TIDMGRC
RNS Number : 6038B
GRC International Group PLC
31 January 2020
31 January 2020
The information communicated within this announcement is deemed
to constitute inside information as stipulated under the Market
Abuse Regulations (EU) No. 596/2014.
GRC International Group plc
("GRC International", the "Company" or the "Group")
Deed of Variation and DQM Deferred Consideration update
Placing to raise GBP3.75 million
Notice of General Meeting
GRC International Group plc, a supplier of IT governance, risk
management and compliance products and services, is pleased to
announce that the Company has entered into a deed of variation to
the sale and purchase agreement dated 11 February 2019 relating to
its acquisition of DQM Group Holdings Limited ("DQM") (the
"Acquisition") amending the terms on which deferred consideration
in respect of the Acquisition is payable to the DQM Shareholders
("Deferred Consideration") (the "Deed of Variation").
Additionally the Company proposes to raise GBP3.75 million by
way of a conditional placing of 28,846,154 new Ordinary Shares at
13 pence per Ordinary Share (the "Placing"). The proceeds of the
Placing will be used to (i) satisfy the proposed revised cash
portion of the Deferred Consideration; and (ii) provide additional
working capital for the Group.
Conditional on completion of the Placing and passing of the
Resolutions to be proposed at the General Meeting, notice of which
is included in the Circular (defined below), the Deferred
Consideration is agreed to have an aggregate value of GBP3,553,953
and under the terms of the Deed of Variation the cash component of
the Deferred Consideration shall be satisfied by the payment of
GBP1,626,186.85 in cash and the issue of Ordinary Shares with an
aggregate value of GBP426,186 calculated on the basis of the
Placing Price, (together the "Transaction").
The Company has today published a circular convening a general
meeting to be held at the offices of Grant Thornton UK LLP, 30
Finsbury Square, London EC2A 1AG at 11.00 a.m. on 18 February 2020
(the "Circular") at which resolutions will be put to shareholders
to provide the directors with the appropriate authorities,
respectively, to issue shares and disapply pre-emption rights for
existing shareholders, pursuant to the Transaction and the
Placing.
Following the Acquisition, two of the three DQM Shareholders
remained directors of DQM, a subsidiary of GRC and therefore,
entering into the Transaction constitutes a related party
transaction under Rule 13 of the AIM Rules. The Directors consider,
having consulted with the Company's Nominated Adviser, that the
terms of the Transaction are fair and reasonable insofar as the
Company's shareholders are concerned.
Certain of the Directors, being Mr Andrew Brode, Mr Alan Calder,
Mr Ric Piper, Mr Steve Watkins and Mr Neil Acworth have subscribed
for shares pursuant to the Placing, for an amount of GBP350,000,
GBP78,441.09, GBP35,000, GBP15,000 and GBP15,000, respectively (the
"Directors' Participation"). The Directors' Participation
constitutes a related party transaction under Rule 13 of the AIM
Rules for Companies. Christopher Hartshorne, the Director
independent of the Directors' Participation considers, having
consulted with the Company's Nominated Adviser, that the terms of
the Directors' Participation are fair and reasonable insofar as the
Company's shareholders are concerned.
An extract from the Circular is set out below. Definitions
throughout this announcement have the same meaning as the
definitions set out in the Circular, unless where otherwise
stated.
Enquiries:
GRC International Group plc +44 (0) 330 999 0222
Alan Calder, Chief Executive Officer
Christopher Hartshorne, Finance Director
Grant Thornton UK LLP (Nominated Adviser) +44 (0) 20 7383 5100
Philip Secrett
Jamie Barklem
Ben Roberts
Dowgate Capital Limited (Broker) +44 (0) 20 3903 7715
James Serjeant
1. Introduction
The Company announced today that it has entered into a deed of
variation to the Sale and Purchase Agreement amending the terms on
which deferred consideration in respect of the Acquisition is
payable to the DQM Shareholders ("Deferred Consideration") (the
"Deed of Variation"), and has conditionally placed 28,846,154
Placing Shares at 13 pence per share (raising gross proceeds of
GBP3.75 million) to (i) satisfy the proposed revised cash portion
of the Deferred Consideration; and (ii) provide additional working
capital for the Group.
