REG - Inspired PLC - Deed of Variation - Ignite Energy LTD

InspiredAnnouncement

22/05/2023 07:00

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RNS Number : 1127A  Inspired PLC  22 May 2023

22 May 2023

Inspired PLC

 

("Inspired" or the "Company" or the "Group")

 

Deed of Variation - Ignite Energy LTD

Maximising our Optimisation Services opportunities

 

Inspired (AIM: INSE), a leading technology enabled service provider
supporting businesses in their drive to net-zero and controlling energy costs,
announces that it has entered into a deed of variation (the "Deed") to the
share purchase agreement dated 9 July 2020 (the "SPA") between the Company and
vendors of Ignite Energy LTD ("Ignite") being Benjamin Higgins, David Higgins,
Vanessa Higgins and Ethan Higgins (the "Vendors").

 

Summary

 

·    Over the past year the Group's Optimisation Services Division has
gained significant traction and this agreement is designed to further
incentivise the Ignite Vendors for the long term so they can continue to add
substantial value to the Group.

·     The Deed provides the opportunity for the Vendors to secure up to
£9.25 million of additional earn out consideration (the "Additional
Contingent Consideration") subject to challenging performance thresholds.

·      To secure the entire Additional Contingent Consideration, Ignite
will be required to deliver year on year EBITDA growth in excess of Group
management's current expectations from FY24 until H1 2027 and generate
cumulative EBITDA (before deduction of central overheads) of c.£64.1 million
including in excess of £20.4 million of EBITDA (before deduction of central
overheads) in FY26. 1  (#_ftn1)

·    The Additional Contingent Consideration is entirely self-funding and
payment is subject to an 80% cash conversion hurdle, to ensure alignment to
the Group's focus on cash generation.

Mark Dickinson, CEO of Inspired PLC commented: "The Optimisation Division
delivered significant growth in FY22, driven by an increase in demand as the
ongoing energy crisis sharpened clients' focus on the economics of investment
in energy reductions, combined with the drive for delivering net-zero. With
national Covid restrictions behind us we are able to deliver on-site services
once again, a material factor which is driving strong demand for our
Optimisation Services.  Now is the right time to incentivise the Ignite
Vendors to deliver for the long term for Inspired PLC."

 

Background to and rationale for the Deed

The Company announced the acquisition of the outstanding 60% of Ignite on 10
July 2020 pursuant to the SPA (the "Ignite Acquisition"). The consideration
paid by the Company for the Ignite Acquisition was an initial consideration of
£11.0 million and further performance related consideration of up to a
maximum of £19.0 million in cash and shares in the Company ("Original
Earn-out Consideration"), dependent on the achievement of certain financial
performance criteria for the period to 31 December 2023 ("Earn-out Period").
To date, £6.0 million of the £19.0 million of the Original Earn-out
Consideration has been paid in cash.

 

The Deed, alongside the final payments due and potentially payable under the
SPA, increases the maximum contingent consideration which could currently
still be payable to £22.5 million 2  (#_ftn2) should the Vendors achieve the
challenging performance thresholds set. The maximum Earn-out Consideration
that could be earned by the Vendors in relation to FY23 EBITDA performance
(before deduction of central overheads), to be paid in cash and shares, totals
£5.2 million. In respect of FY22 EBITDA performance, £2.6 million in shares
remains due to the Vendors under the Original Earn-Out Consideration and these
will be issued shortly. The table in the Appendix sets out the current status
of the Original Earn-out Consideration.

 

As outlined in the Company's FY22 results, there is a substantial growth
opportunity for Optimisation Services, underpinned by a strong current
pipeline and growing demand for solutions to deliver net-zero and reduce
costs, accelerated further by the current energy crisis. The Board believes
that the Vendors are highly talented individuals and have a strong track
record of growing the Ignite business. The Board has therefore concluded it is
appropriate to enter into the Deed in order to maximise the current
opportunity. This Deed will re-incentivise the Vendors, as management
recognise that the Vendors have only had one full year of the three to
demonstrate the full scale of the opportunity due to Covid-19 disruption.

 

The payment of the Additional Contingent Consideration is conditional upon the
achievement of challenging financial performance targets relating to the
growth of EBITDA in Ignite (before deduction of central overheads) against the
prior year's performance and is subject to an 80 per cent cash conversion
hurdle. The H1 2027 element is designed to ensure the Vendors are incentivised
to build a strong pipeline to underpin sustained growth into 2027 and beyond.

