TIDMSWL
RNS Number : 2433A
Swallowfield PLC
06 June 2016
Swallowfield plc
("Swallowfield" or "the Company")
Acquisition of The Brand Architekts Limited
Placing to raise GBP8.6 million
Trading update
Notice of GM
and
Total voting rights
Swallowfield, a market leader in the development, formulation,
and supply of personal care and beauty products, whose customers
include many of the world's leading brands, is pleased to announce
that is has entered into a conditional agreement to acquire the
entire issued share capital of The Brand Architekts Limited ("Brand
Architekts") (the "Acquisition").
At the same time, Swallowfield also announces a conditional
placing by N+1 Singer, acting as the Company's nominated adviser
and broker, to raise GBP8.6 million (before expenses) (the
"Placing"). The Placing was significantly oversubscribed with new
and existing shareholders. The net proceeds of the Placing will be
used, alongside a new debt facility, to fund the Acquisition.
Highlights
Swallowfield continues momentum
-- Sales have grown, and profitability, EPS, and shareholder
value have increased significantly since implementing the 'building
a better Swallowfield' strategy in 2014.
-- Core business growth has been driven by the success of the
Product Category Prioritisation and Core Business Innovation
pillars of the strategy
-- The Owned Brands pillar has also contributed positively both
through organically developed brands such as Bagsy and MR. and the
successful acquisition of The Real Shaving Company in 2015.
-- Swallowfield's current trading is in line with expectations
continuing the momentum of a strong first half
Significant acceleration of 'owned brands' strategy
-- Opportunity to accelerate 'Swallowfield owned brands'
strategic pillar through synergistic acquisition of Brand
Architekts
-- Brand Architekts owns and manages a portfolio of mid-premium
beauty and personal care brands that are sold in major UK high
street retailers and through export
o FY16 Revenues of GBP10.7m, EBITDA of GBP2.0m, PBT GBP2.0m in
the year to January 2016
o Brand Architekts achieved 47% CAGR for EBITDA FY14 - FY16
-- Transformational opportunity which brings critical mass to
Swallowfield owned brand portfolio and adds a proven, experienced
London-based brand management team
-- Total consideration of GBP11m including 12 month performance based earn out of GBP1.85m
-- Immediately earnings accretive
Oversubscribed Placing
-- Significantly oversubscribed Placing to raise GBP8.6m at 155
pence per Ordinary Share arranged by N+1 Singer
-- Several members of the Swallowfield Board of Directors are participating in the Placing
The Placing is conditional upon, amongst other things, approval
by existing shareholders at a general meeting to be held at the
offices of N+1 Singer, One Bartholomew Lane London EC2N 2AX on 27
June at 2:30 p.m. (the "GM") and admission of the shares to be
issued under the Placing to trading on AIM. A circular containing
background information to the Acquisition and Placing, together
with a notice of the GM, is today being sent to Shareholders (the
"Circular").
Brendan Hynes, Chairman of Swallowfield, said: "We have been
delighted with the level of institutional support, both from
existing and new shareholders which will enable us to complete this
transformational acquisition. Since 2013 Swallowfield has been
delivering against a clearly defined strategy to build a
sustainable, higher margin business and the addition of Brand
Architekts will enable us to accelerate that growth."
Chris How, Chief Executive of Swallowfield, said: "Brand
Architekts has built a very successful stable of brands that will
complement our developing owned brand business. By combining the
two businesses we believe that we can leverage both existing skill
sets, including product development, R&D, supply chain, digital
marketing, and online sales, to the benefit of all stakeholders. It
further strengthens our business model of building two
complimentary value streams (core contract manufacturing and owned
brands) on one single common capability platform."
For further information please contact:
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Swallowfield plc
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01823 662
Chris How Chief Executive Officer 241
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01823 662
Mark Warren Group Finance Director 241
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Nic Hellyer/ Jen 0207 496
Boorer/ Alex Price N+1 Singer 3000
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Josh Royston /
Hilary Buchanan Alma PR 07780 901979
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Terms defined in the Circular have the same meaning in this
announcement.
Overview of Brand Architekts and strategic rationale for the
proposed Acquisition
Since 2013 Swallowfield has been successfully delivering on its
strategy to build a sustainable, higher margin business. Sales have
grown, and profitability, earnings per share and shareholder value
have increased significantly through a combination of both organic
growth and successful acquisitions, most notably the acquisition of
the Real Shaving Company in 2015. The Directors believe that
through the synergistic acquisition of Brand Architekts there is
currently an opportunity to significantly accelerate the 'owned
brands' strategic pillar of Swallowfield's strategy.
