REG - Marlowe PLC - Disposal and Directorate Change

MarloweAnnouncement

22/02/2024 07:00

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RNS Number : 0093E  Marlowe PLC  22 February 2024

The information contained within this announcement is deemed by the Company to
constitute inside information as stipulated under the Market Abuse Regulations
(EU) No. 596/2014 as amended by regulation 11 of the Market Abuse (Amendment)
(EU Exit) Regulations 2019/310. Upon the publication of this announcement via
Regulatory Information Service, this inside information is now considered to
be in the public domain.

 

22 February 2024

 

Marlowe plc

 

Divestment of certain GRC software and services assets

 

Board Changes

 

Binding agreement to dispose of certain GRC software and services assets for
an enterprise value of £430 million in cash

 

 

Marlowe plc ("Marlowe", the "Group" or the "Company"), the UK leader in
business-critical services and software which assure regulatory compliance,
announces that it has entered into a binding agreement for the sale of certain
Governance, Risk & Compliance ("GRC") software and services assets (the
"Divestment") to Inflexion Private Equity ("Inflexion") ( the "Purchaser"),
for an enterprise value of £430 million on a debt free, cash free basis (the
"Transaction").

 

Highlights

 

·      Following the strategic review announced in November 2023, the
Company announces the divestment of a select number of its GRC software and
service assets for an enterprise value of £430 million, representing a
multiple of 16.2x proforma adjusted cash EBITDA1 in the year ended 31 March
2023 ("FY23").

 

·      The enterprise value of the Divestment, which accounts for
approximately 20% of Group revenues and 40% of Group adjusted EBITDA,
represents 121% of Marlowe's market capitalisation as at 20 February 2024 and
121% of Marlowe's market capitalisation based on a 3-month volume weighted
average share price as at 21 February 2024.

 

·      Marlowe's continuing operations ("Compliance Services") comprise
the Testing, Inspection and Certification ("TIC") and Occupational Health
("OH") businesses.

 

·      The Group intends to use the proceeds of the Divestment (the "Net
Cash Proceeds") to retire in full its current debt facility and return in
excess of £150 million of surplus cash to shareholders.

 

·      This sale will deliver significant value for shareholders and
represents the culmination of Marlowe's FY24 strategic review focused on
generating major shareholder value whilst simplifying the Group's focus and
strategy upon its core Compliance Services businesses, which all deliver
largely recurring service revenues in large and attractive regulated markets,
with significant scope for future growth.

 

·      The Group's ongoing focus following the Divestment will be
centred upon driving organic growth across its market leading businesses in
the attractive TIC and OH markets whilst delivering margin expansion and
strong cash generation.

 

·      Alex Dacre will transfer with the Divestment and resign as Chief
Executive of Marlowe on completion and Kevin Quinn will take up the position
of Executive Chair on an interim basis. The Board has begun a search for a new
Chief Executive, which will include both internal and external candidates.

 

1 Adjusted cash EBITDA is after capitalised software development costs.

 

Commenting on the Divestment, Kevin Quinn, Marlowe's Chairman said:

 

"This divestment represents an excellent outcome for Marlowe and its
shareholders and underscores the significant value that has been created
through the delivery of our growth strategy. The valuation achieved
demonstrates the substantial potential within our business and will reset our
capital structure, giving Marlowe strategic agility whilst delivering
meaningful returns to our shareholders.

 

Following the sale, Marlowe's business will consist of two market-leading
compliance service divisions in Testing, Inspection and Certification and
Occupational Health, with a clear and refocused strategy in our core
compliance service markets.

 

Since 2015, Alex has been instrumental in developing Marlowe into a UK
powerhouse in regulatory compliance which, through a combination of over 80
acquisitions and strong organic growth, has been transformed into a company
with more than £500 million in revenues, over 5,000 colleagues and thousands
of clients across the UK. On behalf of the Board, I would like to thank Alex
for this exceptional achievement and his outstanding leadership in building
Marlowe."

 

Alex Dacre, Marlowe's outgoing Chief Executive said:

 

"It has been a privilege to lead Marlowe since its inception and through the
Group's rapid evolution into the UK's leader in safety and compliance. This
divestment represents a significant premium to our market capitalisation and
clarifies the Group's forward strategy to focus on the highly attractive and
regulated compliance service markets. I wish everyone at Marlowe every future
success."

1. INTRODUCTION

 

The Divestment comprises the following Group business lines: WorkNest,
Vinciworks, William Martin, Elogbooks, Barbour, IMSM & Corestream. The
Divestment does not include Marlowe's Compliance Services businesses in OH and
TIC, which represented approximately 80% of Group revenues in FY23.

 

The Divestment consideration of £430 million is payable in full and in cash
on the date of completion (the "Consideration"), subject to customary
adjustments based on the amounts of working capital, debt and cash in the
Divestment at completion. The Consideration implies a multiple of 16.2x of
FY23 proforma adjusted cash EBITDA(1).

