AI and innovation. Hypothesis and Elixirr joining forces will
benefit both firms' respective client bases, and through combining the
complementary capabilities, industries and geographies of both businesses,
even greater value can be delivered to clients.

Hypothesis was co-founded by Maria Stark and Jeff Seltzer in 2000. Both
founders have been operationally removed from the business for several years,
and the firm has been led by Maria Vallis as Hypothesis CEO since 2022, along
with her management team. Maria Stark and Jeff Seltzer are both formally
exiting the business with this transaction, but will retain shares in the
Elixirr Group. Maria Vallis will join the Group as an Elixirr Partner.

 

Consideration for the Acquisition

 

The Group is acquiring Hypothesis for a maximum consideration payable of
US$45.0m, with customary adjustments for net cash / debt and working capital
at Closing. The firm's founders have not been involved in the business for
several years, and therefore Elixirr's typical three-year deferred
consideration structure has not been applied to this transaction. This has
been replaced through incentivising Maria Vallis, CEO, and her management team
with market-priced options packages that only vest on achieving revenue and
EBITDA growth targets for Hypothesis over three years. The consideration for
the Acquisition consists of:

 

 ●    Initial consideration of US$37.3m, of which, US$28.9m has been settled from
      Elixirr's existing cash balances and revolving credit facility;
 ●    US$8.4m to be settled through the issuance of 914,604 new Ordinary Shares in
      the Company at a price per share of £7.00;
 ●    Deferred consideration of up to US$7.6m in cash, the majority of which will be
      payable in FY25 in relation to FY24 EBITDA performance with the balance
      payable in FY26 after the expiry of certain indemnities; and
 ●    Adjustment for net cash / debt and working capital at Closing to be settled in
      FY25.

 

 

Based on the target's EBITDA for the past twelve months, this constitutes a
day 1 EV/EBITDA multiple of 7.3x, and a maximum EV/EBITDA multiple of 8.8x if
all deferred consideration is payable.

 

The new Ordinary Shares will be subject to one-year lock-in arrangements and
limitations on the Ordinary Shares that each founder seller can sell in each
of the following three years under nominee agreements.

 

Maria Vallis to join as Elixirr Partner

Hypothesis CEO Maria Vallis joins the Group as an Elixirr Partner, with
incentives aligned to the growth of Hypothesis' revenue and EBITDA over the
three years post-acquisition. These incentives will ensure the continued
motivation of Hypothesis management. In line with other Elixirr Partners,
Maria will purchase Ordinary Shares equal to a value of £500,000 from the EBT
at the Company's closing share price on 21 October. The Ordinary Shares will
be subject to a one-year lock-in arrangement and limitations on the Ordinary
Shares that Maria Vallis can sell in each of the following four years under a
nominee agreement.

 

Admission and Total Voting Rights

As referred to above, Elixirr will issue 914,604 Ordinary Shares ("New
Shares"). The New Shares will rank pari passu with the Company's existing
issued Ordinary Shares. The New Shares will be issued pursuant to the
Company's existing outstanding shareholder authorities. Application will be
made to the London Stock Exchange for the New Shares to be admitted to trading
on AIM ("Admission") and it is expected that Admission will become effective
at 8.00 a.m. on 25 October 2024.

After Admission, the total number of Ordinary Shares in issue will be
48,187,415 and the total number of voting rights will therefore be 48,187,415.
Following Admission, this figure may be used by shareholders as the
denominator for the calculations by which they will determine if they are
required to notify their interest in, or a change to their interest in, the
share capital of the Company under the Financial Conduct Authority's
Disclosure Guidance and Transparency Rules.

Founder & CEO of Elixirr, Stephen Newton said:

"We first met the Hypothesis team about 18 months ago, and the opportunity to
join forces has consistently excited us ever since those very first
discussions. With our challenger DNA and focus on high performance, both
Elixirr and Hypothesis are premium brands that work with premium clients. The
acquisition will further solidify the strong reputation we've been building
and bring rigour to our research and insights offering. We're excited to
welcome Maria Vallis to the Partner team as we accelerate our growth in the
US. Her esteemed reputation - trusted by a high calibre of clients across
additive and complementary industries - will make her a great addition to the
team. Maria and Hypothesis' expertise will help us solidify the strong
reputation we've been building in the US market, which remains a key priority
for us."

CEO of Hypothesis, Maria Vallis said:

 

"The Hypothesis team is excited to join forces with the Elixirr Group as we're
now able to take our insights and recommendations further and can do more to
solve our clients' business issues. Considering that Hypothesis was founded
with the goal of disrupting the research and insights industry, it was
important to us to join a firm who had similar ethos. We believe that we have
found this with Elixirr. The combination of capabilities between Hypothesis
and the Elixirr Group is really powerful and will enable us to deliver even
more impact to our collective client base. Elixirr's strong expertise across
different verticals, including financial services, healthcare and insurance,
alongside the ability to add strategy, digital, data, AI and innovation
capabilities to our skillset is really exciting to us and we look forward to
seeing what our teams can accomplish together."