Brand Architekts owns and manages a strong and growing portfolio
of mid-premium beauty and personal care brands. The majority of
sales of these brands are through major UK high street retailers,
many of which are already existing customers of Swallowfield.
Further sales are made through export, notably in North America,
Australia, the Nordics and Turkey.
Brand Architekts's key brands include Dirty Works, Kind Natured,
Argan, Happy Naturals, DrSalts, Superfacialist and Senspa and
together these accounted for approximately 78 per cent. of Brand
Architekts's sales in the last financial year to 31 January 2016.
Brand Architekts currently outsources its production with suppliers
in the UK and China.
The Directors believe that the Acquisition, which is conditional
upon Shareholder approval of the Resolutions and Admission,
provides Swallowfield with a transformational opportunity to bring
critical mass to its 'owned brand' portfolio. At the same time, the
Acquisition will also add a proven, experienced London-based brand
management team which will serve as an important platform for both
future organic growth and M&A activity.
For the financial year to 31 January 2016 Brand Architekts
generated net sales of GBP10.7m (after adjustment for promotional
activity), achieved a 35 per cent. contribution margin, GBP2.0m
EBITDA and GBP2.0m of profit before tax. This continued the strong
growth momentum that Brand Architekts had achieved over the
previous two financial years during which time Brand Architekts
achieved a CAGR for EBITDA of 47 per cent. from FY14 to FY16. The
Directors anticipate that this growth momentum can be further
enhanced by the support of Swallowfield's existing established
resources, including its international footprint, digital
marketing, online sales, product development and supply chain. The
Acquisition will immediately be earnings accretive to
Swallowfield.
In the medium term, the Directors consider that the Acquisition
will provide further opportunities for accelerated growth. Brand
Architekts has an existing pipeline of new products and the
Directors anticipate that further new products will also be driven
from Swallowfield's already established areas of expertise. At the
same time, there is scope for both UK and international
distribution growth, particularly through Swallowfield's existing
international sales offices. An important additional benefit is
that Swallowfield will be able to sell its current owned brands
through Brand Architekts' distributor network thereby generating
additional revenues for Swallowfield's existing stable of owned
brands. Finally, the Directors anticipate that the Acquisition will
generate benefits through economies of scale in areas such as
logistic costs, sourcing synergies (particularly in China), finance
and administration/customer service functions as well as giving
Swallowfield's owned brand portfolio critical mass when buying
public relations, media and display exposure.
The Directors view the Acquisition as the next step on
Swallowfield's path to becoming a leading international beauty and
personal care business with one core capability platform driving
two value streams, namely the core contract manufacturing business
and the 'owned brands' business.
Acquisition terms and new debt facility
The total consideration for the Acquisition is GBP11.0m,
including stock and normalised working capital of approximately
GBP2.7m. This is structured as an initial payment of GBP9.15m
(subject to working capital adjustment at completion) and an earn
out payment of GBP1.85m (subject to adjustment) on the first
anniversary of completion dependent upon Brand Architekts achieving
a maximum contribution margin (measured on a consistent basis) of
GBP4.187m during the 12 months from completion.
The Company will use the net proceeds of the Placing together
with a modest extension of its invoice discounting and term loan
facilities with HSBC Bank plc in order to fund the consideration
payable in respect of the Acquisition. The acquisition of Brand
Architekts is conditional, inter alia, on the Resolutions being
passed and Admission taking place.
Brand Architekts is being acquired from Michelle Doolan and
Joanne Sinclair, who each own 49.02 per cent. of the company, as
well as various other minority shareholders, and both Michelle
Doolan and Joanne Sinclair are entering into consultancy agreements
for a period of two years following completion of the
Acquisition.
Current trading and outlook
The Company announced its interim results for the period to 9
January 2016 on 1 March 2016. The Company reported revenues of
GBP27.5 million (2014: GBP26.0 million) and an adjusted operating
profit of GBP0.64 million significantly ahead of the prior year
(2014: GBP0.16 million) driven by the core business and
Swallowfield's owned brands. The Real Shaving Company brand
acquired in May 2015 was fully integrated in the period
demonstrating the ability of the Board to make successful
acquisitions. Further investments were made to support the
Company's owned brands in line with the strategy.
Following a strong first half and with less than a month
remaining until the end of the Company's financial year, the Board
is pleased to confirm that the Company continues to trade in line
with market expectations for the year as a whole.
