REG - Public Policy Hldg - Acquisition of TrailRunner and Trading Update

Public Policy HoldingAnnouncement

27/01/2025 07:00

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RNS Number : 7625U  Public Policy Holding Company, Inc.  27 January 2025

Public Policy Holding Company, Inc.

("PPHC", the "Company" or the "Group")

 

Acquisition of TrailRunner International, Expansion of Debt Facilities and
Trading Update

 

Accretive acquisition expands strategic communications capabilities, extends
reach into new geographies and introduces a global sports advisory service

 

Public Policy Holding Company, Inc. (AIM: PPHC), the leading government
relations and public affairs group, is pleased to announce it has entered into
a binding agreement on 24 January 2025 to acquire TrailRunner International
LLC ("TrailRunner"), a Texas-based global communications advisory firm, for an
initial consideration of $33 million (the "Acquisition"). On completion, the
Acquisition is anticipated to be immediately accretive to the Group's
underlying earnings. In advance of the Group's Capital Markets Event on 30
January 2025, PPHC is also providing a trading update for the year ended 31
December 2024 ("FY2024") which includes a planned update to the Group's
capital allocation policy intended to accelerate future Total Shareholder
Returns.

 

Highlights

·    Earnings accretive acquisition, highly complementary to PPHC's
existing capabilities.

·    Acquisition part funded through the expansion of banking facilities
with existing lender, Bank of America.

·    FY2024 trading update demonstrates progression of the Group's growth
track record in revenues and profit, with strong cash generation and momentum
going into 2025.

·    Intention to reduce the Group's dividend to better align with its
long-term growth strategy and drive higher Total Shareholder Returns.

·    Management is considering measures aimed at improving liquidity in
PPHC's stock, including a potential US dual-listing in addition to AIM.

·    Capital Markets Event on 30 January 2025 to take place at the London
Stock Exchange, UK.

 

Acquisition Overview

PPHC has entered into a binding agreement on 24 January 2025 to acquire
TrailRunner for an initial consideration of $33 million. On completion, the
Acquisition is anticipated to be immediately accretive to the Group's
underlying earnings.

 

The Acquisition significantly expands PPHC's capabilities in the large and
growing strategic communications market, including corporate affairs,
financial communications, crisis communications, litigation communications and
reputation management. TrailRunner and PPHC are highly complementary with the
combined Group presenting clear and immediate potential for cross-selling and
integrated servicing for c.1,300 existing clients.

 

Founded in 2016 by Executive Chairman Jim Wilkinson, TrailRunner operates with
a global team across offices in Dallas/Fort Worth, Texas (where the firm is
headquartered), as well as New York, Nashville, and Northern California. The
firm also serves global and regional clients from its locations in London,
Shanghai, Abu Dhabi and Dubai, with approximately 80 employees supporting its
operations worldwide.

 

Completion of the Acquisition is subject to certain conditions which
management expects will be satisfied by 1 April 2025.

 

Strategic Rationale

The Acquisition is in line with PPHC's longstanding objective to build, bring
together and grow a portfolio of complementary businesses with specialist
communications capabilities in order to help clients navigate the world's most
challenging crises, policy risks and opportunities. It also supports the
Group's stated M&A strategy by significantly expanding its strategic
communications capabilities and broadening its geographic reach.

 

PPHC's global clients require a service provider able to support them across
all communications disciplines and in the various geographies where they
operate. This acquisition establishes Group operations and a presence in key
growth markets, including:

·    Dallas/Fort Worth, Texas, and Nashville, Tennessee - central cities
with reach into the growing heartland of the US South, Midwest and Southwest.

·    New York, where TrailRunner retains deep financial and corporate
sector expertise.

·    Northern California, an innovation hub, further amplifying and
broadening the expertise PPHC has already established in the state.

·    Across strategic locations in the UK, Middle East and Asia, deepening
PPHC's global footprint.

 

Upon completion, the addition of TrailRunner's capabilities in corporate
affairs, financial communications, crisis communications, litigation
communications and reputation management represents a natural evolution of
PPHC's core service offerings of government relations and public affairs. In
an environment where political issues instantly evolve into reputational
crises-and vice versa-these expanded capabilities enable PPHC to deliver an
integrated service suite that bridges policy advocacy with corporate
reputation and strategic positioning.

 

Furthermore, the Acquisition includes TrailRunner Sports, a leading sports
advisory practice established as a joint venture with Legends, the world's
preeminent premium live events company. TrailRunner Sports provides strategic
business advisory and communications support to global sports clients spanning
leagues, teams, educational institutions, investors, ownership groups and
others. This addition broadens PPHC's ability to offer tailored expertise in
the dynamic sports sector and demonstrates its commitment to diversifying its
offerings in high-growth markets.

