19th Dec 2007 07:30
Glen Group PLC19 December 2007 Glen Group Plc Date 19 December 2007 Proposed Sale of IT Consulting and Training Business Glen Group plc ("Glen" or "the Company") announced today that it has enteredinto a conditional agreement ("the agreement") relating to the sale of thebusiness and assets of its wholly owned subsidiaries, Eclectic Group Limited("Eclectic") and I G Software Limited ("inGroup") for the sum of up to £3.00mpayable in cash ("the Sale"). The agreement, which is subject to Glenshareholder consent and final approval from the purchaser's bankers, is withMaxima Information Group Limited, a wholly owned subsidiary of Maxima Holdingsplc ("Maxima"), an AIM listed IT solutions and managed services company. It isunderstood that Maxima intends funding the purchase from operational cash flowsand existing facilities with their bankers. The maximum sale price represents avalue per issued Ordinary Share of 0.272p, which equates to a premium of 101.5%compared to the closing middle market price on 18 December 2007 of 0.135p, whichvalued the entire Glen group, including the businesses not being sold, at £1.6m. Commenting today Graham J Duncan Chief Executive Officer said: "This transaction will provide us with the funds to allow us to make further inroads into the market we know best and to also build the Group by acquiringcommunications and IT solutions businesses which address the SME market. In thecurrent economic climate and as a consequence of the proposed changes to thecapital gains tax rules, we are ideally placed, with our strengthened balancesheet, to achieve this" Enquiries: Glen Group plcGraham J Duncan, Chief Executive Officer Tel: 0845 119 2100 Jonathan WrightSeymour Pierce Tel: 020 7107 8000 Pelham PRAlex Walters Tel: 020 3170 7435 Background Glen provides a range of communications and IT solutions to business customers.It addresses market needs through two principal subsidiary groups of companies,namely the Pinnacle group of companies which is focused on integratedcommunication solutions for SMEs; and Eclectic, including inGroup, whichprovides a range of IT consulting and training services focused on theimplementation of business intelligence and corporate performance managementsolutions, mainly to corporate and middle market companies. These two businessesoperate independently of each other and, because of the very different marketsthat they address, there are limited opportunities to cross sell each other'sservices. The Company acquired Eclectic in February 2006 and inGroup in August 2007 for acombined adjusted consideration of £3.4m. Since the acquisition of Eclectic,Glen has benefitted from income of£500k from this business in respect ofmanagement fees earned in the ordinary course of business. Shortly after theacquisition of inGroup, Eclectic also received a dividend paid by inGroup of£275k. Following the acquisition of Pinnacle Group Limited in June 2007, the Glen grouphas been focused on delivering telecommunications related solutions to SMEswhich are capable of generating recurring revenue streams. Eclectic and inGroupare project based businesses, which are IT-centric and do not fit thesecriteria.In the fast changing telecommunications market, your Board sees opportunities tointroduce new services and solutions to Pinnacle customers, based on IPtechnologies, as well as continuing to expand the more traditionaltelecommunications business and now seeks to focus on this opportunity. The Proposed Transaction The proposed transaction will take the form of a sale of the assets andundertaking of the businesses of Eclectic and inGroup, including its people,supply agreements, customer contracts, the Eclectic and inGroup names and otherrelated data, with effect as at close of business on 31 December 2007 ("theTransfer Date"). The Company will guarantee the obligations of Eclectic andinGroup under the agreement. The consideration will be payable in cash as follows: 1. At completion of the Sale on 4 January 2008, the sum of £2.25m; 2. On 17 March 2008, an additional sum of up to £750k, calculated by reference to the value of a specified list of customers and customer contracts which have transferred to Maxima, adjusted for deferred income, pre-payments and costs accrued prior to transfer of the trade and assets; this payment may also be reduced if less than 90% by value of Eclectic's significant clients have not agreed to contract novations or indicated their willingness to continue trading with Maxima. The Directors have received confirmation that, following the Sale, the Companywill not be classed as an investing company under the AIM rules but willcontinue to be treated as an operating company. Financial Statements The financial statements of Eclectic for the year ended 30 September 2007 andinGroup for the nine month period ended 30 September 2007 have not yet beenaudited and the Group is not expected to issue its preliminary