9th Nov 2006 07:03
Lavendon Group PLC09 November 2006 9 November 2006 Lavendon Group plc Proposed Acquisition of the Gardemann Group Highlights: - Lavendon Group plc ("Lavendon" or the "Company" and, together with its subsidiaries, the "Group"), Europe's market leader in the rental of powered access equipment, announces the proposed acquisition of the Gardemann Group, Germany's third largest supplier of powered access rental equipment, for a total consideration of €46 million (£30.9 million) - The €46 million (£30.9 million) total consideration comprises €32.5 million (£21.8 million) in cash and the issue of 3,380,322 new ordinary shares in Lavendon (the "Consideration Shares"), representing 8.2 per cent. of the Company's enlarged issued share capital - Of the €32.5 million cash consideration (£21.8 million), €18.5 million (£12.4 million) is payable at Completion, €4.5 million (£3.0 million) is payable after 12 months and €9.5 million (£6.4 million) is payable after 24 months - Of the 3,380,322 Consideration Shares, 2,750,000 will be issued at Completion and 630,322 on 28 February 2007 - Gardemann is Germany's third largest supplier of powered access rental equipment, with a fleet of over 1,700 powered access units, a network of 23 depots and approximately 250 staff. The Gardemann Group generated revenue of €30.6 million, EBITDA of €10.3 million and operating profit of €5.2 million in the year ended 30 June 2006. Gardemann has a greater focus than Lavendon's existing German operation on the non-construction sector - The combination of Zooom, the Group's existing German operation, and Gardemann will: - create the clear market leader in the fragmented German powered access rental market; - strengthen the Group's position in the non-construction sectors of the German market and accordingly diversify Lavendon's German business; - improve the quality and quantity of revenues; and - generate opportunities for operational efficiencies from a rationalisation of the combined depot networks - Following the rationalisation of the depot networks, it is expected that a reduction in the overall annual cost base of the Enlarged Group of approximately €3.5 million will be achieved over time with related one-off costs of approximately €3.5 million - The Directors expect the Acquisition to be earnings enhancing in the year ending 31 December 2007 and thereafter - In view of its size, the Acquisition is conditional upon the approval of Shareholders, which will be sought at an Extraordinary General Meeting of the Company. A circular containing details of the Acquisition and convening the Extraordinary General Meeting will be sent to Shareholders shortly - Current trading for the Group has remained robust and in line with the Board's expectations. The Group has continued to deliver revenue improvement over 2005, with all markets contributing to this progress. In particular, the Group's German operation has continued to grow its revenues, to the extent that the three per cent. revenue decline reported for the first half of 2006 has been fully reversed and revenue growth for the year to date over 2005 is now being achieved Commenting on the Acquisition, Kevin Appleton, Chief Executive, said: "The acquisition of the Gardemann Group will transform our business in Germanyand create a position of clear market leadership at a time when activity levelsin the German market are improving for the first time since the market downturn.The strategic and commercial case for combining Zooom and Gardemann iscompelling and we look forward to building a strong operating base for futuregrowth." This summary should be read in conjunction with the full text of theannouncement. Unless stated otherwise in this announcement, the exchange rate of GBP1:€1.49prevailing at the close of business on 8 November 2006 has been used in thisannouncement. For further information please contact: Lavendon Group plcKevin Appleton, Chief Executive 01455 558874Alan Merrell, Group Finance Director Dresdner Kleinwort 020 7623 8000James Rudd, Director Weber Shandwick Square MileTerry Garrett / Nick Dibden 020 7067 0700 Information on Lavendon Lavendon Group is Europe's market leader in the rental of powered accessequipment. Powered access provides a high degree of flexibility, therebyreducing labour costs and saving both time and money. The equipment is quick,safe, convenient and highly manoeuvrable. Consequently, it is now used toprovide temporary aerial access in a variety of applications and is fastbecoming the preferred option when compared to traditional access methods suchas scaffolding, ladders and aluminium towers. It is also ideal for a wide rangeof other applications including industrial and building maintenance,construction, sign erection, outside broadcasting, telecommunications, treesurgery and highway maintenance. Dresdner Kleinwort Limited, which is authorised and regulated by the FinancialServices Authority, is