REG - Parity Group PLC - Proposed disposal of PPL and notice of GM
21/11/2023 14:45
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RNS Number : 1786U Parity Group PLC 21 November 2023
21 November 2023
Parity Group plc
("Parity Group" or the "Company")
Proposed disposal of Parity Professionals Limited and notice of GM
Parity Group plc (AIM: PTY), the data and technology-focussed recruitment and
professional services company, announces the proposed disposal of 100% of
Parity Professionals Limited ("PPL"), the Company's primary operating
subsidiary, to Network Ventures Limited (the "Purchaser") for cash
consideration of up to £3 million (the "Disposal").
Overview of the Disposal:
· Under the terms of the SPA, on completion of the Disposal:
- 100% of the issued share capital of PPL will be acquired by the
Purchaser;
- cash consideration of £2 million will be payable immediately;
and
- a further £1 million will be retained by the Purchaser for
adjustments based primarily on the working capital position of PPL at
completion.
· The Disposal constitutes a fundamental change of business of the
Company under Rule 15 of the AIM Rules and accordingly requires shareholder
approval. If approved, the Company would become an AIM Rule 15 Cash Shell on
completion.
· On completion, the proceeds of the Disposal will be utilised to
remove the pension liability from the Company's balance sheet and in seeking
to identify and execute a potential acquisition.
· It is also the intention of the Directors to change the name of the
Company to Partway Group plc following shareholder approval and the relevant
paperwork being filed with Companies House.
Further information regarding the proposed Disposal can be found below and in
a Circular which will shortly be posted to shareholders and made available on
the Company's website at www.parity.net (the "Circular").
The proposed Disposal is subject to shareholder approval at General Meeting of
the Company to be held on 7 December 2023 at 1:00 p.m. Notice of the General
Meeting and further information regarding voting and attendance is provided
within the Circular.
Unless otherwise defined, terms used in this announcement have the defined
meaning given to them in the appendix at the end of this announcement.
Contacts
Parity Group plc Tel: + 44 (0) 20 8171 1729
Mark Braund, Executive Chairman www.parity.net
Mike Johns, Chief Financial Officer
Allenby Capital Limited (Nominated Adviser and Broker) Tel: +44 (0) 20 3328 5656
David Hart / Dan Dearden-Williams (Corporate Finance)
Tony Quirke (Sales and Corporate Broking)
1. Introduction
This announcement sets out proposals for: (i) the sale of materially all of
the trading business of Parity Group plc via the proposed disposal of Parity
Professionals Limited for a cash consideration of up to £3 million; and (ii)
the proposed change of the name of the Company to Partway Group plc. Subject
to the passing of the Resolutions at the General Meeting being convened for 7
December 2023 and on completion of the Disposal, the Company will become an
AIM Rule 15 Cash Shell.
2. Background to the Proposals
As referenced in the interim results for the period ended 30 June 2023, the
Board has worked to remove the substantial overhead costs associated with the
previous management team's failure to build a profitable consulting business
and has reinvested a small portion into re-establishing Parity's heritage as a
well-recognised recruitment brand.
After years of underinvestment in the Group's business, the team has rebuilt
the core recruitment business into a position of strength in the public sector
market. However, the Group remains subscale and faces significant challenges
to source investment for growth.
Over the last 12-18 months, the recruitment sector as a whole has seen market
conditions become increasingly challenging with economic uncertainty resulting
in clients and potential new business opportunities deferring hiring
decisions. Although the Board feels that Parity has performed well in spite of
market conditions, particularly in the public sector market, cost inflation
and a decline in hiring has proved challenging.
As a result of the Covid -19 pandemic and the structural shift towards remote
working, we have seen clients looking to exploit global supply chains in the
face of rising domestic labour costs. As a result of this, coupled with the
expectation that market conditions are not set to improve in the near term,
Parity is prioritising resources within the public sector. As a consequence,
the new business initiatives targeting the private sector, were scaled back,
with a resultant reduction in headcount.
The Board feels that the Group's core business is sound and Parity's position
in the public sector is attractive but that it is subscale and would benefit
from being a part of a larger group. The Board has exhausted a number of
initiatives to source additional funding to invest in further growth, none of
which it believed were in the best interests of shareholders.
For the year ended 31 December 2022, Parity Professionals Limited contributed
£378,000 of profit before taxation to the Group's consolidated set of
accounts.
3. Transaction details
The Disposal will take place in the form of the sale by Parity Holdings
Limited, the Company's subsidiary, to the Purchaser of the entire issued share
capital of Parity Professionals Limited for a cash consideration of up to £3
million. Of this consideration, £2 million is payable at Completion and the
balance of £1 million will be retained by the Purchaser to set off against
the expected negative working capital position of PPL as at Completion and
other minor adjustments. That working capital position will be determined
from a set of completion accounts that will be agreed following Completion.
