REG - JTC PLC - Acquisition of South Dakota Trust Company

JTCAnnouncement

14/06/2023 16:45

For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20230614:nRSN7490Ca&default-theme=true

RNS Number : 7490C  JTC PLC  14 June 2023

THIS ANNOUNCEMENT IS RESTRICTED AND IS NOT FOR RELEASE, PUBLICATION,
DISTRIBUTION OR FORWARDING, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN OR
INTO THE UNITED STATES, AUSTRALIA, CANADA, THE REPUBLIC OF SOUTH AFRICA, JAPAN
OR ANY OTHER JURISDICTION IN WHICH SUCH PUBLICATION, RELEASE OR DISTRIBUTION
WOULD BE UNLAWFUL.

 

THIS ANNOUNCEMENT IS FOR INFORMATION PURPOSES ONLY AND IS NOT AN OFFER OF
SECURITIES IN ANY JURISDICTION.

 

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION.

 

14 June 2023

For immediate release

 

JTC PLC

 

(the "Company" and together with its subsidiaries "JTC" or the "Group")

 

Acquisition of South Dakota Trust Company

 

Establishes JTC as the leading independent provider of administration services
to the US personal trust sector

 

JTC, the global provider of fund, corporate and private client services, is
pleased to announce that it has entered into a definitive agreement to acquire
TC3 Group Holdings LLC, trading as South Dakota Trust Company ("SDTC"), the
leading independent provider of administration services to the US personal
trust sector, for a maximum consideration of $270 million (the "Acquisition").

 

The total consideration of $270 million will be satisfied as follows:

·      $200 million initial consideration comprising $147 million in
cash and up to a maximum of $53 million in new JTC ordinary shares ("Ordinary
Shares"); and

·      A further earn-out of up to $70 million will be payable in cash
and JTC Ordinary Shares on the achievement of specific revenue performance
targets for the two-year period ending 31 December 2025

 

The Acquisition is subject to customary US merger control as well as
regulatory approval in South Dakota (SD) and is expected to complete before
the end of August 2023.  The Acquisition will be funded from the Group's
existing cash reserves, debt facilities and the proceeds of a proposed placing
of new Ordinary Shares to raise gross proceeds of c.£62 million (the
"Placing"), representing approximately 6% of JTC's current issued share
capital.

 

The Placing is being conducted through an accelerated bookbuilding process
which will be launched immediately following the release of the Placing
Announcement. Joh. Berenberg, Gossler & Co. KG ("Berenberg") and Numis
Securities Limited ("Numis") are acting as the Company's joint bookrunners
(Berenberg and Numis together, the "Joint Bookrunners") in connection with the
Placing.

 

Acquisition Highlights:

·      Acquisition of SDTC, the leading independent provider of
administration services to the US personal trust sector

·      SDTC provides access to a sticky client base of c.1,700 high net
worth and ultra-high net worth clients with a large intermediary network

·      SDTC has a compelling financial profile with a 22-year track
record of consistent growth, high margins and strong cash conversion

·      Fixed annual recurring fees and very low client churn (c.3% per
annum) provide excellent revenue visibility and predictability, with 98.3%
client revenue retention

·      Establishes JTC as the leading independent provider of
administration services (combined $152 billion Assets under Administration
("AuA") to the US personal trust market

·      Significantly strengthens JTC's US business, creating a platform
for growth as the Group prepares to start its next multi-year business plan,
the Cosmos era

·      SDTC has been known to JTC since 2016 and both share strong
cultural alignment with a focus on service excellence

·      Acquisition is accretive to Group organic growth and margins, and
is expected to deliver mid-single digit EPS accretion to Group EPS from FY24
based on the proposed funding structure

 

Information on SDTC and the US Personal Trust Market

 

SDTC, founded in 2002 and headquartered in Sioux Falls, SD, is the leading
independent provider of administration services to the US personal trust
sector, providing bespoke trust administration services to a highly attractive
and sticky client base. SDTC has a uniquely experienced management team
leading over 100 full time employees and administering in excess of $135
billion of assets. SDTC's objective is to provide flexible, individualised,
service-oriented, cost-effective trust administration and SDTC is able to work
with most types of non-financial assets (both onshore and offshore).

 

The US is home to the most ultra-high net worth individuals of any country in
the world and it is estimated JTC's core addressable market captures c.$1.2
trillion of AuA, which has grown at a compound annual growth rate ("CAGR") of
9.4% from 2018 to 2022 and is forecast to grow at a CAGR of 8.2% from 2023E -
2028E(1). As wealth concentration grows and given the current onerous federal
transfer tax system, trust structures are imperative in preserving
multi-generational wealth and therefore the Board believes that demand for
such trust services will continue to increase, particularly as the ownership
of alternative asset classes and regulatory sophistication increases.