 

This holistic approach enhances PPHC's ability to serve its clients' C-suites,
providing a comprehensive advisory framework to navigate complex challenges
across regulatory, media, and stakeholder landscapes.

 

This is PPHC's fifth significant acquisition since its IPO in 2021 and second
that expands its international reach. Upon completion, the Group will have
invested substantial capital into M&A through a combination of cash and
shares, demonstrating its ongoing commitment to executing its growth strategy.
All completed acquisitions to date have been successfully integrated to become
value contributing members of the Group.

 

Stewart Hall, CEO of PPHC, commented:

"The acquisition of TrailRunner simultaneously entrenches our market leading
US position and establishes our business as a truly global strategic
communications group. It advances our longstanding strategy of building the
world's most comprehensive provider of government relations and corporate
communications services.

 

"By combining TrailRunner's deep expertise in corporate and financial
communications, crisis management and sport with our existing capabilities, we
create immediate value for existing, as well as prospective, clients across
all markets. TrailRunner's strong presence in America's key business centres,
combined with its international reach into Europe, Asia and the Middle East
delivers on our vision of serving clients with the most important policy and
communications needs wherever they operate."

 

Jim Wilkinson, Founder and Executive Chairman of TrailRunner, added:

"TrailRunner is a unique and exciting growth company with a track record of
proven financial success, an aggressive growth strategy and a deep bench of
talent to execute this growth plan. Given the growing global megatrend of the
collision of critical factors including corporate reputation, government
relations, finance, crisis, litigation and sports, I can think of no better
partner than PPHC to help TrailRunner expand into significant future
international growth."

 

Overview of TrailRunner

·    Founded in 2016, TrailRunner is a leading strategic communications
advisory firm with approximately 80 employees working across eight global
offices.

·    Specialises in financial communications, corporate reputation, crisis
management, and sport via TrailRunner Sports.

·    Consistent track record of serving Fortune 500 companies and global
institutions. In 2024, the Company serviced a total of 117 clients.

·    Strong track record of growth and profit: since 2018, TrailRunner's
revenue has grown at a CAGR of 18%. For the calendar year ended 31 December
2024, TrailRunner is estimated to have achieved unaudited net revenues of
$25.2 million and profit before tax of $4.5 million, after application of
post-completion compensation policy, implying an 18% margin. On a run-rate
basis, TrailRunner is approximating $26 million in revenues and over $6
million in profit before tax, implying a margin that has grown to 24%, which
is consistent with where it had been in 2022 and early 2023. TrailRunner's
2024 EBITDA margin reflects a year of strategic investment in talent and
infrastructure to support long-term growth. These initiatives position
TrailRunner to align with PPHC's target margin range of 25-30%.

 

Key Terms of the Acquisition

·    The initial consideration of $33 million will be satisfied on
completion, which is expected to occur by 1 April 2025, in part by the
issuance of 2,966,138 New Common Shares at a price of £1.3531 per Common
Share, totalling $4.95 million, and the balance of $28.05 million paid in
cash.

·    Shares issued to Mr. Jim Wilkinson and certain key employees will be
subject to a vesting period and all such share recipients will additionally be
subject to certain restrictive covenants. The initial cash consideration
of $28.05 million will be funded from a combination of PPHC's existing cash
resources and a credit facility entered into with Bank of America (further
detail is provided below).

·    As part of the purchase consideration, in addition to the initial
consideration, three future payments could be made with the final payment
taking place after the end of 2029. The size of these payments is contingent
on TrailRunner's profit growth for the period from  2025 through 2029. The
initial future payment will be paid 15% PPHC shares and 85% cash, and the
later two future payments will be paid 50% in PPHC shares and 50% in cash.

·    Including the initial consideration of $33 million, the aggregate
consideration is maximised at $70 million. This maximum would be achieved if
TrailRunner was to realise more than c.25% compound annual profit growth from
2025 through 2029.

·    Net assets of TrailRunner transferred upon completion amount to $0.0
million.

 

Expansion of Debt Facilities

·    In order to support the financing of the initial cash element of the
Acquisition, the Group announces it has entered into a Supplemental Credit
Facility with Bank of America on 24 January 2025 (the "Facility") of $24
million.

·    The interest rate payable on this Supplemental Credit Facility is the
Secured Overnight Financing Rate (SOFR) plus 260 basis points and the Facility
will mature on 31 March 2029.

