TIDMMMC
RNS Number : 0222H
Management Consulting Group PLC
26 November 2015
26 November 2015
Management Consulting Group enters into a binding agreement
regarding
the disposal of certain operations of Kurt Salmon
Further to the announcement of 23 November 2015, MCG today
announces that it has now entered into a binding agreement with
Solucom for the sale of certain operations of Kurt Salmon (the
"Target Business"), comprising the Kurt Salmon businesses in
France, Belgium, Luxembourg, Switzerland and Morocco, together with
certain related operations in the United States, to Solucom, for a
total gross cash consideration of approximately EUR84.0 million
(equivalent to approximately GBP59.2 million) payable on completion
of the sale (the "Disposal").
Highlights
-- The Disposal is expected to realise gross cash proceeds of
approximately GBP59.2 million, enabling the Group to repay existing
indebtedness
-- The Disposal represents an attractive value for shareholders,
the proposed gross consideration representing approximately 80% of
the Group's current market capitalisation and implying enterprise
value to 2014 revenue and 2014 underlying operating profit from
operations multiples of 0.72x and 16.7x respectively
-- The transaction will rebalance the Group's portfolio in
geographic terms, reducing exposure to the French market and
refocusing MCG on growth opportunities in North America and
Asia
-- The remaining Kurt Salmon business will benefit from tight
focus on the retail and consumer goods industry vertical where it
is a market leader, together with the US healthcare business
-- Accounting for the IFRS loss on sale will have a significant
negative impact on the Company's distributable reserves and
consequently, if the disposal proceeds, the Company will not be in
a position to pay the interim dividend of 0.23 pence per share
which was announced on 31 July 2015
The Disposal, because of its size relative to the Group, is a
Class 1 transaction for MCG under the Listing Rules and is
therefore conditional, inter alia, on the approval of MCG
shareholders. MCG shareholders representing approximately 51% of
the Company's issued ordinary share capital, excluding shares held
in Treasury, have given irrevocable undertakings to vote in favour
of the resolutions to be proposed at the general meeting to approve
the Disposal. A circular containing further information on the
Disposal along with a notice convening a general meeting is
expected to be sent to MCG shareholders on or around 30 November
2015.
Alan Barber, Chairman of MCG, commented:
"We are pleased to have progressed to a binding agreement with
Solucom to dispose of certain operations of Kurt Salmon. This
disposal will significantly reduce Group indebtedness and create a
business with a more balanced portfolio in geographic terms,
focused on growth markets.
The retained Kurt Salmon business will benefit from a tight
focus on two industry verticals where the business has a strong
position. We believe that this transaction is firmly in
shareholders' interests and will position MCG to concentrate its
effort and resources on the businesses which are being
retained."
Enquiries:
For further information please contact:
MCG Tel: +44 20 7710 5000
Nick Stagg, Chief Executive
Chris Povey, Group Finance Director
FTI Consulting Tel: +44 20 3727 1000
Ben Atwell
1. Introduction
Further to the announcement of 23 November 2015, Management
Consulting Group PLC ("MCG" or the "Group") today announces that it
has entered into a binding agreement with Solucom for the sale (the
"Disposal") of certain operations of Kurt Salmon (the "Target
Business"), comprising the Kurt Salmon businesses in France,
Belgium, Luxembourg, Switzerland and Morocco, together with certain
related operations in the United States, to Solucom, for a total
gross cash consideration of approximately EUR84.0 million
(equivalent to approximately GBP59.2 million) payable on completion
of the sale ("Completion").
The Disposal is of sufficient size relative to the Group to
constitute a Class 1 transaction for MCG under the Listing Rules
and is therefore conditional upon, amongst other things, the
passing of a resolution (the "Disposal Resolution") approving the
Disposal by shareholders of MCG (the "Shareholders") at a general
meeting (the "General Meeting"). The Disposal is also conditional
upon:
(i) there having been no material adverse change in the staff
retention rates and current year forecast operating results of the
Target Business since the date of signing of the Disposal Agreement
to the later of the passing of the Disposal Resolution by
Shareholders at the General Meeting and 6 January 2016; and
(ii) the French Anti-trust Authority (Autorité de la
Concurrence) approving the Disposal
MCG is expected to receive net cash proceeds of approximately
EUR81.9 million (equivalent to approximately GBP57.7 million) after
the deduction of estimated transaction costs of EUR2.1 million
(equivalent to GBP1.5 million). MCG will use the net proceeds to
repay the Group's net bank indebtedness under the Company's
existing banking facility, which is expected to be approximately
GBP50 million (equivalent to EUR71 million) at Completion and will
retain the remaining net proceeds for general corporate purposes.