Co-Founders of Hypothesis, Maria Stark and Jeff Seltzer said:

"Nearly 25 years ago, we started a new kind of agency that embraced creativity
and empowered our people to do great work for great clients. We're extremely
proud of what we built, and what we accomplished with the help of the
industry's best and brightest people. It's been incredible to watch the next
generation of Hypothesis leadership evolve and grow the company while still
embracing our original founding vision. Today, the transition is complete, and
we're truly excited to watch Hypothesis and Elixirr disrupt and challenge the
industry, and to continue helping the world's best brands do amazing things."

The person responsible for arranging the release of this announcement on
behalf of the Company is Nicholas Willott, Finance Director and Company
Secretary of the Company.

 

Enquiries:

For enquiries, please refer to our Investor Contacts page:

https://www.elixirr.com/investors/investor-contacts
(https://www.elixirr.com/investors/investor-contacts)

Elixirr International plc
 
+44 (0)20 7220 5410

Stephen Newton, Chief Executive Officer

Graham Busby, Chief Financial Officer

Investor-relations@elixirr.com (mailto:Investor-relations@elixirr.com)

Cavendish Capital Markets Ltd (Nominated Adviser & Joint Broker)
    +44 (0)20 7220 0500

Stephen Keys, Callum Davidson (Corporate Finance),

Sunila De Silva (ECM)

Investec Bank plc (Joint Broker)
                                      +44 (0) 20 7597 4000

Carlton Nelson, Henry Reast (Corporate Broking)

 

About Elixirr International plc

Elixirr is an award-winning global consulting firm working with clients across
a diverse range of industries, markets and geographies.

Founded in 2009, the firm set out to be the 'challenger consultancy' and do
things differently than the large corporate consultancies dominating the
industry: working openly and collaboratively with clients from start to
finish, delivering outcomes based on innovative thinking, not methodology, and
treating each client's business like their own. Elixirr has been quoted on the
AIM market of the London Stock Exchange since 2020. In addition to strong
organic growth, Elixirr has acquired seven boutique firms - Den Creative,
Coast Digital, The Retearn Group, iOLAP, Responsum, Insigniam and Hypothesis -
to grow the Group's capabilities, diversify the business, expand into new
geographies and access new clients.

 

General

This announcement is for information purposes only and does not constitute or
form part of any offer to issue or sell, or the solicitation of an offer to
acquire, purchase or subscribe for, any securities in any jurisdiction and
should not be relied upon in connection with any decision to subscribe for or
acquire ordinary shares in the capital of the Company. In particular, this
announcement does not constitute or form part of any offer to issue or sell,
or the solicitation of an offer to acquire, purchase or subscribe for, any
securities in the United States.

This announcement has been issued by, and is the sole responsibility of, the
Company. No person has been authorised to give any information or to make any
representations other than those contained in this announcement and, if given
or made, such information or representations must not be relied on as having
been authorised by the Company.

No statement in this announcement is intended to be a profit forecast or
profit estimate and no statement in this announcement should be interpreted to
mean that earnings per share of the Company for the current or future
financial years would necessarily match or exceed the historical published
earnings per share of the Company.

This announcement may include statements that are, or may be deemed to be,
"forward-looking statements". These forward-looking statements can be
identified by the use of forward-looking terminology, including the terms
"believes", "estimates", "plans", "projects", "anticipates", "expects",
"intends", "may", "will", "would" or "should" or, in each case, their negative
or other variations or comparable terminology. These forward-looking
statements include matters that are not historical facts. They appear in a
number of places throughout this announcement and include statements regarding
the directors of the current Company's intentions, beliefs or expectations
concerning, among other things, the Company's results of operations, financial
condition, liquidity, prospects, growth, strategies, and the Company's
markets. By their nature, forward-looking statements involve risk and
uncertainty because they relate to future events and circumstances. Actual
results and developments could differ materially from those expressed or
implied by the forward-looking statements. Forward-looking statements may and
often do differ materially from actual results. Any forward-looking statements
in this announcement are based on certain factors and assumptions, including
the directors of the Company's current view with respect to future events and
are subject to risks relating to future events and other risks, uncertainties
and assumptions relating to the Company's operations, results of operations,
growth strategy and liquidity. Whilst the directors of the Company consider
these assumptions to be reasonable based upon information currently available,
they may prove to be incorrect. Save as required by applicable law, the AIM
Rules or the Disclosure Guidance and Transparency Rules of the Financial
Conduct Authority, the Company undertakes no obligation to release publicly
the results of any revisions to any forward-looking statements in this
announcement that may occur due to any change in the directors of the
Company's expectations or to reflect events or circumstances after the date of
this announcement.

Neither the content of the Company's website nor any website accessible by
hyperlinks to the Company's website is incorporated in, or forms part of, this
announcement.

Certain figures contained in this announcement, including financial
information, have been subject to rounding adjustments. Accordingly, in
certain instances, the sum or percentage change of the numbers contained in
this announcement may not conform exactly with the total figure given.

All references to time in this announcement are to London time, unless
otherwise stated.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
 or visit
www.rns.com (http://www.rns.com/)
.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
.   END  ACQFFMFIAELSEDS