South Dakota is the largest and most attractive jurisdiction within the US
with $458 billion of AuA, supported by best-in-class trust, privacy, tax and
asset protection laws alongside a cost-efficient and dedicated workforce, a
strong economy and supportive State government.

 

Strategic Rationale

 

Establishes JTC as the leading independent provider of administration services
to the US personal trust sector

·      Growth market: The US is home to the most ultra-high net worth
individuals of any country in the world and it is estimated JTC's core
addressable market captures c.$1.2 trillion of AuA, which has grown at a
compound annual growth rate ("CAGR") of 9.4% from 2018 to 2022 and is forecast
to grow at a CAGR of 8.2% from 2023E - 2028E 1  (#_ftn1)

·      Market-leader: SDTC is a market leader in the highly fragmented
State chartered non-depository trust market

·      Stable client base: SDTC provides access to c.1,700 high net
worth and ultra-high net worth family clients, including more than 100
billionaires and 350 centimillionaires, based on a large intermediary network
which delivers predictable revenues

·      Wider growth opportunities: with increased scale and JTC's
additional service offering, such as its Private Office which provides
corporate, accounting, regulatory reporting and family governance services,
the acquisition will provide opportunities to increase share of wallet in the
wider private client services market in the US

 

Compelling financial profile that supports long-term value creation within the
JTC Group

·      Strong growth: SDTC has a 22-year track record of consistent
growth, with revenues increasing at a CAGR of 33% from 2002-2022 and steadily
increasing its market share

·      High margins: SDTC's EBITDA margin was 32% in both 2021 and 2022
and is expected to increase to 40% for 2023 on a run rate basis

·      Recurring fixed fee revenues: Over 98% of total revenue is based
on recurring fixed annual fees, and therefore not exposed to volatility in AuA
values, and the unexpired lifetime value of the book of current clients is
c.$530 million 2  (#_ftn2)

·      Strong cultural alignment: both companies are focused on service
excellence and the JTC and SDTC teams have known each other for over seven
years

 

Significantly strengthens and scales JTC's US platform

·      Delivers on JTC's US growth strategy: SDTC builds on JTC's track
record of acquisitions in the US, and the Group's complementary US Private
Client Services operations, which were established in 2013, already includes a
material presence in South Dakota and which were further strengthened with the
acquisition in 2022 of New York Private Trust Company, a Delaware-chartered
non-deposit trust company

·      Increases scale in the fast growing highly profitable US
market:  Post completion of the Acquisition, JTC will have a total of 15 US
offices, including both Private Client Services and Institutional Client
Services, spanning the East to the West coast, with over 300 employees,
enabling JTC to further develop and expand its personal trust services
offering in a large and growing market

·      Diversifies revenue and earnings:  Further increases JTC's
overall US footprint, with the US expected to represent c.30% of Group revenue
in the short term, creating a platform for growth as the Group prepares to
start its next multi-year business plan, the Cosmos era

 

SDTC financial performance

 

SDTC has a strong and highly complementary financial profile to JTC. For the
year ended 31 December 2022, SDTC generated revenue of $31.8m (£25.2m 3 
(#_ftn3) ) and adjusted EBITDA of $10.0m (£7.9m(3)). For the year ending 31
December 2023, SDTC management expectations are for revenue of $35.4m and
EBITDA of $14.3m on a run-rate basis 4  (#_ftn4) . The gross assets of the
subject of the transaction are $20.9m as at 31 December 2022.

 

 

Financial benefits of the transaction

 

SDTC's organic growth, strong margins and cash conversion will significantly
bolster the overall profile of JTC, and in particular JTC's US platform.  The
Acquisition will be accretive to Group organic growth and margins and is
expected to deliver mid-single digit EPS accretion to Group EPS from FY24
based on the proposed funding structure. Post completion of the Acquisition
and Placing, JTC anticipates leverage to be below 2.0x net debt / underlying
EBITDA for the year ended 31 December 2023, in line with JTC's stated
guidance.

 

 

Nigel Le Quesne, CEO of JTC, said:

 

"SDTC is a great addition to the JTC Group.  It is a market-leader in the
fast-growing personal trust market in the US, which in turn is the largest in
the world. It has a highly committed, service-focused team with deep client
relationships, an outstanding track record of profitability and growth, and is
hugely complementary to our existing US operations, particularly our existing
South Dakota business and building on our acquisition of NYPTC last year.
 Not only does it bring us greater scale in the US, it also provides
significant opportunities to offer our wider private client services to their
high net worth and ultra-high net worth family clients.  The acquisition also
very much delivers on our previously announced strategy to grow a market
leading US personal trust business.  We are delighted to welcome SDTC's
valued colleagues, clients and partners and very much look forward to the
significant opportunities ahead of us in this exciting growth market".