2. Background to and rationale for the Placing
On 11 February 2019, the Company entered into the Sale and
Purchase Agreement to purchase the entire issued share capital of
DQM from the DQM Shareholders. The initial consideration for the
Acquisition was GBP5,886,839 (the "Initial Consideration"),
comprising a cash payment of GBP3,532,104 and the issue of
2,021,232 Ordinary Shares worth GBP2,354,736 calculated on the
basis of an issue price per share of 116.5 pence, equal to the
average of the middle market quotations for the Ordinary Shares as
shown by the AIM Appendix of the Daily Official List of the London
Stock Exchange for the 10 business days prior to and including 7
February 2019. The Initial Consideration was satisfied on
completion of the Acquisition.
Deferred Consideration was also payable under the Sale and
Purchase Agreement to the DQM Shareholders, pursuant to the terms
of an earn-out calculated by reference to eight times DQM's
adjusted EBITDA for the financial year ended 28 February 2019, less
the amount of the Initial Consideration and certain other
adjustments. The Sale and Purchase Agreement required that the
Deferred Consideration be satisfied through cash (as to 60 per
cent. of the Deferred Consideration) and the issue of Ordinary
Shares (as to 40 per cent. of the Deferred Consideration and based
on an issue price per Ordinary Share of 116.5 pence) within five
business days of the date on which the parties agree the EBITDA in
respect of DQM's earn-out accounts for the financial year ending 28
February 2019 (the "DQM Audit").
In advance of completion of the DQM Audit, the Group explored
with the DQM Shareholders whether the payment of the cash component
of the Deferred Consideration could be settled in other ways. As
announced today, the Company and the DQM Shareholders have entered
into the Deed of Variation to confirm, subject to completion of the
Placing and the passing of the resolutions, that the Deferred
Consideration to be paid has an aggregate value of GBP3,553,953 and
that the cash component of the Deferred Consideration shall be
satisfied by the payment of GBP1,626,186.85 in cash and the issue
of the Additional Consideration Shares (the "Transaction").
Accordingly, and in satisfaction of the Group's obligation to
pay the Deferred Consideration, the DQM Shareholders shall subject
to completion of the Placing and the passing of the
resolutions:
(a) be issued 1,288,910 Ordinary Shares at a price of 116.5
pence per share, having an aggregate price of GBP1,501,580.15 (such
shares being the "Deferred Consideration Shares");
(b) be issued an additional 3,278,353 Ordinary Shares at the
Placing Price, having an aggregate price of GBP426,186 (such shares
being the "Additional Consideration Shares"); and
(c) be paid GBP1,626,186.85 in cash (the "Deferred Cash Payment").
The Directors believe that this arrangement is favourable to the
Company's cash management and further aligns the DQM Shareholders
to the Group's financial performance.
Should the Resolutions not be passed and/or the Placing not
complete prior to 1 March 2020 the terms of the SPA will not be
amended by the Deed of Variation.
Lock-in Agreements
The DQM Shareholders have entered into 12 month lock-in
agreements which, inter alia, places certain restrictions on the
sale of their Ordinary Shares with effect from Admission. This
agreement will cease to be effective if the Placing does not
complete before 5 March 2020.
Pursuant to the agreement, each DQM Shareholder undertakes to
the Company and Dowgate Capital (a) for six months following
Admission not to dispose of or agree to dispose of any interest in
the Additional Consideration Shares or the Deferred Consideration
Shares or other Ordinary Shares acquired during that period; and
(b) not to dispose of or agree to dispose of any interest in such
shares during the period from the six month anniversary of
Admission to the twelve month anniversary of Admission without
first consulting with Dowgate Capital.
Future intentions for DQM
As announced in the Company's interim financial results on 18
December 2019, DQM has traded profitably since the Acquisition and
its financial performance for the year ended 28 February 2019 was
better than the Directors had expected.
Should the Resolutions be passed at the General Meeting, the
Group will no longer actively pursue a possible sale of DQM and
will continue to work towards fully integrating DQM's business into
the Group to maximise the opportunities available for all
businesses within the Group. The Directors will continue to review
the performance of DQM in the context of the Group's ambitions and
future plans.