To the extent that PPL's negative working capital position at Completion is
less than £1 million, the difference will be paid by the Purchaser to PHL and
to the extent that PPL's negative working capital position at Completion is
greater than £1 million, the difference will be paid by PHL to the Purchaser.
Some basic warranties of a type normally given as regards PHL's title to the
share capital of PPL and its ability to enter into the Disposal have been
given by PHL. Under the terms of the SPA PHL and the Company have also entered
into certain restrictive covenants and given various undertakings in respect
of PPL and its business after Completion.
Subject to the passing of the Resolutions, Completion is expected to occur
shortly after the General Meeting has been held.
4. Details of the Pension Scheme
The 'Parity Group Retirement Benefit Plan' is a defined benefit pension fund
with assets held separately from the Group. This fund has been closed to new
members since 1995 and with effect from 1 January 2005 was also closed to
future service accrual.
As detailed in the Company's final results for the year ended 31 December
2022, the Group made payments of £300k to the Pension Scheme in that
financial year. It was also noted that the Directors were exploring a buy out
of the Pension Scheme. The Board has now reached an agreement with the Pension
Scheme trustees to settle the Group's obligation to make future contributions
to the Pension Scheme for a fee of £589k.
Part of the cash consideration from the Disposal will be used to pay the
settlement fee and therefore settlement of the Pension Scheme is conditional
upon the Disposal being approved by shareholders at the general meeting,
failing which settlement of the Pension Scheme will not occur. The Company has
also agreed with the trustees to pay £50k towards the costs of the trustee's
advisors associated with the transaction.
The settlement of the Pension Scheme will remove from the Company a liability
which would be likely to limit the future strategic options available to it,
further details of which are set out below.
5. Strategy for the Company following the Disposal
The Company's proposed strategy, following completion of the Disposal, will be
to acquire one or more companies and/or projects which are either cash flow
generative or show significant potential for growth and a profitable exit.
Leveraging their knowledge and contacts, the Directors will seek to identify
suitable investment and/or acquisition opportunities. At this stage, the
Directors would not seek to exclude any particular sector or jurisdiction.
In selecting suitable investment and/or acquisition opportunities, the
Directors will consider various factors relevant to an opportunity, including
the:
• ease with which capital can be raised to meet the working
capital requirements both initially and in the future;
• growth potential and outlook for future cash generation;
• likely resulting liquidity in the Company's shares following
acquisition(s);
• short, medium and longer-term exit strategies for
Shareholders;
• possible synergies with knowledge and contacts of the
Directors; and
• suitability for a public listing, either on AIM or another
recognised market in the UK.
6. Use of proceeds
The Initial Consideration will be used to pay the settlement fee and agreed
costs to the Pension Scheme totalling £639k, cover the costs associated with
the Disposal, expected to total approximately £240k, and to provide the
Company with working capital whilst it progresses with its strategy.
7. Change of name
Subject to Shareholder approval, it is proposed that the name of the Company
be changed to Partway Group plc. The TIDM will remain PTY.
8. AIM Rule 15
In accordance with AIM Rule 15, the Disposal constitutes a fundamental change
of business of the Company. On Completion, the Company will cease to own,
control or conduct all or substantially all, of its existing trading business,
activities or assets.
Therefore, following Completion, the Company will become an AIM Rule 15 Cash
Shell and as such will be required to make an acquisition or acquisitions
which constitutes a reverse takeover under AIM Rule 14 on or before the date
falling six months from Completion or be re-admitted to trading on AIM as an
investing company under the AIM Rules (which requires the raising of at least
£6 million) failing which, the Company's Ordinary Shares would then be
suspended from trading on AIM pursuant to AIM Rule 40. Admission to trading on
AIM would be cancelled six months from the date of suspension should the
suspension not have been lifted.
As a Rule 15 Cash Shell, the Company would also have no operating cash flow
and would be dependent on the net proceeds of the Disposal for its working
capital requirements.
9. Related party transaction
The Purchaser is a wholly owned subsidiary of Pertemps Network Group Limited,
a company in which Timothy Watts has a direct and indirect interest of
33.1%. Mr. Timothy Watts is a 22.8% shareholder in Parity and is therefore
deemed a related party pursuant to the AIM Rules. As a result, the Disposal
constitutes a related party transaction for the purposes of AIM Rule 13.
During the last 12-18 months the Directors have evaluated a number of
potential opportunities to create long-term value in the business, including
the acquisition and/or merger of other businesses in order to create a
business of greater scale and value for shareholders.
During this period, the Directors have had exposure to the value ascribed to
Parity's business by other interested parties, for example, the vendors of
potential acquisitions considering Parity's equity as part of a structured
deal, and the appetite amongst Shareholders to support a fundraise.
The Directors have also had three separate approaches to acquire the Company's
recruitment business assets from medium to large independent businesses with
verified access to funding.
Whilst comparing the potential relative values from these activities with the
offer made by the Purchaser, the offer from Network Ventures represents the
best available proposition for shareholders amongst those evaluated by the
Directors.