 

After adjustments for the estimated transaction costs and settlement of
certain liabilities including earn-outs, the net cash proceeds from the
Divestment to the Company are expected to be approximately £405 million. The
Board expects to return an amount in excess of £150 million of the Net Cash
Proceeds to Ordinary Shareholders and will provide further details in due
course after consulting with key shareholders. The Board also intends to use
the Net Cash Proceeds to retire its current debt facility in full.

 

2. BACKGROUND TO AND RATIONALE FOR THE DIVESTMENT

 

Since its foundation in 2015, Marlowe has pursued a strategy of building a UK
leader in compliance services and software.

 

The Group first built a leading position in its core TIC markets of Fire
Safety & Security and Water & Air Hygiene. From 2020, it extended this
focus into new adjacent GRC markets such as HR and employment law, health
& safety, eLearning, ISO, compliance software, and more recently OH, all
of which are similarly underpinned by regulation and non-discretionary
dynamics.

 

Marlowe has allocated capital to consolidate and build scale across all these
attractive end-markets, completing over 80 deals since inception, integrating
the businesses into their respective platforms, while demonstrating resilient
levels of organic growth and margin expansion.

 

In November 2023, Marlowe announced the Board had begun a strategic review to
evaluate the optimal organisational and capital structure to maximise
shareholder value. By undertaking the Divestment, Marlowe recognises the
distinct operational and strategic differences between certain GRC software
and service assets and our Compliance Services businesses whilst delivering
significant shareholder value.

 

The Divestment will allow the Group to capitalise on the inherently attractive
end markets of TIC and OH, strengthen its balance sheet while also providing
an opportunity for a more optimised approach to capital allocation.

 

3. USES OF PROCEEDS AND FINANCIAL BENEFITS TO THE GROUP OF THE DIVESTMENT

 

In FY23, Marlowe's Divestment contributed revenue and adjusted EBITDA of
£85.8 million and £31.4 million respectively. As of 31st December 2023, the
Divestment had unaudited net assets of approximately £310 million.

 

The Net Cash Proceeds are expected to be approximately £405 million at
completion after relevant adjustments including estimated transaction costs,
settlement of certain transaction related liabilities, reorganisation and
separation costs.

 

The Company expects to return in excess of £150 million of Net Cash Proceeds
to Ordinary Shareholders.

 

The Board has made no final decisions as to timing, quantum and specific
application of the remaining Net Cash Proceeds following a return of Net Cash
Proceeds to Ordinary Shareholders. However, the Board intends that remaining
Net Cash Proceeds will be used to:

 

·      Retire the current debt facility;

 

·      Return further capital to shareholders; and/or

 

·      When the Board considers it appropriate to do so, invest in
carefully selected bolt-on acquisition opportunities across our remaining
Occupational Health and TIC assets once restructuring investments in respect
of historically completed acquisitions have reduced.

 

4. UPDATE ON RETAINED GROUP AND FUTURE STRATEGY

 

Following completion, the Group will be organised into two divisions: (i)
Testing, Inspection and Certification; and (ii) Occupational Health.

 

The Group's TIC division is focussed on ensuring the safety and compliance of
customers' business premises in accordance with relevant regulation and
legislation. With a focus on fire safety & security and water & air
hygiene, our comprehensive services cater to approximately 27,000 customers.
This extensive support is delivered by around 1,900 specialists who
consistently achieve best-in-class compliance rates, reinforcing our
market-leading position. Operating on largely multiyear contracts, our
offerings are underpinned by regulations making them mandatory which result in
a high degree of recurring revenues.

 

Marlowe's Occupational Health division is the UK leader in the occupational
health and wellbeing sector. The backdrop for the UK workforce is one that is
getting older and progressively less healthy with an estimated £90bn+ lost
through absence and presenteeism in the UK. In addition, the compliance burden
for employers is significantly increasing. Our comprehensive OH services
improve the health & wellbeing of our customers' employees, minimising
workplace risk and maximising corporate productivity. Our services are
delivered, often through multi-year contracts, by some 900 occupational health
clinicians to over 3,000 customers. Similar to our TIC division, we ensure
compliance with regulations, such as HSE, COSHH, Noise at Work Regulations and
the Working Time Directive, which provides a high degree of recurring
revenues.

 

The Group will continue to focus on the completion of integration programmes
and the associated wind down of integration investments associated to the
significant M&A activity that we have conducted in recent periods. The
near-term focus will be to continue to drive organic revenue growth while
improving margins and generating attractive free cash flow per share.

 

Marlowe's Board will continue to execute the delivery of the Group's strategy
while regularly evaluating ways to maximise shareholder value.

 

5. BOARD CHANGES

 

The Company announces that Alex Dacre, the Company's Chief Executive, will
transfer at completion with the Divestment and therefore resign as Chief
Executive of Marlowe plc and as a Director of the Company on completion of the
Divestment.

 

Kevin Quinn will take up the position of Executive Chair on an interim basis
and the Board has begun a search for a new Chief Executive, which will include
both internal and external candidates. Further updates will be provided, as
appropriate, in due course.

 

6. DETAILS OF THE SALE AND PURCHASE AGREEMENT

 

The Company, and its wholly owned subsidiary Marlowe 2016 Limited (together
the "Sellers"), have entered into a binding Share Purchase Agreement (the
"SPA") with the Purchaser in relation to the Divestment.

