Inspired Energy (AIM: INSE), a leading energy procurement consultant to UK corporates and SMEs, is delighted to announce that it has completed the acquisition of STC Energy and Carbon Holdings Limited (“STC”), a market leading energy bureau, billing and management service provider to large multi-site organisations for an initial consideration of approximately £9.0 million to be satisfied in cash and shares (the “Acquisition”).  The Acquisition is expected to be earnings enhancing in FY16.

Highlights of the Acquisition

  • Initial consideration to be satisfied by a cash payment of £5.0 million and the issue of 32,786,885 new ordinary shares to the founders of STC, who will remain with the business.
  • Potential further deferred consideration of up to £3.0 million, subject to the achievement of certain financial performance criteria, to be satisfied equally in cash and shares for the period ending 30 September 2017.
  • Enhances Inspired’s service offering within the Corporate division through the broad range of bureau, billing and management products and services STC currently provides to its existing customer base.
  • Broadens the Group’s client base through entry into the public sector coupled with regional diversification.
  • Enlarged Group’s ‘Procurement Corporate Order Book’ increased to £23.0 million and total customers increased to c.9,500 (c.1,400 corporate; c.8,100 SME).
  • Additional revenue stream through consultancy fees charged directly to clients in respect of bureau and billing services.
  • Acquisition funded from the Group’s existing financial resources coupled with new enlarged financing facilities.
  • Expected to be earnings enhancing in FY16.

Information on STC and rationale for the Acquisition

STC is a specialist technology and software enabled energy consultancy based in Kent that provides a complete range of energy services to help organisations manage their utilities more effectively. In particular, STC has developed a range of market leading energy bureau products and services (typically billing, estate management, financial analysis and invoice validation) aimed at larger UK corporates or organisations with extensive property portfolios or complex billing environments. In addition, STC’s other services include: utility procurement; carbon compliance services; site works and metering; and general energy management consultancy.

STC’s clients range from large multi-site retailers to county councils and housing associations, with property portfolios ranging between 25 and 4,000 individual sites.  Given this expansive customer base and STC’s software and technology platform, it is able to service clients with the largest of property estates.

STC’s revenue model is predominantly led by fees charged directly to clients in respect of bureau and billing services.  The company benefits from a retention rate on clients of in excess of 90 per cent.  STC also has a commission based revenue stream for energy procurement services, paid directly by suppliers, in line with the majority of Inspired’s revenue.  The Board believe that by introducing a new customer offering into the Group, for specialist and complex billing and bureau services, Inspired’s addressable market should be increased significantly.

Furthermore, through the combination of STC and Inspired’s Corporate division, the Board believes that the Group, as enlarged by the Acquisition (“Enlarged Group”), will be able to target and win higher value, more complex, energy procurement, billing and management contracts.  It is intended that the larger, more complex clients of Inspired’s Corporate division will, in a measured time-frame, be migrated to the STC platform for billing and bureau services as the platform provides enhanced functionality, data analysis and error checking.

In addition, the Acquisition provides the Group with further regional diversification, in line with Inspired’s stated growth strategy.

Following completion of the Acquisition, Inspired’s Corporate division will work with STC in respect of the procurement of energy for their clients and management believe that the Inspired Risk Management team in particular will be able to bring additional technical expertise and product range to those clients as the businesses integrate.

In the audited financial year ended 31 March 2015, STC’s principal and only trading subsidiary, STC Energy Management Limited delivered revenues of £3.8 million, EBITDA of £1.7 million, pre-tax profits of £1.4 million and generated operating cash of £1.6 million.

Following the Acquisition, the Group’s Procurement Corporate Order Book exceeds £23.0 million. The Procurement Corporate Order Book is equivalent to that which was historically reported by the Group as “Corporate Order Book”.

Terms of the Acquisition

The consideration for the Acquisition comprises an initial consideration to be satisfied by a cash payment of £5.0 million and the issue of 32,786,885 new ordinary shares in the capital of Inspired Energy (the “Consideration Shares”).  The Consideration Shares are being issued to the founders of STC, Simon Clayton and Steven Rae, who will remain with the Enlarged Group and will be subject to a 12 month lock-in and orderly market provisions for a further 12 months from the date of admission.  Simon Clayton will hold 26,229,508 ordinary shares, which will represent 5.56 per cent. of the Enlarged Group’s issued share capital on admission of the Consideration Shares.