acting exclusively for Lavendon Group plc and no one elsein connection with the Acquisition and will not be responsible to anyone otherthan Lavendon Group plc for providing the protections afforded to customers ofDresdner Kleinwort Limited or for affording advice in relation to theAcquisition or any matters referred to in this announcement. Words and expressions used in this announcement shall have the same meaning asdefined in Appendix I to this announcement. Lavendon Group plc Proposed Acquisition of the Gardemann Group 1. Introduction Lavendon Group plc ("Lavendon" or the "Company" or the "Group"), Europe's marketleader in the rental of powered access equipment, announces the proposedacquisition (the "Acquisition") of the Gardemann Group, Germany's third largestsupplier of powered access rental equipment, for a total consideration of €46million (£30.9 million), to be satisfied as to €32.5 million (£21.8 million) incash and by the issue of 3,380,322 Consideration Shares (based on the averageclosing Lavendon share price for the five business days ended 7 November 2006 of267.8 pence per share). On Completion, Lavendon will pay the Sellers €18.5million (£12.4 million) in cash and issue them 2,750,000 Initial ConsiderationShares. On 28 February 2007 Lavendon will issue the Sellers 630,322 DeferredConsideration Shares. On the first and second anniversary of Completion,Lavendon will pay deferred cash consideration of €4.5 million (£3.0 million) and€9.5 million (£6.4 million) respectively. In view of its size, the Acquisition constitutes a Class 1 transaction for thepurposes of the Listing Rules. Completion is therefore conditional upon theapproval of Shareholders, which will be sought at an Extraordinary GeneralMeeting of the Company. A circular containing details of the Acquisition andconvening the Extraordinary General Meeting will be sent to Shareholdersshortly. 2. Background to and reasons for the Acquisition Since 2001, the performance of Zooom, the Group's existing German operation, hasbeen significantly affected by the severe downturn in the German economy,particularly in the new build construction sector which formed the basis of theGroup's entry and investment in the German powered access rental market, and forwhich Zooom's fleet was historically configured. This reduced level of activityresulted in an oversupply of powered access rental equipment in the Germanmarket which led to significant pressure on hire rates. Following a detailedreview of the Group's operations in Germany and Austria, the Group implemented amajor restructuring programme at the end of 2004 and the beginning of 2005 withthe aim of reducing the overall scale and cost of the business and bringing itmore in line with market demand. This restructuring programme resulted in thesale of the Group's Austrian operation, the closure of 45 per cent. of Zooom'sdepot network in Germany and a 25 per cent. reduction in its fleet and staffnumbers. Whilst the restructuring led to a significant decrease in Zooom'srevenues, the reduced cost base and improved service levels enabled operatinglosses to be reduced to £3.1 million in 2005 (2004: loss of £3.4 million) and to£2.1 million for the first half of 2006 (2005: loss of £2.4 million). The Directors believe that the extended period of declining demand in the Germanpowered access market is now coming to an end, as activity levels begin torecover and the demand and supply imbalance undergoes a process of correction.Towards the end of the first half of 2006, Zooom began to experience year onyear revenue growth on a weekly basis for the first time since the marketdownturn. This revenue growth is being driven by increased activity levels whichshould, if sustained, ultimately enable hire rates to be improved. Against thisbackground of improving market conditions, the acquisition of the GardemannGroup represents an attractive opportunity for Lavendon to accelerate therecovery in financial performance of the Group's German operation. In particular, the acquisition of the Gardemann Group will increase the Group'sshare of the highly fragmented German powered access market from its currentlevel of circa 11 per cent. to circa 18 per cent. thereby establishing aposition of clear market leadership for the Enlarged Group in Germany. Incontrast to Zooom's financial performance in recent years, the Gardemann Grouphas maintained its revenues and improved its EBITDA (earnings before interest,investment income, tax, depreciation and amortisation) and operating marginsduring this period. This superior financial performance has been the result ofGardemann's greater focus on non-construction sectors which declined at a muchslower rate during the downturn than the new build construction sector which wasZooom's principal area of focus. Gardemann's large fleet of truck mountedplatforms, which accounted for some 48 per cent. of Gardemann Group's hirerevenue in the year ended 30 June 