·    Following completion of the Acquisition, the effective gross debt
position of the Group will be c.$55 million, before taking into account the
Group's evolving cash balance. At closing, the implied Debt-to-EBITDA ratio
will approximate 1.25x and is anticipated to reduce from there as the year
progresses given PPHC's cash generative nature.

 

Issue of New Common Shares

As part of the initial consideration payable, 2,966,138 New Common Shares are
to be issued to Mr. Jim Wilkinson and certain key employees on closing. An
application will be made for the New Common Shares, which will rank pari passu
with the existing Common Shares in issue, to be admitted to trading on AIM
("Admission"). Dealings are expected to commence shortly after the closing
date and a further update will be provided at the time of closing, including
the total issued and voting share capital upon admission.

 

PPHC Trading Update

 

Financial Highlights 2024 and 2025 Outlook

The trading results below are preliminary and unaudited.

 

·    FY2024 revenue increased by 10.8% to $149.6m (2023: $135.0m), with
organic growth contributing 2.7% and the balance driven by the acquisitions of
Lucas Public Affairs on 1 May 2024, of Pagefield Communications on 7 June
2024, as well as the annualisation of MultiState's contribution which was
acquired on 1 March 2023. Organic growth of 2.7% was the outcome of slower
organic growth of 1.2% in H1, followed by stronger organic growth of 4.1% in
H2, especially fuelled by a return of project work (and growth) on the Public
Affairs side. By segment, for FY2024 the Group saw organic growth of 4% in
Government relations, of -5% in Public Affairs and of 23% in Diversified
Services.

 

                       FY2024  % of total    Reported growth           Organic growth
                                             H1      H2      FY        H1     H2     FY
 Government Relations  102.4   69%           8%      6%      7%        4%     3%     4%
 Public Affairs        36.4    24%           (6%)    33%     13%       (13%)  4%     (5%)
 Diversified Services  10.7    7%            97%     19%     47%       32%    19%    23%
 Total                 149.6   100%          8%      13%     11%       1%     4%     3%

 

·    Underlying EBITDA increased 3% to $36.1m and was achieved at a margin
of 24.1%, close to the Group's historic performance and guidance that margins
will typically range between 25% and 30%. In 2024 the Group incurred $3.5m in
exceptional expenses which was $3.0m more than in 2023 (2023: $0.5m). Of the
$3.0m increase, $2.1m was from M&A related expenses (especially driven by
the Group's first international acquisition) and $0.9m from additional
start-up losses at Concordant. Adjusting for the $3.0m in incremental
exceptional expenses, Group margin was 26.1%.

 

 Long term Underlying EBITDA        2018   2019   2020   2021   2022   2023   2024   2024 adj
 Underlying EBITDA ($m)             9.3    13.5   21.5   32.0   31.2   35.1   36.1   39.1
 Underlying EBITDA as % of Revenue  27.4%  24.4%  27.8%  32.2%  28.7%  26.0%  24.1%  26.1%

 

·    The Group's balance sheet as at 31 December 2024 remained robust:
against outstanding debt of $31.9m, the Group had $14.5m in cash, resulting in
a net debt balance of $17.3m. As noted above, the acquisition of TrailRunner
will increase the debt balance by $24m.

·    The Group ended 2024 having serviced over 1,200 clients, with the
number of clients spending more than $100k per annum increasing by 15% to 503
(2023: 437, restated for client consolidation).

·    Following the US elections, management has seen significant new
business activity and believes the Group is very well positioned for higher
growth in FY2025.

 

Enhancing Liquidity and Diversifying Investor Base

The Company continues to explore opportunities to diversify its investor base
and improve the liquidity of its common stock, including a focused approach on
attracting US investors and, potentially, through a dual listing in the United
States that would be in addition to its existing AIM listing. Further updates
will be provided as appropriate.

 

Update to PPHC Dividend Policy

PPHC has proven to be a fundamental consolidator in what remains a globally
consolidating sector, and the pipeline of acquisition opportunities in
complementary geographies and disciplines - both within the US and
internationally - continues to expand. The Board believes that in the coming
months and years there is a significant opportunity to deploy further
significant growth capital into such opportunities to enhance cash generation
and better drive long-term shareholder returns. However, the Board believes
the current share price does not support funding these M&A initiatives
through the issuance of new equity and, therefore, will consider a proposal by
management to adjust the dividend in order to retain more cash within the
business.

 

For the financial year 2023, the Group paid $0.143 per share (equivalent to a
pay-out ratio of approximately 62% of profits). Going forward, the Group
intends to pay out approximately half of that, commencing with the anticipated
dividend payment in May 2025.

