TIDMREAC
RNS Number : 6319B
React Energy PLC
06 March 2014
6 March 2014
REACT Energy plc
("REACT")
Acquisition of the business of GG Eco Solutions Limited
Proposed issue of secured loan notes
REACT Energy plc (AIM:REAC), the energy infrastructure developer
and operator which focuses on the production of clean energy in the
UK and Ireland, is pleased to announce the acquisition, through a
newly incorporated wholly owned UK subsidiary Grass Door Limited,
of certain assets and business of GG Eco Solutions Limited
("GGES"), a developer and operator of biomass heat generation
projects in the UK (the "Acquisition").
Key Points:
-- Today's news marks a key milestone in REACTs' group (the
"Group") strategy to act as a consolidator of the fragmented UK
biomass energy infrastructure market, andincreases the depth and
experience of the management team;
-- The Directors believe that GGES' strong pipeline and
relationships in the biomass sector, combined with its already
operational plants, positions REACT as a leader in the mid-market
biomass power generation sector in the UK;
-- Proposal to raise up to GBP1.5 million (before expenses)
through the issue of secured loan notes to fund the ongoing
development of the Group through organic and acquisitive growth;
and
-- The Board is currently considering a select number of further
strategic bolt-on acquisitions in the mid-market biomass sector
that includes biomass conversion plants from 500kW to 20 MW in
capacity.
Background on GGES
GGES was formed through a Swedish and UK partnership, and has
been operating in the UK market since 2009. It is the project
developer, part-owner and operator of two existing biomass power
generating plants in the UK and has five projects in development
which are expected to be built over the next 12 months.
The projects include:
-- the Culford School heating plant in Suffolk, which has a 15
year Heat Supply Agreement ("HSA"), in operation for almost two
years;
-- the Kimbolton School Heating plant in Cambridgeshire, which
also has a 15 year HSA, and was recently brought into operation;
and
-- GGES in November 2013, signed a 20-year HSA with Old
Buckenham Hall School in Suffolk, with the heating plant expected
to be commissioned in Q2 2014.
GGES's projects typically range from 150KW to 1MW thermal
capacity, use wood as a sustainable fuel source, and utilise
proven, mature technology. The addressable market for the GGES
solution includes over 600 schools and universities, over 10,000
private hospitals and care homes, and over 5,000 country house
hotels in the UK. The Directors believe that long term HSAs and
qualification for the Renewable Heat Incentive ("RHI") add
significant value to GGES.
In July 2013, GGES signed an agreement with Equitix ESI Finance
Limited ("Equitix") providing GGES with access of up to GBP5
million of committed project finance from the Green Investment Bank
and a number of institutional investors. Drawdown of this facility
has already commenced in order to fund existing projects and it is
intended to draw down the remaining facility over the next 12
months.
Terms of Acquisition
The Acquisition will comprise an initial consideration of GBP2
million for certain of the assets and business of GGES. This
consideration is being satisfied through the issue of 5,263,158
ordinary shares of EUR0.10 each in the capital of REACT, to be
issued at an effective price of GBP0.38p per share. An additional
maximum deferred consideration of GBP1.7 million (also to be
satisfied through the issue of ordinary shares in REACT), may
become payable subject to certain performance criteria being
achieved, namely construction and installation of additional
biomass heat projects with an approximate Internal Rate of Return
of 15%. The deferred consideration amount is linked to projects
funded under the Equitix funding line, which GGES already has in
place.
As part of the transaction REACT will also issue 789,474 new
ordinary shares of EUR0.10 each to Pinfold Investments Limited
('Pinfold") a company controlled by Lyndon Dodd a shareholder in
GGES, which is converting a loan note amounting to GBP225,000
issued by GGES to Pinfold in relation to the Kimbolton School
Heating Plant.
The total initial transaction cost for the Acquisition,
including the conversion of the Pinfold loan, is GBP2.3
million.