 

To earn the entire Additional Contingent Consideration, under the terms of the
Deed, Ignite would be required to deliver year on year EBITDA growth in excess
of current management expectations from FY24 to H127 and generate, as a
minimum, in excess of £20.4 million of EBITDA before central overheads in
FY26. This would result in a cumulative EBITDA (before deduction of central
overheads) of c.£64.1 million between FY24 and H127. 1  The Additional
Contingent Consideration is structured to be entirely self-funding given the
criteria as set out in Table 1 below. As the Additional Contingent
Consideration is payable for year on year EBITDA performance in excess of
current management expectations, the contingent consideration liability on the
balance sheet in relation to FY24 to H127 will remain unchanged at this time.

 

Summary of the key changes pursuant to the Deed

 

Further detail on the Additional Contingent Consideration is set out below.
All Additional Contingent Consideration will be settled in cash and is subject
to cash generation from operations of Ignite being in excess of 80% of the
EBITDA generated in each period tested.

 

Table 1: Details of the Additional Contingent Consideration

 

 Tranche    Additional Contingent Consideration
            Cash                                 Test Period                             Criteria                                                                        Minimum required EBITDA before central overheads to maximise Additional  See through EBITDA multiple***
                                                                                                                                                                         Contingent Consideration*
 Tranche 1  Up to a maximum of £2,337,500        Financial Year ending 31 December 2024  £0.85 consideration for every £1.00 growth in EBITDA before deduction of        c.£14.9m                                                                 c.2.70x
                                                                                         central overheads in FY24 over FY23
 Tranche 2  Up to a maximum of £2,337,500        Financial Year ending 31 December 2025  £0.85 consideration for every £1.00 growth in EBITDA before deduction of        c.£17.7m                                                                 c.2.45x
                                                                                         central overheads in FY25 over FY24
 Tranche 3  Up to a maximum of £2,337,500        Financial Year ending 31 December 2026  £0.85 consideration for every £1.00 growth in EBITDA before deduction of        c.£20.4m                                                                 c.2.28x
                                                                                         central overheads in FY26 over FY25
 Tranche 4  Up to a maximum of £2,237,500        6 months ending 30 June 2027            Payable if EBITDA before deduction of central overheads 2027 is 10% or more     c.£22.4m**
                                                                                         higher than the aggregate of the Gross Margin for the highest two Quarters in
                                                                                         the year ending 31 December 2026.
 Total      Up to a maximum of £9,250,00

 

*Assumes that Ignite generates £12.1m in FY23 as per the maximum Original
Earnout Consideration for that year and achieves the maximum Additional
Contingent Consideration each year previously.

**H1 2027 on a 12m proforma basis.

*** Calculated from the total consideration which could be payable for Ignite
and the maximum EBITDA before overheads as set out in the table.

 

Note: A table which sets out the details of the Original Earn-out
Consideration, as already disclosed by the Company on 10 July 2020, and
includes the current payment status, is set out in the appendix to this
announcement.

 

Management have agreed with the Vendors that the Additional Contingent
Consideration calculation excludes any EBITDA (before deduction of central
overheads) contribution from a major public sector optimisation customer (the
"Specific Optimisation Customer"), who impacted the Group's aged trade
receivables position in FY21 and FY22.

 

Noting that the Deed contains an acknowledgement between the parties that no
Original Earn Out Consideration is due in relation to FY21, which was in part
due to the Specific Optimisation Customer being an aged debtor, the Company
has agreed a separate incentivisation with the Vendors in relation to this
customer. The Vendors will have the opportunity to recover up to £2.75
million of the earn out consideration foregone in relation to cash collected
and generated (rather than profit generation) from the Specific Optimisation
Customer from FY23 and up to an additional £2.75 million in relation to
additional revenue and cash collected from FY24 to FY26.

 

Related Party Transaction

The Vendors are directors of Ignite which is a wholly owned subsidiary of the
Company and therefore are deemed to be related parties of the Company under
the AIM Rules for Companies ("AIM Rules"). Accordingly, the entering into the
Deed by the Company with the Vendors constitutes a related party transaction
under the AIM Rules (the "Related Party Transaction"). The directors of the
Company consider, having consulted with Shore Capital and Corporate Limited
("Shore Capital"), the Company's nominated adviser, that the terms of the
Related Party Transaction are fair and reasonable insofar as shareholders of
the Company are concerned.