Al W. King III, Co-Founder and Co-Chief Executive Officer of SDTC, said:

"We are delighted to join JTC.  We have an enormous amount in common
including our commitment to our clients, our culture and our professional
expertise.  We know the JTC team well having worked with them for over seven
years, and see significant opportunities to expand our combined offering to
clients and their advisors, so that we can meet more of their needs in this
fast growing private client market".

Pierce H. McDowell III, Co-Founder and Co-Chief Executive Officer of SDTC,
said:

"Combining SDTC, the leading and fastest-growing independent trust
administration business in the US, with JTC, a highly successful global group,
with a fast-developing US business, provides enormous opportunities for the
benefit of our valued clients, employees and partners.  As a team of over 100
people, including over 60 dedicated trust officers, we very much look forward
to joining our colleagues at JTC and realizing the many opportunities that lie
ahead".

 

Enquiries

 JTC PLC                                         +44 (0) 1534 700 000
 Nigel Le Quesne, Chief Executive Officer
 Martin Fotheringham, Chief Financial Officer
 David Vieira, Chief Communications Officer

 Camarco
 Geoffrey Pelham-Lane                            +44 (0) 7733 124 226
 Sam Morris                                      +44 (tel:++44%207796%20827%20008) (tel:++44%207796%20827%20008) (0)
                                                 (tel:++44%207796%20827%20008) (tel:++44%207796%20827%20008) 7796 827 008
                                                 (tel:++44%207796%20827%20008)

 

About JTC

JTC is a publicly listed, global professional services business with deep
expertise in fund, corporate and private client services. Every JTC person is
an owner of the business and this fundamental part of our culture aligns us
with the best interests of all our stakeholders. Our purpose is to maximize
potential and our success is built on service excellence, long-term
relationships and technology capabilities that drive efficiency and add value.

http://www.jtcgroup.com/

Important Notice

The person arranging release of this announcement on behalf of JTC is Miranda
Lansdowne, Company Secretary.

The release, publication or distribution of this announcement in jurisdictions
other than the United Kingdom may be restricted by law and therefore any
persons who are subject to the laws of any other jurisdiction should inform
themselves about, and observe, any applicable requirements. This announcement
has been prepared for the purposes of complying with the Listing Rules and the
UK Market Abuse Regulation and the information disclosed may not be the same
as that which would have been prepared in accordance with the laws and
regulation of any jurisdiction outside of England.

The securities referred to herein have not been and will not be registered
under the U.S. Securities Act of 1933, as amended, or any U.S. state
securities laws and may not be offered or sold in the United States absent
registration or an exemption from registration thereunder. JTC PLC does not
intend to register any of the securities in the United States or to conduct a
public offering of the securities in the United States.

This announcement contains forward looking statements. No forward-looking
statement is a guarantee of future performance and actual results or
performance or other financial condition could differ materially from those
contained in the forward-looking statements. These forward-looking statements
can be identified by the fact they do not relate only to historical or current
facts. They may contain words such as "may", "will", "seek", "continue",
"aim", "anticipate", "target", "projected", "expect", "estimate", "intend",
"plan", "goal", "believe", "achieve" or other words with similar meaning. By
their nature forward looking statements involve risk and uncertainty because
they relate to future events and circumstances. A number of these influences
and factors are outside of the Company's control. As a result, actual results
may differ materially from the plans, goals and expectations contained in this
announcement. No statement in this announcement is intended to be, nor may it
be construed as, a profit forecast or be relied upon as a guide to future
performance. Any forward-looking statements made in this announcement speak
only as of the date they are made. Except as required by the FCA or any
applicable law or regulation, the Company expressly disclaims any obligation
or undertaking to release publicly any updates or revisions to any
forward-looking statements contained in this announcement.

 1  (#_ftnref1) Cerulli Associates

 2  (#_ftnref2) Unexpired lifetime revenue value defined as (1/(annual client
attrition * 2022 revenue)) / 2

 3  (#_ftnref3) GBP:USD exchange rate of 1.2612; Source: Bloomberg (13 June
2023)

 4  (#_ftnref4)   Revenue run-rate based on annualisation of February 2023
fixed fees from private trusts and annualisation of private trust company /
all other fees for the six month period ending February 2023; operating
expense run-rate based on annualisation of expenses for the three month period
ending February 2023

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  ACQGPUMPQUPWGAC