GGES and Pinfold will be subject to a Lock-In agreement in
relation to the ordinary shares that it will receive in
consideration for the Acquisition or will acquire for a period of
twelve months from the date of issue.
The assets being acquired include the Kimbolton School Heating
Plant, the Old Buckenham Hall School Heating Plant that is in
commissioning and GGES's investment in GG Eco Energy Limited ("GG
Eco") a company that is 30% owned by GGES and 70% owned by Equitix.
The book value of assets acquired totals approximately GBP855,000.
As at 31 March 2013 turnover in relation to the acquired assets was
c.GBP290,000. Although the assets acquired are currently loss
making, the Directors expect the acquired business to breakeven in
the next 12 months.
Key members of the senior management of GGES will remain with
the business post completion of the Acquisition increasing the
depth and experience of the overall team.
Pursuant to the Acquisition, application has been made for the
admission of new 6,052,630 ordinary shares of EUR0.10 each in REACT
to trading on AIM. The new ordinary shares, which will be issued,
fully paid, will rank pari passu in all respects with the existing
ordinary shares of REACT. Admission of the new ordinary shares to
trading on AIM is expected to occur on Tuesday 11 March 2014.
Following the Acquisition, REACT's total issued and voting share
capital will comprise 28,422,674 ordinary shares. Shareholders
should use this figure as the denominator for the calculations by
which they will determine if they are required to notify their
interest in, or a change to their interest in REACT, under the
FCA's Disclosure and Transparency Rules.
Following the Acquisition, GGES will hold 5,263,158 shares in
REACT amounting to 18.52% of the issued share capital.
Loan Notes
The Board of REACT also announces that it is proposing to raise
up to GBP1.5 million (before expenses) through the issue of secured
loan notes ("SLNs"). The SLNs are intended to fund the ongoing
development of the enlarged Group through organic and acquisitive
growth, which includes GGES. It is the intention that the issue of
the SLNs will be by way of subscription for an initial tranche of
GBP600,000 (the "Initial Tranche") followed by subscription for a
further tranche of GBP900,000 (the "Additional Tranche").
The Group has received commitments for the Initial Tranche from
Farmer Business Developments plc ("Farmers"), REACT's largest
shareholder, for the total sum of GBP300,000 and certain
shareholders of GGES, including Mr. Goran Nylin and Mr. Lyndon Dodd
for the total sum of GBP300,000.
Following subscription for the Initial Tranche by Farmers and
GGES shareholders, the Group intends to market the Additional
Tranche to independent qualified investors.
The SLNs will be issued at a fixed rate of 10% per annum, the
interest on which will be rolled up quarterly in arrears and
included as principal to be repaid.
The SLN's will be for a fixed three-year term and together with
rolled up interest will be repayable at the end of the term.
The SLNs will be secured by a first charge over the shares held
by REACT in its project operating and development companies.
Farmers is a substantial shareholder of REACT and as such the
subscription for the SLNs is a related party transaction for the
purposes of Rule 13 of the AIM Rules. The Independent Directors
(being the directors other than Dermot O'Connell), having consulted
with Shore Capital and Corporate Limited (the Company's nominated
adviser), consider that the terms of the SLNs are fair and
reasonable insofar as shareholders of REACT are concerned.
Gerry Madden, CEO of REACT, commented: "The Board of REACT is
delighted to be acquiring the assets of a company with a strong
pipeline in the mid market biomass sector, its already operational
plants and its strong relationships with funders such as
Equitix.
"This Acquisition is a key part of the Group's strategy to act
as a consolidator of the fragmented UK biomass energy
infrastructure market. This Acquisition also increases the depth
and experience of the management team, with senior management
coming across with the GGES business. We believe that this now
positions the Group as the leader in the mid-market biomass power
generation sector in the UK.
"The proposed issue of loan notes is a proactive, financially
prudent step by the Group to ensure that we are able to continue
moving ahead with electricity and heat projects.
"The Board is currently considering a select number of further
strategic bolt-on acquisitions given the significant opportunity
that it has identified in the mid-market biomass sector."