 

Pursuant to the SPA, the Group is to sell the entire issued share capital of
IMSM Holdings Limited, International Management Systems Marketing Limited,
Barbour EHS Limited, Core Stream Ltd, Cedrec Information Systems Limited,
Vinci Legal Limited, William Martin 2018 Limited, William Martin Compliance
Limited, Cirrus Holdco Limited and Marlowe US Holdings Inc. and Marlowe 2016
Limited is to sell the entire issued share capital of The Compliance Office
Ltd, Worknest (Holdings) Limited, Inclusive Learning Limited and Quantum Risk
Management Limited, such companies and their subsidiaries forming the GRC
software and services assets (together the "Divestment Group") the subject of
the Divestment.

 

Completion of the SPA is in all respects conditional (the "Conditions") upon
both (1) the Financial Conduct Authority approving the change of control of
certain companies that are members of the Divestment Group which are FCA
Regulated Entities, (2) the Solicitors Regulation Authority approving the
change of control of certain companies that are members of the Divestment
Group which are Authorised Bodies and (3) the Secretary of State for the
Department of Business, Energy and Industrial Strategy approving the direct
and indirect acquisition of certain companies that are members of the
Divestment Group, the activities of which may make them subject to the
mandatory notification requirements of the National Security and Investment
Act 2021.

 

Subject to satisfaction of the Conditions, the total Consideration for the
Divestment would be the receipt in cash of the sum of £430 million, at
Completion, subject to the contents of a statement containing estimates of the
cash, debt, intra-group payables, intra-group receivables and working capital
that the Sellers are obliged to deliver to the Buyer prior to Completion and
the agreement or adjudication of completion accounts following completion.

 

The Sellers will give customary sellers' warranties to the Purchaser and, save
for certain fundamental warranties concerning the title and capacity to the
shares of the companies comprising certain GRC software and service assets
(and with the exception of fraud) the Sellers' liability under such warranties
is capped at £1, with the Purchaser's recourse under the warranties to come
under a warranty and indemnity insurance policy.

 

For further information:

 

 Marlowe plc
 Alex Dacre, Chief Executive                     www.marloweplc.com
 Adam Councell, Chief Financial Officer          Tel: +44 (0) 203 813 8498
 Benjamin Tucker, Head of Investor Relations

 Goldman Sachs International (Sole Financial Adviser to Marlowe Plc)
 Khamran Ali                                     Tel: +44 (0)20 7774 1000
 Owain Evans

 Cavendish Securities plc (Nominated Adviser and Joint Broker)
 Ben Jeynes                                      Tel: +44 (0)20 7220 0500
 George Lawson

 Berenberg (Joint Broker)
 Dan Gee-Summons         Tel: +44 (0)20 3207 7800
 Mark Whitmore

 Stifel (Joint Broker)
 Matthew Blawat          Tel: +44 (0)20 7710 7688
 Francis North

 FTI Consulting
 Nick Hasell             Tel: +44 (0)20 3727 1340
 Alex Le May

 

About Marlowe plc

 

Marlowe is a UK leader in business-critical services and software which assure
regulatory compliance. The company was formed to create sustainable
shareholder value through the acquisition and development of businesses that
provide regulated safety and compliance services and software. It is focused
on compliance software, eLearning, health & safety, employment law &
HR compliance, fire safety & security, water & air hygiene and
occupational health services - all of which are vital to the wellbeing of its
customers operations and are invariably governed by regulation. Marlowe
currently provides software to over 1 million users and services to over 25%
of Britain's commercial premises. The Group provides customers with a single
outsourced, nationwide, provider of a range of regulated compliance and safety
solutions. Our customers can be found in office complexes, high streets &
leisure facilities, manufacturing plants and industrial estates, and include
thousands of SMEs, local authorities, facilities management providers,
multi-site NHS trusts and FTSE 100 companies.

About Inflexion Private Equity

Inflexion is a leading European mid-market private equity firm which works in
partnership with ambitious management teams of high growth, entrepreneurial
businesses to accelerate sustainable growth. Inflexion's flexible approach
allows it to back both majority and minority investments, typically investing
£10m to £500m of equity in each deal. With bespoke teams and dedicated
capital, Inflexion's funds invest across a variety of sectors from offices in
London, Manchester, Amsterdam and Stockholm. Funds advised by Inflexion
Private Equity Partners LLP have funds under management of c.£8bn.

IMPORTANT NOTICES

Goldman Sachs International is acting as Sole Financial Advisor to Marlowe
plc. Fieldfisher LLP is acting as legal counsel to Marlowe plc.

Goldman Sachs International, ("Goldman Sachs") which is authorised by the
Prudential Regulation Authority and regulated by the Financial Conduct
Authority and the Prudential Regulation Authority in the United Kingdom, is
acting exclusively for Marlowe plc and no one else in connection with the
matters referred to in this announcement and will not be responsible to anyone
other than Marlowe plc for providing the protections afforded to clients of
Goldman Sachs International, or for providing advice in relation to the
matters referred to in this announcement.

 

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