The Directors have also considered the speed, certainty and relative
cost-efficiency with which this deal can be executed compared to the
alternative of initiating a full sale process.
Recognising the risk and the near-term funding requirements of the business,
the Directors believe this deal represents the best available value for
Shareholders.
The Directors consider, having consulted with the Company's Nominated Adviser,
that the terms of the Disposal are fair and reasonable insofar as the
Shareholders are concerned.
10. General Meeting
The Disposal constitutes a disposal resulting in a fundamental change of
business in accordance with Rule 15 of the AIM Rules.
As a result of the treatment of the Disposal under the AIM Rules, Completion
is conditional on the passing of Resolution 1, which seeks Shareholders'
approval for the Disposal, and is to be proposed at the General Meeting.
The notice convening a General Meeting, to be held at 1:00 p.m. on 7 December
2023, at the offices of BPE Solicitors LLP, St James House, St James Square,
Cheltenham GL50 3PR to consider the Resolutions, is set out at the end of the
Circular. A summary of the Resolutions is set out below.
Resolution 1, which will be proposed as an ordinary resolution, seeks to
approve the sale by the Company's subsidiary, PHL, of PPL in accordance with
the SPA.
Resolution 2, which will be proposed as a special resolution, seeks to approve
the change of the Company's name to Partway Group plc.
DEFINITIONS
The following definitions apply throughout this announcement unless the
context requires otherwise:
"Act" or the "Companies Act" the Companies Act 2006, as amended
"AIM" the market of that name operated by the London Stock Exchange
"AIM Rules" the AIM Rules for Companies, as published by the London Stock Exchange from
time to time
"Articles" the articles of association of the Company
"Board" or "Directors" the directors of the Company at the date of this Document and
whose names are set out in Part I
"Circular" the Circular to be posted to Shareholders , containing details of the
Proposals
"Company" Parity Group plc, a public limited company incorporated in England and Wales
with Registered No. 3539413
"Completion" completion of the Disposal expected to occur, subject to the passing of the
Resolutions, on or about 7 December 2023
"CREST" the relevant system (as defined in the CREST Regulations) for paperless
settlement of share transfers and the holding of shares in uncertificated form
which is administered by Euroclear
"CREST Manual" the rules governing the operation of CREST consisting of the CREST Reference
Manual, the CREST International Manual, the CREST Central Counterpart Service
Manual, the CREST Rules, the CCSS Operations Manual, the Daily Timetable, the
CREST Application Procedures and the CREST Glossary of Terms, as published by
Euroclear from time to time
"CREST Regulations" the Uncertificated Securities Regulations 2001(SI 2001/3755) (as amended)
"Disposal" the proposed sale of the entire issued share capital of Parity
Professionals Limited to the Purchaser, pursuant to the terms of the SPA
"Euroclear" Euroclear UK & International Limited
"FCA" the Financial Conduct Authority
"Form of Proxy" the form of proxy accompanying the Circular for the use of Shareholders in
connection with the General Meeting
"General Meeting" the General Meeting of the Company to be held at 1:00 p.m. on
7 December 2023 (or any reconvened meeting following any adjournment of the
general meeting) at the offices of BPE Solicitors LLP, St James House, St
James Square, Cheltenham GL50 3PR, notice of which is set out at the end of
the Circular
"Initial Consideration" £2 million, being the initial consideration payable by the Purchaser in
respect of the Disposal
"Issued Share Capital" the total number of Ordinary Shares of the Company in issue, being 103,075,633
Ordinary Shares as at the date of this Document
"London Stock Exchange" London Stock Exchange PLC
"Nominated Adviser" or "Allenby Capital" Allenby Capital Limited, the Company's Nominated Adviser in accordance with
the AIM Rules
"Notice" or "Notice of General Meeting" the notice of the General Meeting set out at the end of the Circular
"Ordinary Shares" ordinary shares of 2 pence each in the capital of the Company
"Pension Scheme" meaning the Parity Group Retirement Benefit Plan
"PHL" Parity Holdings Limited, a private limited company incorporated in England and
Wales with Registered No. 03980554
"PPL" or "Parity" Parity Professionals Limited, a private limited company incorporated in
England and Wales with Registered No. 01543554
"Proposals" the proposals set out in the Circular, whereby Shareholders are being asked to
consider, and if thought fit, approve: (i) the Disposal; and (ii) the change
of the name of the Company
"Purchaser" Network Ventures Limited, a private limited company incorporated in England
and Wales with Registered No. 4881694
"Resolutions" the resolutions set out in the Notice of General Meeting
"Rule 15 Cash Shell" has the meaning set out in the AIM Rules
"Shareholders" the holders of Ordinary Shares
"SPA" the conditional share sale agreement dated 21 November 2023 between PHL, the
Purchaser and the Company in respect of the Disposal
"TIDM" a tradeable instrument display mnemonic for the purposes of identifying UK
listed securities
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