The core contract manufacturing business is benefitting from the
progress made with its product category prioritisation focus. The
Company's drive and build categories continue to show robust growth
in both sales and contribution margin. This performance has been
further aided by a steady stream of innovative new products that
have been launched throughout the year.
Swallowfield's owned brands continue to make good progress with
further retail and on-line stockists added and the development of
new marketing collaborations such as Bagsy with the fashion
designer Savannah Miller and The Real Shaving Company with Somerset
Cricket T20 Blast.
Details of the Placing
The Company proposes to raise approximately GBP8.0 million (net
of expenses) through the issue of the Placing Shares at 155 pence
per Ordinary Share, which represents a premium to the mid-market
closing price on 1 June 2016 (being the last date prior to the
finalisation of the Placing) and a small discount to the
volume-weighted average price over the previous 5 days. Having
considered the price at which the Ordinary Shares are currently
traded, and other market factors, the Directors have resolved that
the Placing Price is appropriate. The Placing Shares will represent
approximately 33 per cent. of the Company's issued ordinary share
capital immediately following Admission. The Placing is
conditional, inter alia, the passing of the Resolutions at the
General Meeting and Admission.
Pursuant to the terms of the Placing Agreement, N+1 Singer, as
agent for the Company, has conditionally agreed to use its
reasonable endeavours to place the Placing Shares with certain
institutional and other investors. The Placing Agreement is
conditional upon, inter alia, the Acquisition becoming
unconditional, the Resolutions being duly passed at the General
Meeting and Admission becoming effective on or before 8.00 a.m. on
28 June 2016 (or such later time and/or date as the Company and N+1
Singer may agree, but in any event by no later than 8.00 a.m. on 15
July 2016). The Placing Agreement contains provisions entitling N+1
Singer to terminate the Placing Agreement at any time prior to
Admission in certain circumstances. If this right is exercised the
Placing will not proceed. The Placing has not been underwritten by
N+1 Singer.
The Company has agreed to pay certain fees and commissions to
N+1 Singer in respect of the Placing.
Application will be made for Admission and it is expected that
Admission will become effective and that dealings in the Placing
Shares will commence at 8.00 a.m. on 28 June 2016.
The Placing 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.
Director dealing and related party transaction
Certain of the directors of the Company are participating in the
Placing at the Placing Price as described below:
Amount Number Number Percentage
subscribed of Placing of shares of Enlarged
(GBP) Shares post Admission Share Capital
post Admission
Brendan
Hynes 38,750.00 24,914 74,914 0.44%
Chris How 46,500.00 29,977 89,977 0.53%
Mark Warren 17,050.00 10,930 33,030 0.20%
Jane Fletcher* 18,600.00 12,374* 37,374* 0.22%
Roger McDowell 423,150.00 273,189 344,189 2.0%
* 6,452 of the shares being subscribed for by Jane Fletcher are
through her SIPP operated by Alliance Trust.
Western Selection plc, of which Edward Beale is a Director, are
participating in the Placing as described below.
The conditional agreements entered into by the above Directors
to subscribe for Placing Shares are classified as related party
transactions for the purposes of the AIM Rules. Franklin Berrebi,
an independent director for the purposes of the Placing, having
consulted with the Company's nominated adviser, N+1 Singer,
considers that the terms of the related party transactions are fair
and reasonable insofar as the Company's shareholders are
concerned.
Significant shareholders and related party transaction
Insofar as has been notified to the Company, the following
persons hold, as at the date of this Document, and are expected to
hold immediately following Admission, directly or indirectly, 3 per
cent. or more of the Enlarged Share Capital:
Amount Number Number Percentage
subscribed of Placing of shares of Enlarged
(GBP) Shares post Admission Share Capital
post Admission
Western Selection
plc 202,819.05 130,851 2,000,000 11.86%
The participation in the Placing by Western Selection plc, a
substantial shareholder in the Company, constitutes a related party
transaction for the purposes of the AIM Rules. The independent
directors, Brendan Hynes, Chris How, Mark Warren, Jane Fletcher,
Franklin Berrebi and Roger McDowell, having consulted with the
Company's nominated adviser, N+1 Singer, considers that the terms
of the related party transaction are fair and reasonable insofar as
shareholders are concerned.
Total voting rights
The number of ordinary shares of 5 pence each in the capital of
the Company in issue and number of voting rights following
admission of all of the Placing Shares (subject, amongst other
things, to the GM) will be 16,865,267. The above figure may be used
by Shareholders as the denominator for the calculations by which
they will determine whether they are required to notify their
interest in, or a change to their interest in, the Company under
the Financial Conduct Authority's Disclosure and Transparency
Rules.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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