 

 

Enquiries please contact:

 Inspired PLC                                        www.inspiredplc.co.uk

                                                   (https://url.avanan.click/v2/___http:/www.inspiredplc.co.uk___.YXAxZTpzaG9yZWNhcDphOm86MmFjYWI5MWFmYjc3NDg5NjZlZjQ3Mzk3NzExNWRhMWE6NjphNThjOjRkZmQ4MTk4NTY4MDFlODQ1ZmQ1NGE5NzAxOWFkZDIyNjMwNDYzNTNkNzFmYTExMmExODkzYTQ5YWZlYjJhNjY6cDpU)
 Mark Dickinson, Chief Executive Officer

                                                   +44 (0) 1772 689250
 Paul Connor, Chief Financial Officer

 David Cockshott, Chief Commercial Officer

 Shore Capital (Nominated Adviser and Joint Broker)   +44 (0) 20 7408 4090

 Patrick Castle

 James Thomas

 Rachel Goldstein

 Liberum (Joint Broker)                              +44 (0) 20 3100 2000

 Edward Mansfield

 Will Hall

 Alma PR                                             +44 (0) 20 3405 0205

 Justine James                                       inspired@almapr.co.uk

                                                   (https://url.avanan.click/v2/___mailto:inspired@almapr.co.uk___.YXAxZTpzaG9yZWNhcDphOm86MmFjYWI5MWFmYjc3NDg5NjZlZjQ3Mzk3NzExNWRhMWE6Njo5YzY1OmJmNGQyMTJmZWFkMWI1MGI2MGM4NzlhY2FlODQ0OWFmMTU1MWI3ZGUyNTU5ZWUzNWMxMGQ2OGUzMzg4YmI1OTU6cDpU)
 Hannah Campbell

 Will Ellis Hancock

 

 

Appendix - Original Earn-Out Consideration schedule in accordance with the SPA

 

 

 Tranche    Earn-out Consideration
            Cash                    Contingent Consideration Shares*  Test Period                                                Criteria                                                                         Current status
 Tranche 1  £3,400,000              Nil                               From Completion to Financial Year ending 31 December 2023  Payable on delivery of £5.22m of EBITDA before deduction for central             Paid in FY2022
                                                                                                                                 overheads.
 Tranche 2  Up to £2,600,000        Up to £2,600,000                  Financial Year ending 31 December 2021                     £1.50 consideration for every £1.00 growth in EBITDA before deduction of         Nothing paid due to Covid impact and reflecting an outstanding aged debtor who
                                                                                                                                 central overheads FY21 over FY19. Therefore, full earn out payable on delivery   is a major public sector Optimisation client.
                                                                                                                                 of £8.9m of EBITDA before deduction of central overheads.
 Tranche 3  Up to £2,600,000        Up to £2,600,000                  Financial Year ending 31 December 2022                     £1.50 consideration for every £1.00 growth in EBITDA before deduction of         Cash element paid in respect of FY22.Share element to be issued imminently.
                                                                                                                                 central overheads of FY22 over FY21.
 Tranche 4  Up to £2,600,000        Up to £2,600,000                  Financial Year ending 31 December 2023                     £1.50 consideration for every £1.00 growth in EBITDA before deduction of         To be determined
                                                                                                                                 central overheads of FY23 over FY22.
 Total      Up to £11,200,000       Up to £7,800,000

 

 

 1  (#_ftnref1) Assumes that Ignite generates £12.1m of EBITDA (before
deduction of central overheads) in FY23 as per the maximum Original Earn-Out
Consideration for that year and achieves the minimum EBITDA (before deduction
of central overheads) to secure the maximum Additional Contingent
Consideration between FY24 and H127 as per the criteria in Table 1.

 

 2  (#_ftnref2) Consisting of: (1) Up to £9.25m of Additional Contingent
Consideration (on the terms as set out in Table 1); (2)  the £2.6m of shares
in respect of FY22, which are due to be issued shortly; (3)  Up to £5.2m in
respect of FY23 from the Original Earn Out Consideration; and (4) Up to
c.£5.5m in respect of the Specific Optimisation Customer (as set out below).

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