3. The Placing
The Company proposes to raise approximately GBP3.5 million (net
of expenses) through the issue of the Placing Shares at the Placing
Price to fund the payment of the cash component of the Deferred
Consideration and to provide additional working capital for the
Group. The Placing Price represents a discount of 7.1 per cent. to
the closing middle market price of 14 pence per Existing Ordinary
Share on 29 January 2020, being the latest practicable date prior
to the announcement of the Placing. The Placing Shares will
represent 29.5 per cent. of the Company's Enlarged Share Capital
immediately following Admission.
The terms of the Placing
Dowgate Capital, as agent for the Company, has agreed to use its
reasonable endeavours to procure subscribers for the Placing
Shares. Dowgate Capital has conditionally placed the Placing Shares
with certain existing and new institutional and other investors at
the Placing Price. The Placing has not been underwritten by Dowgate
Capital. Completion of the Placing is conditional upon, inter alia,
the Resolutions being duly passed at the General Meeting and
Admission becoming effective on or before 8.00 a.m. on 20 February
2020 (or such later time and/or date as the Company and Dowgate
Capital may agree, but in any event by no later than 8.00 a.m. on
29 February 2020.
The Company has given customary warranties to Dowgate Capital in
the Placing Agreement. In addition, the Company has agreed to
indemnify Dowgate Capital in relation to certain liabilities it may
incur in respect of the Placing. Dowgate Capital has the right to
terminate the Placing Agreement in certain circumstances prior to
Admission, in particular, in the event of a material breach of the
warranties given to Dowgate Capital, the failure of the Company to
comply in any material respect with any of its obligations under
the Placing Agreement or the occurrence of a force majeure event in
respect of the Company.
The Directors believe that raising new funds by way of the
Placing is the most appropriate method of funding the Deferred
Consideration and providing the Company with ongoing working
capital at the present time. The Board considers that a general
offer to existing Shareholders by way of rights or other
pre-emptive issue is not appropriate at this stage of the Company's
development due to the significant additional costs that would be
incurred and the delay that would be caused by the production and
approval of a prospectus if required.
Settlement and dealings
Application will be made to the London Stock Exchange for the
New Ordinary Shares to be admitted to trading on AIM. It is
expected that Admission of the New Ordinary Shares will become
effective at 8.00 a.m. on 20 February 2020.
The New Ordinary Shares will, when issued, rank pari passu in
all respects with the Existing Ordinary Shares including the right
to receive dividends and other distributions declared following
Admission.
4. Current trading
The Company continues to trade in line with market expectations.
The Directors expect, with Brexit clarity and the improving
macro-economic outlook, to continue building on the positive steps
taken in H1, and that new client wins and continued cost control
will underpin continued progress in profitability.
The Directors are pleased with the growth from cyber security
products and services. Investments made since the Company's IPO in
new business areas and geographies have started to show increased
revenue and, the directors believe, will help GRC deliver long-term
growth into FY20.
5. Related Party Transactions
Deed of Variation
Following the Acquisition, two of the three DQM Shareholders
remained directors of DQM, a subsidiary of GRC and therefore,
entering into the Transacation constitutes a related party
transaction under Rule 13 of the AIM Rules. The Directors consider,
having consulted with the Company's Nominated Adviser, that the
terms of the Transaction are fair and reasonable insofar as the
Company's shareholders are concerned.
Director Subscription
Certain of the Directors, being Mr Andrew Brode, Mr Alan
Calder*, Mr Ric Piper, Mr Steve Watkins and Mr Neil Acworth have
subscribed for shares pursuant to the Placing, for an amount of
GBP350,000, GBP78,441.09, GBP35,000, GBP15,000 and GBP15,000,
respectively (the "Directors' Participation"). The Directors'
Participation constitutes a related party transaction under Rule 13
of the AIM Rules for Companies. Christopher Hartshorne, the
director independent of the Directors' Participation considers,
having consulted with the Company's Nominated Adviser, that the
terms of the Directors' Participation are fair and reasonable
insofar as the Company's shareholders are concerned.
*The 603,393 Ordinary Shares represented by this GBP78,441.09
participation will be subscribed for by ITG Pension Fund, of which
Alan Calder and his wife are sole beneficiaries and are also
Trustees.