2006, reflects this focus on thenon-construction sector. In contrast, Zooom's truck mounted platforms accountedfor 18 per cent. of Zooom's hire revenue for the year ended 31 December 2005.This difference in revenue mix has been the key contributory factor toGardemann's superior financial performance. The combination of Gardemann and Zooom will enable the Group to improve thequality and quantity of revenues and provide opportunities for an increase inthe operational efficiency of the Group's German operation. The improvedrevenues are expected to be generated by a greater combined share of the overallGerman market and increased utilisation levels of the combined fleets throughexpanded sales channels. The Directors believe that there is considerable scopefor operational efficiencies in the combined Gardemann-Zooom business to bederived through the creation of larger scale depots from a rationalisation ofthe existing depot networks. The progressive rationalisation of the depotnetworks into larger depots will provide improved sales focus, improvedavailability of machines through the concentration of engineering expertise,greater transport flexibility and efficiencies, lower property, IT andadministration unit costs and increased overall management focus. The benefitsof operating a larger scale, combined operation will be achieved without anyaddition to the entire market fleet capacity in Germany or reduction in marketcoverage, and will provide a strong operating platform from which to maximisethe opportunities that should arise from a recovery in the German economy. The senior management team of Gardemann will remain in place following theAcquisition, with the exception of Christian van Eeden, one of the Sellers andcurrently Joint Managing Director of Gardemann, who will become a consultant tothe business. Maarten Mijnlieff, who is also currently Joint Managing Directorof Gardemann and is the other Seller, will be Managing Director of the Group'senlarged German operation following Completion. 3. Information on the Gardemann Group Gardemann is Germany's third largest supplier of powered access rentalequipment, with a fleet of over 1,700 powered access units, a network of 23depots and approximately 250 staff. The business is headquartered in Alpen,Germany (some 60 kilometres north-west of Dusseldorf), where the centralmanagement team, national call centre, fleet repair, finance, marketing, humanresources and IT support operations are based. Gardemann entered the powered access rental market in the early 1970s and wasacquired by Brambles Holding Deutschland GmbH in 1997 as a platform forexpansion into the German rental market. In August 2002, the current ownersacquired 85 per cent. of the equity of the business from Brambles HoldingDeutschland GmbH by way of a management buy-in, and the remaining 15 per cent.of the equity was acquired in September 2004. Gardemann operates a rental fleet of self-propelling scissor lifts(approximately 53 per cent. of the total fleet), boom lifts (23 per cent. of thetotal fleet), truck mounted platforms (19 per cent. of the total fleet), andtrailer and other units (5 per cent. of the total fleet). The average age ofGardemann's fleet is 9.6 years which compares with 5.9 years for the Zooomfleet. Financial performance 2004 2005 2006Year ended 30 June •'000 •'000 •'000 Revenue 29,027 29,955 30,559EBITDA 9,125 9,396 10,281EBITDA margin % 31.4% 31.4% 33.6%Operating profit 3,791 4,284 5,214Operating margin % 13.1% 14.3% 17.1%Profit before tax 1,760 5,397 4,853Profit after tax 935 3,288 2,982 Cash generated from operations 9,322 8,285 9,795Net debt 10,504 7,511 2,818Gross assets 39,586 35,533 36,326Net assets 9,790 13,003 15,985 Over the past three years the Gardemann Group has shown revenue growth of fiveper cent. which, with a concentration on revenue quality and cost control, hasenabled the Gardemann Group's EBITDA and operating profit, together with theirrespective margins, to grow over the period. This level of profitability hasgenerated significant cash flows which, when combined with modest capitalexpenditure requirements, have enabled the Gardemann Group's debt levels to bereduced considerably over the three year period. The Gardemann Group generatedan EBITDA margin of 33.6 per cent. for its financial year ended 30 June 2006.This compares favourably with the EBITDA margins generated by Zooom of 13.9 percent. and 9.2 per cent. for the two years ended 31 December 2005, respectively. 