Further contingent consideration of up to £3.0 million (“Deferred Consideration”) may be payable, in cash and shares in a ratio of 50:50, subject to the achievement of certain financial performance criteria for the period ending 30 September 2017.  The Deferred Consideration will be payable in two tranches of up to £1.5 million each, on the condition that the performance criteria are achieved. The Deferred Consideration, if payable, is expected to be self-funding from future cash-flows generated by the Enlarged Group based on the challenging financial target set.

The Consideration Shares will rank pari passu in all respects with the existing ordinary shares. Application has been made to London Stock Exchange plc for the Consideration Shares to be admitted to trading AIM. Admission of the Consideration Shares to trading on AIM is expected to take place on 20 November 2015. On admission of the Consideration Shares the enlarged issues share capital will be 471,603,499 ordinary shares of 0.125p each.

Bank Facilities

In order to fund the cash component of the initial consideration and to provide additional financial flexibility for the Group, Inspired has entered into a new facility agreement (“Facility“) with Santander UK plc (“Santander”) for a £10.0 million term loan. £7.0 million of the term facilities (“Tranche A”) will amortise over a period of five years and the remaining £3.0 million (“Tranche B”) will be repayable by way of a bullet repayment on 16 May 2021. The Facility replaces the Group’s previous £5.0 million term loan facility and £0.6 million of drawn RCF facilities, thus increasing the Group’s indebtedness by £5.0 million when drawn down.  The Facility has an interest rate of 3.0% over LIBOR in respect of Tranche A and 3.25% over LIBOR in respect of Tranche B.  There are no ongoing monitoring fees.

In addition, the Group has also entered into a revolving credit facility, also with Santander, for the sum of £1.5 million, of which £0.6 million is drawn, to be used for the purposes of satisfying future working capital requirements (the “RCF”) and an acquisition facility of up to £3.5m to fund future Group acquisitions (“Acquisition Facility“).  The Acquisition Facility can be drawn on the same commercial terms as the Facility at the election of the Group and subject to bank approval of any proposed acquisition. Both facilities contain market standard covenants set at similar levels to the Group’s previous arrangements.

Commenting on the Acquisition, Janet Thornton, CEO of Inspired Energy said:

“Inspired continues to go from strength to strength. We are delighted to conclude the acquisition of STC, which increases the breadth of our target customer base, enhances our sector specialism including the Public Sector and larger multi-site clients and expands our service offering for our corporate customers and provides geographical diversification.

“The Acquisition fits perfectly with our stated growth strategy and we believe that the complementary nature of the two businesses makes this a hugely exciting opportunity for the Group.  Inspired’s core skills, of energy procurement, risk management and product development will bring savings to STC’s client portfolio when contracts are being renewed.  Furthermore, the STC platform and the teams’ ability to manage large complex billing and energy management issues will bring benefits to our current portfolio of clients and also allow us to win larger clients as a combined Group. We look forward to working closely with the highly experienced and knowledgeable team of STC and welcoming them into our Corporate division as we seek to advance our position as a market leader.”

Commenting on the sale of STC to Inspired, Simon Clayton, Managing Director of STC said:

“When contemplating the sale of STC, we were looking for a partner who we could work alongside to both bring benefits to our customers and continue to develop and grow the business.  We believe Inspired to be the perfect acquirer for STC and we are looking forward to working with the Inspired team to further improve the services we offer to our clients.  We believe that by working together, we will open significant new opportunities both in terms of winning new clients but also in bringing benefits and savings to our existing portfolios. In addition, we believe that the combination will further enhance the opportunities for our staff as part of the Enlarged Group.”

Enquiries:

Inspired Energy plc
Janet Thornton, Chief Executive +44 (0) 1772 689250
Paul Connor, Finance Director www.inspiredenergy.co.uk

Shore Capital (Nomad and Joint Broker) +44 (0) 20 7408 4090
Bidhi Bhoma
Edward Mansfield

Panmure Gordon (Joint Broker) +44 (0) 20 7886 2500
Ben Thorne
Mark Taylor

Gable Communications +44 (0) 20 7193 7463
Justine James +44 (0) 7525 324431
John Bick [email protected]

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