Goran Nylin, Chairman and Founder of GGES, commented: "The
Acquisition of the business by REACT creates a positive and
exciting new chapter to build heat energy infrastructure throughout
the UK. This provides us with great opportunities to expand our
platform and expertise. We are excited about joining forces with
REACT. GGES and REACT's focus on power generation from biomass make
the two organizations a natural fit. Furthermore, our combined
experience, expertise and employees will benefit significantly from
the increased scale and delivery capabilities that this combination
will be able to offer enabling a further acceleration in the growth
rate of both REACT and GGES."
- Ends -
For further information:
+353 (0)21 483
REACT Energy plc 9104
Gerry Madden, CEO
+44 (0)20 7408
Shore Capital - Nomad & Broker 4090
Pascal Keane / Anita Ghanekar
+44 (0)7768 537
Yellow Jersey PR Limited - Public Relations 739
Dominic Barretto / Anne Legge
About GGES
GG Eco Solutions Limited is an innovative UK renewable energy
specialist that designs, owns, installs and operates wood fuelled
biomass energy systems for customers within the healthcare,
education, hospitality, commercial, industrial and facilities
management sectors. The company's systems are operated through heat
supply agreements under long-term contracts via on-site biomass
energy installations. Headquartered in Cambridge, the company is
run by an expert UK and Swedish management team, collectively
instrumental in the development of more than 100 successful
bioenergy projects, representing an installed capacity of over 50
megawatts. For further information please visit:
www.ggecosolutions.com
About REACT
REACT Energy plc is an energy infrastructure portfolio developer
and operator whose business strategy is to identify, develop,
build, own and operate electricity and heat generation plants in
the UK and Ireland using clean technologies. The Group possesses
significant knowledge of energy markets, clean technologies, fuel
sources, project development, project finance and project
delivery.
In the UK, the Group is focused on converting wood waste Biomass
into electricity and heat. The Group currently operates in the 1MW
to 20MW sector of power generation.
The Group, in conjunction with its partner and major shareholder
Farmer Business Developments plc, has completed phase 1 of a GBP15
million 4MW advanced gasification biomass power plant in Newry,
Northern Ireland. Having completed phase 1 the Group recently
received approval from its funding partner Ulster Bank Limited to
proceed to phase 2 of the development. The operating company, Newry
Biomass Limited, has signed a seven year Power Purchase Agreement
("PPA") with Bord Gais Eireann an all island utility company owned
by the state.
The Group is in the final stages of completing financial close
on a c.GBP46 million 10MW biomass gasification plant in Enfield in
London with its funding partner Foresight Group. In Derbyshire, the
Group, together with its partner Larkfleet Energy, is seeking
approval to construct and operate a 10MW biomass conversion power
plant, which will cost approximately GBP40 million. The Group, in
conjunction with the London and Devonshire Trust, is also seeking
approval to construct and operate a 10MW biomass conversion power
plant in Plymouth, which will also cost in the region of GBP40
million.
1MW of power has the potential to provide power to up to 2,000
homes annually.
In Ireland the REACT is currently operating an 800kW wind
turbine in County Cork. This plant was part financed by AIB Bank
plc and has a 15 year PPA with Viridian Energy Limited. The Group
has also received planning permission to construct six additional
single wind turbine projects in Ireland. In conjunction with its
co-development partner, REACT is currently seeking approval to
construct a number of wind farms totalling over 50MW in the North
West of the island.
REACT is in on going discussion with a select number of
landowners in the UK and Ireland regarding sites for the future
development of energy infrastructure projects.
Biomass Power generation of Electricity and Heat has the
potential to address the UK's key energy challenges of energy
security and carbon commitment. The green credentials of Biomass
Power and Heat generation can make it a significant contributor to
the energy mix and help achieve committed 2020 targets.
REACT is listed on the AIM market of the London Stock Exchange
(AIM:REAC).
www.reactenergyplc.com
This information is provided by RNS
The company news service from the London Stock Exchange
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