Acquisition of Colt Holdings Limited

19 May 2016

Augean plc

("Augean" or "the Group")

Acquisition of Colt Holdings Limited

Augean, one of the UK's leading specialist waste management businesses, is pleased to announce that it has acquired the entire issued share capital of specialist industrial services provider, Colt Holdings Limited and its wholly owned subsidiary, Colt Industrial Services Limited (together "Colt") (the "Acquisition").

Highlights

· Initial consideration of £9.2 million, net of £4.5 million of cash acquired, as adjusted for a normalised level of working capital, with the business acquired free of borrowings;

· Additional potential earn-out based payments of up to £4.75 million, subject to Colt securing certain contracts;

· Audited revenue and EBITDA of Colt for the year ended 31 December 2015, on a proforma(*) basis, were c. £7.1 million and c. £1.4 million, respectively;

· Colt to enhance Augean's Industry & Infrastructure business unit, adding UK-wide industrial services coverage and complementing the Group's existing service, treatment and disposal infrastructure;

· Acquisition funded from existing debt facilities and is expected to be immediately earnings enhancing.

Background to and rationale for the Acquisition

The Group established its core strategy at the start of 2014, with a focus on growing shareholder value by developing sustainable market positions through:

· Building competitive advantage by working with customers to provide innovative solutions, to deliver specialist services focused on hazardous waste;

· Driving further profitable growth and returns by increasing the proportion of Group revenues derived from service offerings to our hazardous waste customers; and

· Improving the forward visibility of revenue by progressively moving more of the Group's revenues from 'spot' or short-term contracts to long-term contracts and frameworks.

The progressive improvements in the Group's financial performance over the last two years demonstrate the traction of this growth strategy that has been achieved organically. The Group has previously indicated its intention to accelerate the delivery of this strategy by acquiring businesses that provide clear operational and market synergies in its key market sectors, with the undertaking that any such investments, whether organic or through acquisition, grow the asset base of the Group and provide superior returns for shareholders.

Profile and strategic fit of Colt

Based in Hull and established over 25 years ago, Colt provides a broad range of industrial services, which complement Augean's existing service offering, to a range of customers including major industrial companies, oil refineries, rail and utilities. These activities include, inter alia:

· Specialist tank cleaning and high pressure jetting;

· Hydro abrasive cutting;

· Asbestos removal; and

· Waste management and tanker haulage.

Through its Industry & Infrastructure and Augean North Sea Services business units, Augean has significant waste treatment and disposal infrastructure alongside a growing capacity for delivering client site industrial services. The Acquisition of Colt is in line with the Group's strategy and enhances its offering with:

· UK-wide coverage of specialist industrial services that complement and expand the Group's existing service, treatment and disposal infrastructure;

· Customer relationships, typically framework agreements, with top-tier companies that have a requirement for hazardous waste disposal, providing opportunities for cross-selling of the Group's broader offerings;

· Expertise as an acknowledged leader and innovator in the specialist technical aspects of industrial cleaning, such as tank and heat exchanger cleaning;

· A fleet of specialist vehicles and equipment that are incremental and complementary to that currently operated by the Group; and

· Opportunities for synergies to be realised from cross-selling, waste disposal and deployment of the fleet across the enlarged Group.

Financial terms

Colt has been acquired for an initial cash consideration of £9.2 million, net of £4.5 million of cash acquired, as adjusted for a normalised level of working capital, and with no borrowings. This was funded through the Group's existing borrowing facilities, following the renewal and refinancing of its bank facilities in March 2016.

Further consideration, of up to a maximum of £3.75 million, may become payable by October 2017, along with further consideration of up to £1 million, payable by October 2018, subject to Colt securing specific additional contracts in the coming months. Those contracts would be of significant value to the enlarged Group should they be secured. Any such further consideration payments would be funded through the Group's borrowing facilities.

The Acquisition is expected to be immediately accretive to earnings per share.

The audited revenue and profit before tax of Colt, on a proforma(*) basis, were c. £7.1 million and c. £1.1 million, respectively, for the year ended 31 December 2015. The EBITDA of Colt, on the same basis, was c. £1.4 million.

The book value of the net assets of Colt, on a proforma(*) basis, was c. £7.0 million as at 31 December 2015.

As part of the Acquisition, all 75 Colt employees will be transferred to the Group, including certain key executives, who will remain in the business under service agreements.

(*) Proforma figures provided for the Colt Holdings Limited Group are for the businesses and assets being acquired and exclude certain elements of that group not acquired by Augean. 

Dr Stewart Davies, Chief Executive Officer, commented:

"We are delighted to announce the acquisition of Colt as we continue to strengthen Augean's position in the UK hazardous waste management market. The acquisition is immediately earnings enhancing and creates synergies with our existing service offering, enabling the Group to address a wider breadth and depth of client needs and adding new top-tier clients. It also accelerates our strategy to grow shareholder value by developing sustainable market positions and providing customers with innovative solutions."

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More information is available on our website www.augeanplc.com