 

This adjustment is intended to enable PPHC to act decisively on M&A,
leveraging its financial flexibility to make targeted and earnings enhancing
acquisitions that deliver immediate synergies and create value.

 

With a foundation of strong cash flow, minimal capital expenditure
requirements, and a growing total addressable market, PPHC's strategy is
designed to maximise both immediate and sustained shareholder returns.

 

Capital Markets Event

PPHC will host a Capital Markets Event for investors and analysts, commencing
at 2.30 p.m. UK time on Thursday 30 January 2025. The event will be held at
the London Stock Exchange, 10 Paternoster Square, London, EC4M 7LS, and
hosted by Stewart Hall, CEO of PPHC, with representatives from some of the
Group's operating companies also in attendance.

 

The Capital Markets Event will present an update on the Group's growth
strategy, providing further insight into its service offerings and customer
base, and will also discuss the threats and opportunities for businesses in
the context of a new political environment for public affairs and
communications.

 

If you wish to attend the event in person, please
contact pphc@buchanan.uk.com (mailto:pphc@buchanan.uk.com) .

 

This announcement contains inside information under the UK Market Abuse
Regulation. The person responsible for arranging for the release of this
announcement on behalf of the Company is Roel Smits, CFO.

 

Enquiries

 

 Public Policy Holding Company, Inc.             +1 (202) 688 0020

 Stewart Hall, CEO

 Roel Smits, CFO

 Stifel (Nominated Adviser & Joint Broker)       +44 (0) 20 7710 7600

 Fred Walsh, Ben Good, Sarah Wong

 Zeus Capital (Joint Broker)                     +44 (0) 20 3829 5000

 David Foreman

 Canaccord Genuity (Joint Broker)                +44 (0) 20 7523 8000

 Simon Bridges, Andrew Potts

 Burson Buchanan (Media Enquiries)               +44 (0) 20 7466 5000

                                               pphc@buchanan.uk.com (mailto:pphc@buchanan.uk.com)
 Chris Lane, Toto Berger, Jesse McNab

 

About PPHC

 

Incorporated in 2014, PPHC is a US-based government relations and public
affairs group providing clients with a fully integrated and comprehensive
range of services including government and public relations, research, and
digital advocacy campaigns. Engaged by approximately 1,200 clients, including
companies, trade associations and non-governmental organisations, the Group is
active in all major sectors of the US economy, including healthcare and
pharmaceuticals, financial services, energy, technology, telecoms and
transportation. PPHC's services support clients to enhance and defend their
reputations, advance policy goals, manage regulatory risk, and engage with US
federal and state-level policy makers, stakeholders, media, and the public.

 

PPHC operates a holding company structure and currently has ten operating
entities in the US and UK. Operating in the strategic communications market,
the Group has a strong track record of organic and acquisitive growth, the
latter focused on enhancing its capabilities and to establish new verticals,
either within new geographies or new related offerings.

 

For more information, see www.pphcompany.com (http://www.pphcompany.com/) .

 

About TrailRunner International

 

TrailRunner International is a rapidly growing global strategic communications
advisory firm that provides crisis communications, financial communications,
litigation communications, and ongoing corporate communications support to the
world's top enterprises, institutions, and individuals. The firm also has a
strong and growing sports portfolio through its TrailRunner International
Sports business, providing strategic business advisory and communications
support to sports clients around the world. TrailRunner International is
headquartered in Dallas/Fort Worth with offices in New York, Nashville, Abu
Dhabi, Dubai, London, Shanghai, and Truckee.

 

TrailRunner's success is grounded in its strong culture which nurtures its
rich talent base, leading to high retention rates of both clients as well as
employees. Leadership talent includes Jim Wilkinson (Executive Chairman), Jim
Hughes (CEO), Zack Kozlak (Head of US), Sarah Grubbs (Chief Growth Officer),
Pat Shortridge (Head of Corporate and Public Affairs), Seth Hand (Head of
International), Kelly Wallace (Chief Media/Brand Officer), David Lee (Chief
Financial Officer), Georgia Walker (Managing Director, Head of London), Eric
Bormann (Managing Director, Head of Dallas/Fort Worth), Lauren DiGeronimo
(Managing Director, Head of Client Operations), Johanna Hoopes (Managing
Director, Head of Nashville), Teresa Henderson (Managing Director, Head of
Client Success), Trudy Wang (Managing Director, Head of Shanghai), and
Jennifer Potthoff (Chief Administrative Officer).

 

For more information, see www.TrailRunnerInt.com.
(https://www.trailrunnerint.com/)

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