announcement ofthe results to 30 September 2007 until February 2008. For the 14 month period ended 30 September 2006, the latest period where auditedaccounts are available, Eclectic generated revenues of £5.03 million andreported an operating profit, adjusted for intra group charges, of £0.35million. For the 12 month period ended 31 December 2006, the latest period whereaudited accounts are available, inGroup generated revenues of £1.45 million andreported an operating loss of £102k. In the half-year unaudited results of Glenfor the six month period ended 31 March 2007 it was reported that Eclectic hadgenerated revenues of £2.51 million and an operating profit of £0.19 millionover the six month period. On the acquisition of inGroup, announced on 9 August2007, it was reported that the unaudited management accounts showed that inGrouphad delivered revenues of £0.70 million and an operating profit of £74k over thesix month period to 30 June 2007.The Retained Business Following completion of the Sale, Glen's trading operations will be materiallyreduced in size. After completion of the Sale, Glen Group will consist of four operatingcompanies ("the retained businesses") all addressing the SME market. These are: •Pinnacle Telecom plc which provides line rental and calls, utilising its own in-house billing system; •Pinnacle Mobile Limited which provides a range of mobile voice and data services; •Glen Communications Limited, which principally provides voice-based broadband services, more commonly known as VoIP; and •Explore IT Limited, which provides IT support services to the SME market Following a strategic review of our SME focused businesses conducted after theacquisition of Pinnacle Group in June this year, we have put in place a numberof fundamental changes to our business operations which allow us to concentrateour efforts on services that generate recurring income. IT project work, whichwe have traditionally undertaken by utilising a direct sales force and our ownengineers, has been terminated. Our historically wide portfolio of services hasbeen significantly reduced and there has been a significant reduction in staff. Our customer acquisition strategy is now focused on generating customers to ourtelecom solutions business where we package line rental and calls for businesscustomers. This service is at the core of the Pinnacle business and the strategygoing forward is to cross sell our other services into this customer base. Ourcustomer acquisition strategy is being driven by the use of an offshore callcentre under the control of an experienced consultant with several years ofsuccess in this area. The use of an offshore call centre is a recent activityand it is currently in a trial phase. However, early results are encouraging andwe fully expect to upscale this activity in the New Year. These changes are designed to a) significantly lower our costs, b) deliverservices and cross selling opportunities into business areas which we perceiveto be the fastest growing in the integrated communications space, c) deliverregular recurring income to our business and d) provide a much more focusedapproach to the marketplace. As part of this proposed transaction, Pinnacle has signed a letter ofunderstanding with Maxima which gives Pinnacle the opportunity to jointlypromote, alongside Maxima, a range of telecommunication services to Maxima groupcustomers. Use of Proceeds As well as being used for general trading expansion, working capital and theelimination of bank debt, Glen expects to use some of the proceeds of the Saleto acquire other communications and IT solutions businesses which address theSME market, and your Board is actively engaged in seeking suitableopportunities. The Directors are of the opinion that the climate for cash-based acquisitions islikely to be positive in the first half of 2008, helped by proposed changes tothe capital gains tax rules. The proposed Sale will give the Directors a pool ofcash which can be applied towards acquisitions allowing the Directors to movequickly when opportunities arise. Eclectic will pass £250,000 of the proceeds of the Sale as a bonus to bedistributed to an Eclectic director and certain Eclectic staff, none of whom isa director of Glen. This payment will be made in full at completion of the Sale.This element of the transaction does, however, fall under the related partyprovisions contained in Rule 13 of the AIM Rules. Having consulted with SeymourPierce Limited, Glen's nominated adviser, the directors consider that the termsof the bonus arrangements are fair and reasonable insofar as Shareholders areconcerned.Extraordinary Meeting An an Extraordinary General Meeting of the Company ("EGM") will be held at10.30am on 4 January 2008 at the offices of the Company, 6 Straiton View,Straiton Business Parc, Loanhead, Edinburgh EH20 9QZ. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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