6. Share Option Exercise by a Director
Mr Steve Watkins, a Director, has confirmed his intention to
exercise vested options he holds over 1,680,000 Ordinary Shares at
an exercise price of 0.31429 pence per Ordinary Share. Assuming
such options are validly exercised, Mr Watkins will be issued with
up to an additional 1,680,000 Ordinary Shares and which would raise
up to an additional GBP5,280 payable to the Company. Shareholders
should note that the Enlarged Share Capital does not include these
shares but that such shares may, depending on the relevant exercise
date, be issued and notified, should such options be validly
exercised, prior to completion of the Placing and Admission.
7. Share Option Exercise by a Director
A circular seeking the approval of Shareholders to issue and
allot the New Ordinary Shares will today be sent to shareholders
convening a General Meeting of the Company to be held on 18
February 2020 at the offices of Grant Thornton UK LLP at 30
Finsbury Square, London, EC2A 1AG, at 11.00 a.m.
Expected Timetable 2020
Publication of this document 31 January
Latest time and date for receipt of Forms of Proxy 11.00 a.m. on
14 February
and CREST voting instructions
General Meeting 11.00 a.m. on 18 February
Admission and dealings in the New Ordinary Shares 8.00 a.m. on
20 February
expected to commence on AIM
Expected date for CREST accounts to be credited in respect 20
February
of the New Ordinary Shares in uncertificated form
Where applicable, expected date for despatch of definitive share
certificates By 2 March
for New Ordinary Shares in certificated form
Notes:
1. Each of the above times and/or dates is subject to change at
the absolute discretion of the Company, Grant Thornton and Dowgate
Capital. If any of the above times and/or dates should change, the
revised times and/or dates will be announced through a Regulatory
Information Service.
2. All of the above times refer to London time unless otherwise stated.
3. All events listed in the above timetable following the
General Meeting are conditional on the passing of the Resolutions
at the General Meeting.
This Announcement contains inside information for the purposes
of Article 7 of EU Regulation 596/2014 ("MAR"). In addition, market
soundings (as defined in MAR) were taken in respect of the Placing
with the result that certain persons became aware of inside
information (as defined in MAR), as permitted by MAR. This inside
information is set out in this Announcement. Therefore, those
persons that received inside information in a market sounding are
no longer in possession of such inside information relating to the
Company and its securities.
Information to Distributors
Solely for the purposes of the product governance requirements
contained within: (a) EU Directive 2014/65/EU on markets in
financial instruments, as amended ("MiFID II"); (b) Articles 9 and
10 of Commission Delegated Directive (EU) 2017/593 supplementing
MiFID II; and (c) local implementing measures (together, the "MiFID
II Product Governance Requirements"), and disclaiming all and any
liability, whether arising in tort, contract or otherwise, which
any "manufacturer" (for the purposes of the MiFID II Product
Governance Requirements) may otherwise have with respect thereto,
the Placing Shares have been subject to a product approval process,
which has determined that the Placing Shares are: (i) compatible
with an end target market of retail investors and investors who
meet the criteria of professional clients and eligible
counterparties, each as defined in MiFID II; and (ii) eligible for
distribution through all distribution channels as are permitted by
MiFID II (the "Target Market Assessment"). Notwithstanding the
Target Market Assessment, distributors should note that: the price
of the Placing Shares may decline and investors could lose all or
part of their investment; the Placing Shares offer no guaranteed
income and no capital protection; and an investment in the Placing
Shares is compatible only with investors who do not need a
guaranteed income or capital protection, who (either alone or in
conjunction with an appropriate financial or other adviser) are
capable of evaluating the merits and risks of such an investment
and who have sufficient resources to be able to bear any losses
that may result therefrom. The Target Market Assessment is without
prejudice to the requirements of any contractual, legal or
regulatory selling restrictions in relation to the Placing.
For the avoidance of doubt, the Target Market Assessment does
not constitute: (a) an assessment of suitability or appropriateness
for the purposes of MiFID II; or (b) a recommendation to any
investor or group of investors to invest in, or purchase, or take
any other action whatsoever with respect to the Placing Shares.
Each distributor is responsible for undertaking its own target
market assessment in respect of the Placing Shares and determining
appropriate distribution channels.
End.
This information is provided by RNS, the news service of the
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Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
MSCWPURWGUPUGGG
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January 31, 2020 06:45 ET (11:45 GMT)
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