4. Principal terms of the Acquisition The Acquisition Agreement provides that the aggregate consideration payable is€46 million, subject to any adjustment required to reflect the Gardemann Group'snet indebtedness as at Completion. On Completion, Lavendon will pay the Sellers €18.5 million in cash and issue2,750,000 Initial Consideration Shares. On 28 February 2007 Lavendon will issue630,322 Deferred Consideration Shares. On the first anniversary of Completion,Lavendon will pay deferred consideration of €4.5 million in cash. On the secondanniversary of Completion, a further €9.5 million of deferred consideration incash will also be paid. The payment due on the first anniversary of Completion accrues interest from thedate of the Acquisition Agreement at an annual rate of five per cent. A trancheof the payment due on the second anniversary of Completion amounting to €5.0million, is guaranteed by Bank of Scotland and accrues an annual rate ofinterest of three and a half per cent. from the date of the AcquisitionAgreement. The balance of the payment due on the second anniversary ofCompletion, €4.5 million, accrues interest at an annual rate of five per cent.from the date of the Acquisition Agreement. All interest shall be payable to theSellers quarterly. The cash consideration will be funded from increased bank facilities of £97million that the Group has negotiated with its principal bankers. As part of theAcquisition, Lavendon will assume the Gardemann Group's net debt which isestimated to be €3.9 million at Completion. The cash consideration is subject to a net debt adjustment on a euro-for-eurobasis whereby the amount payable shall be increased or decreased to the extentthat Gardemann's net debt is less than or greater than €3.9 million. Each of the Sellers has entered into a lock-up in relation to the ConsiderationShares for a period of 24 months from Completion. Up to 25 per cent. of theConsideration Shares may be sold in the period falling between six and 12 monthsafter Completion, and a further tranche of 25 per cent. of the ConsiderationShares may be sold in each of the periods falling between 12 and 18 months, andbetween 18 months and 24 months after Completion, in each case together with anyunsold Consideration Shares from the previous tranches. The usual exceptions inrelation to acceptance of general offers and acceptance of an offer by theCompany to purchase its own shares apply. Arrangements are in place to ensurethat any sale of the Consideration Shares during the lock-up period is effectedin consultation with the Company with a view to facilitating an orderly market. The Consideration Shares, when issued, will be in registered form and will rankpari passu in all respects with existing Ordinary Shares in issue. The Group's increased bank facilities are repayable by 30 June 2009. A margin ofbetween 100 and 175 basis points over LIBOR or EURIBOR (as applicable) ispayable on the facility dependent upon the level of interest cover of theEnlarged Group. There are a number of events of default in relation to thefacility that are customary for an agreement of this nature. The increased bankfacilities are in place and the appropriate amounts are available for draw downin euros in order to complete the Acquisition. 5. Financial effects of the Acquisition The Acquisition is expected to be earnings enhancing for the Enlarged Group,before exceptional costs associated with the Acquisition, for the financial yearending 31 December 2007 and thereafter. Following the rationalisation of thedepot networks, it is expected that a reduction in the overall annual cost baseof the Enlarged Group of approximately €3.5 million will be achieved over timewith related one-off costs of approximately €3.5 million. It is the intention,post acquisition, to accelerate the investment in the Group's German rentalfleet by €13.5 million over a three year period above previously planned levels,in order to reduce the average age of the overall fleet. Nothing in this announcement should be interpreted to mean that the earnings ofLavendon for the current year or future years will necessarily match or exceedthe historical or published earnings of Lavendon. 6. Listings, dealings and settlement of the Initial Consideration Shares Application will be made to the UK Listing Authority for the InitialConsideration Shares to be admitted to the Official List and to the London StockExchange for the Initial Consideration Shares to be admitted to trading on theLondon Stock Exchange's market for listed securities. 7. Current trading and prospects On 5 September 2006 Lavendon issued the following update on current trading andprospects as part of the Group's interim results for the six months ended 30June 2006: "The financial performance of the Group continues its improving trend,established in 2005, with revenues increasing and operating margins growing. Thepace and scale of the improvement is being enhanced by the success of thebusinesses that were acquired during the first half of the year, and which haveproduced immediate financial benefits for the Group. The Group is now several months into the first phase of strategic growth, basedon market consolidation in our main markets and selective organic growth inthose markets where the addition of capacity is unlikely to contribute to adeterioration of market conditions. The first six months of 2006 have givenencouragement in