Proposed Acquisition of Assets of SubZero Group

11 August 2016

Management Resource Solution Plc

("MRS" or the "Company")

Proposed Acquisition of Assets of SubZero Group Limited ("SZG")

MRS is pleased to announce that it has entered into an exclusive agreement to acquire the core assets of the SubZero Group Limited (the "Acquisition") for a total consideration of A$6.12 million.

Highlights

· Conditional Asset Sale Agreement ("ASA") on exclusive terms through until 30 September 2016 for total consideration of A$6.12 million, subject to certain key conditions being satisfied. Comprising:

· cash payment of A$1 million on settlement,

· A$500,000 payable in cash 12 months after the date of completion,

· the issue of approximately 7.2 million new ordinary shares of 0.01 each ("Ordinary Shares") at a price of 12.75p per share ("the Consideration Shares"), and

· the assumption of approximately A$2.85 million of equipment finance liabilities and employee benefits.

· The acquisition is consistent with the growth strategy set out at the time of the Company's admission to the AIM Market i.e. to strategically expand the MRS group.

· SZG fits within MRS' existing core offerings of Project Management, Labour Hire, Wet and Dry Hire and Maintenance.

· The assets being acquired from SZG have pro-forma annual revenues to 30 June 2016 of approximately A$40 million.

· SZG's business significantly increases MRS' revenue and asset base and should contribute to profitability in the short term. 

· The deal is value accretive, with an EV / EBITDA multiple of 2.0x - 3.0x.

· Pro forma 30 June 2016FY revenues of the combined MRS, Bachmann and SZG target assets are approximately A$80 million.

· Acquisition to be financed using existing bank credit lines including a A$4.2 million credit offer from Westpac Banking Corporation, subject to certain conditions.

· The Directors believe the rationale for the acquisition are:

o Synergistic cost savings: reduction in costs via consolidation of operating sites, removal of corporate overheads and the integration of back office functions. 

o Macroeconomic commodity price recovery: recent increases in the thermal coal price, underpinning a recovery in underlying demand for services in the Hunter Valley area.

o Enhances MRS offering across the value chain: the Acquisition is complimentary to MRS' existing business and enhances the Groups ability to provide full turnkey solutions to existing and new clients.

Paul Morffew, MRS CEO said:

"I am very pleased to announce this acquisition; executing on our growth strategy as set out at the time of MRS' admission to AIM. The acquisition is highly value accretive and, upon integration, will enable synergies for the Company that complement our existing skillset and specialism in support services. The MRS board believes this is a good deal for shareholders, using our cash resources and equity efficiently in order to provide exposure to the improving macroeconomic climate in the Hunter Valley coal industry, and enabling us to provide a better service to our top-tier customer base. With this acquisition we will work towards being the leading Hunter Valley heavy industry maintenance provider."

Acquisition of Assets from SubZero Group Limited

Background to the Acquisition

SZG is a mining services business based in the Hunter Valley, New South Wales, providing structural, mechanical, and support services to various clients including top tier coal mining companies Rio Tinto, BHP Billiton and Glencore. SZG fits within MRS' existing core offerings of Project Management, Labour Hire, Wet and Dry Hire and Maintenance. The SZG businesses being acquired by MRS are summarised below:

Structural

· Repair and refurbishment of truck bodies, dragline buckets and excavator buckets

· Field services; 24/7 on-site mining asset support services

· Line boring and Industrial cleaning capabilities

Mechanical

· Heavy vehicle maintenance, repairs and rebuilds

· Light vehicle servicing and fit outs

Support Services

· Road construction and maintenance

· Mine rehabilitation and earthmoving

· General support services

SubZero's offsite services are provided from large, purpose built facilities located in close proximity to major customers, enabling the maintenance of large equipment fleets to be provided very competitively.

As a result of, amongst other things, the downturn in the thermal coal market which began in 2011, combined with embedded cost inflation and an over leveraged balance sheet, SZG was unable to continue trading and consequently went into Administration and Receivership in February 2016, presenting an opportunity for MRS.

Impact on the Company

Significant synergies and cost savings are immediately available to MRS, including the consolidation of operating sites, the removal of corporate overheads and the integration of back office functions. The MRS Directors believe that the enlarged business has potential for significant growth, with the transaction timing aligning with recent increases in the thermal coal price, underpinning a recovery in underlying demand for services in the area.

The acquisition of SZG's business significantly increases MRS' revenue and asset base and should contribute to profitability in the short term. Whilst this is counterbalanced by an increase in group debt and dilution to existing shareholders' interests, the Directors believe that the net effect will be positive for the Company and its shareholders as a whole.

Financial Performance

The assets being acquired from SZG by MRS had a carrying value of A$9.5 million in SZG's audited accounts for the year ended 30 June 2015 and have a pro-forma 30 June FY2016 revenue of A$40 million for FY2016.

Pro forma 2016FY revenues of the combined MRS, Bachmann and SZG target assets is in the order of A$80m. The transaction is value accretive, with an EV / EBITDA multiple of 2.0x - 3.0x. 

Terms of the Acquisition

The consideration for the acquisition is A$6.12 million, comprising:

· cash payment of A$1 million on settlement,

· A$500,000 payable in cash 12 months after the date of completion,

· the issue of approximately 7.2 million new Ordinary Shares at a price of 12.75p per share ("the Consideration Shares"), and

· the assumption of approximately A$2.7 million of equipment finance liabilities and employee benefits.

Completion of the Acquisition is anticipated to take place on or around 30 September 2016 and the final number of Consideration Shares will be determined by reference to a number of variables to be determined 15 business days after execution of the ASA. 

The Acquisition is subject to a number of conditions including:

· financing;

· assignment and/or novation of existing SubZero customer contracts to MRS; and

· renegotiation and/or assignment of property leases on commercial terms.

Shareholder approval is not required by either MRS or SZG.

Financing the Acquisition

MRS has received an offer of finance of A$4.2 million from Westpac Banking Corporation, subject to certain conditions including the availability of up to A$4 million of additional funding from other sources, to assist with the refinance of SubZero plant and equipment, which in addition to its existing bank credit lines will be used to partially fund the acquisition of SZG. Additional funding to enable the completion of the Acquisition and to provide the Company with additional working capital may be sourced from debt or additional equity financing between the execution of the ASA and completion.

Application will be made for the new Ordinary Shares being issued pursuant to the Acquisition and any related equity fundraisings to be admitted to trading on AIM ("Admission") and further details of the number of shares to be issued and the proposed date of Admission will be announced in due course.

All references above to "A$" refers to Australian Dollars.

This announcement contains inside information for the purposes of Article 7 of Regulation 596/2014.

For further information:

Management Resource Solutions PLC c/o FTI +44 (0)20 3727 1000

Paul Morffew, Chief Executive

Timothy Jones, Finance Director

Northland Capital Partners Limited +44 (0)203 861 6625

(Nominated Adviser and Joint Broker)

William Vandyk

David Hignell

Peterhouse Corporate Finance Limited +44 (0)20 7469 0932

(Joint Broker)

Charles Goodfellow

Lucy Williams

FTI Consulting +44 (0)20 3727 1000

Edward Westropp

Adam Cubbage

About MRS

MRS provides project, quality, environmental and health & safety management services to some of the largest companies and projects across Australia, Oceania and Southeast Asia. MRS is a sector specialist in the construction, engineering, civil engineering, petrochemical and coal seam gas sectors. MRS sources its contractors from a database of over 23,000 professionals around the globe, allowing it to react quickly and fully to client requirements.

The Company's Admission Document can be found at http://www.mrsplc.net/.