respect of both the deliverability and effectiveness of thisstrategy and we believe there is considerable scope for further improvement inthe business performance. Trading since the half-year end has continued its improving trend and we lookforward to being able to report further progress for the year." Since this announcement, current trading has remained robust and in line withthe Board's expectations. The Group has continued to deliver revenue improvementover 2005, with all markets contributing to this progress. In particular, theGroup's German operation has continued to grow its revenues, to the extent thatthe three per cent. revenue decline reported for the first half of 2006 has beenfully reversed and revenue growth for the year to date over 2005 is now beingachieved. This continued growth in revenues has enabled further progress to bemade in reducing the operating losses incurred by the German operation. Giventhe further benefits of the Acquisition outlined in paragraphs 3 and 5 above,Lavendon is confident of the trading prospects of the Enlarged Group. Appendix I Definitions The following definitions apply throughout this announcement unless the contextrequires otherwise: Acquisition the proposed acquisition by Lavendon of the Gardemann Group pursuant to the Acquisition Agreement Acquisition the agreement relating to the acquisition by Lavendon of theAgreement Gardemann Group dated 8 November 2006 Admission admission of the Initial Consideration Shares to the Official List and to trading on the London Stock Exchange's market for listed securities, becoming effective in accordance with respectively, the Listing Rules and the Admission and Disclosure Standards Admission and the requirements contained in the publication "Admission andDisclosure Disclosure Standards" dated July 2005 containing, amongst otherStandards things, the admission requirements to be observed by companies seeking admission to trading on the London Stock Exchange's main market for listed securities Board or the board of directors of LavendonDirectors Completion the completion of the Acquisition in accordance with the Acquisition Agreement Consideration the total of the Initial Consideration Shares and the DeferredShares Consideration Shares Deferred the 630,322 new Ordinary Shares proposed to be issued pursuant Consideration to the Acquisition Agreement on 28 February 2007Shares Dresdner Dresdner Kleinwort LimitedKleinwort EBITDA earnings before interest, investment income, tax, depreciation and amortisation EBITDA EBITDA divided by revenuemargin Enlarged the Group as enlarged by the acquisition of the Gardemann GroupGroup Extraordinary the extraordinary general meeting of the CompanyGeneralMeeting Financial the Financial Services Authority of the UK in its capacity as theService competent authority for the purposes of Part VI of FSMA and inAuthority or the exercise of its functions in respect of admission to theFSA Official List otherwise than in accordance with Part VI of FSMA FSMA the Financial Services and Markets Act 2000 and all regulations promulgated thereunder as amended from time to time Gardemann Gardemann Arbeitsbuhnen GmbH & Co. KG, a subsidiary of MVE and the operating entity of the Gardemann Group Gardemann MVE and its wholly owned subsidiaries Gardemann Access HoldingsGroup GmbH, Gardemann Arbeitsbuhnen GmbH & Co KG and Gardemann Verwaltungs GmbH Gross assets non-current assets plus current assets Initial the 2,750,000 new Ordinary Shares proposed to be issued pursuantConsideration to the Acquisition Agreement on CompletionShares Lavendon or Lavendon Group plcthe Company Lavendon Group Lavendon and its subsidiary undertakings (as defined in the Act)or the Group Listing the listing rules made by the Financial Services Authority inRules exercise of its functions as competent authority pursuant to Part VI of the FSMA MVE MVE Management GmbH Net debt current financial liabilities plus non-current financial liabilities less cash and cash equivalents less short term money market instruments Official the Official List of the Financial Services AuthorityList Operating operating profit divided by revenuemargin Ordinary the ordinary shares of 1 pence each in the capital of LavendonShares Purchaser or Zooom (Deutschland) GmbH, a wholly owned subsidiary of LavendonZooom Sellers Mr Christian van Eeden and Mr Maarten Mijnlieff Shareholders the holders of Ordinary Shares UKLA the UK Listing Authority Dresdner Kleinwort Limited, which is authorised and regulated by the FinancialServices Authority, is acting exclusively for Lavendon Group plc and no one elsein connection with the Acquisition and will not be responsible to anyone otherthan Lavendon Group plc for providing the protections afforded to customers ofDresdner Kleinwort Limited or for affording advice in relation to theAcquisition or any matters referred to in this announcement. 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