The Group has arranged a new working capital facility of GBP15
million (the "Working Capital Facility"), which will replace the
existing banking facility on Completion and, together with the
balance of the net cash proceeds of the Disposal, will be available
to fund the Group's ongoing working capital requirements.
If the Disposal is completed, it will result in the vesting, on
completion, of awards under the Company's Restricted Share Plan and
Restricted Share Plan 2 (together, the "Restricted Share Plans")
held by employees of the Target Business ("Target Business
Awards"). It is estimated that if completion of the Disposal was to
take place on 31 December 2015, the number of Ordinary Shares that
will be needed to satisfy outstanding Target Business Awards that
have either already vested but not been exercised, or will vest on
completion, will be approximately 9 million Ordinary Shares. Under
the current terms of the Company's Restricted Share Plans, the
Target Business Awards can only be satisfied by: (i) Ordinary
Shares purchased in the market by an employee benefit trust funded
by MCG and/or (ii) by a cash equivalent sum. As both (i) and (ii)
would necessarily involve an uncertain cash outflow from MCG, MCG
will seek approval from Shareholders for the Restricted Share Plans
to be amended so that up to 9 million new Ordinary Shares can be
issued to satisfy awards under the Restricted Share Plans (the "RSP
Target Business Disposal Resolution").
As a separate resolution, Shareholders will be asked to approve
the award of a transaction incentive bonus to each of Nicholas
Stagg (the Chief Executive), in the sum of GBP200,000, and
Christopher Povey (the Finance Director), in the sum of GBP130,000,
which are outside the parameters of the management Remuneration
Policy previously approved by Shareholders and will be payable 30
days after Completion (the "Transaction Incentive Bonus
Resolution"). Payment is contingent on: (i) the completion of the
Disposal; and (ii) the relevant director remaining in employment,
and not having given notice of leaving employment with the Group,
before the time of payment. The Chief Executive's transaction
incentive bonus falls within the requirements of Listing Rule
11.1.10 R.
Irrevocable undertakings to vote in favour of each of the
resolutions at the General Meeting have been received by Solucom
from Shareholders (including all members of the Board in respect of
their entire beneficial interests in the Ordinary Shares, save that
Nicholas Stagg and Christopher Povey have undertaken not to vote on
the Transaction Incentive Bonus Resolution and have taken no part
in the Board's consideration of this matter) representing
approximately 51% of the Company's issued Ordinary Share capital,
excluding shares held in Treasury, as at 25 November 2015 (the
latest practicable date prior to the publication of this
Announcement).
2. Description of the Target Business and background to and
reasons for the disposal
MCG provides professional services across a wide range of
industries and sectors. It comprises two independently managed
practices: Alexander Proudfoot and Kurt Salmon. Alexander Proudfoot
develops and implements operational improvements to its clients to
increase productivity and reduce costs. Kurt Salmon provides
consultancy services to a wide range of industries in both the
private and public sectors. Alexander Proudfoot is not affected by
the Disposal.
The Target Business comprises the Kurt Salmon businesses in
France, Belgium, Luxembourg, Switzerland and Morocco, together with
certain related operations in the United States. The Target
Business generated profit before tax of GBP2.14 million (Group:
GBP4.93 million) and revenues of GBP96.9 million (Group GBP242.8
million), in each case for the year ended 31 December 2014. The
Target Business had total assets of GBP25.88 million (Group:
GBP334.83 million) as at 30 June 2015 (all of these preceding
figures are unaudited, save for the Group figures which are
audited).
In France, which represented approximately 74% of the revenues
of the Target Business in the first half of 2015, Kurt Salmon
provides management consulting services to a wide range of industry
sectors, principally serving large French corporates and public
sector clients. The largest industry practices of Kurt Salmon in
France in terms of revenues are those in the financial sector and
in industrials and utilities.
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The revenues of the Kurt Salmon business in France contracted
during the 2012-14 period and this weaker trading performance
adversely impacted the results of MCG as a whole. In the first half
of 2015, we saw signs of improving business confidence in the
French market, with some underlying revenue growth (5% on a
constant currency basis) and an improved operating profit
margin.
The Kurt Salmon operations in the other European and North
African geographies (in Belgium, Luxembourg, Switzerland and
Morocco) are related to the Kurt Salmon business in France in terms
of industry sector coverage and clients, and also share some
consulting staff resources and back office functions. In aggregate,
these other European and North African operations represented
approximately 14% of the total revenues of the Target Business in
the first half of 2015.
The remainder of the Target Business comprises two New
York-based practices of Kurt Salmon, one of which is industry
focused and provides management consulting services to financial
sector clients, and the other, CIO Advisory, which provides
IT-related management consulting services principally to Chief
Information Officers, but also focusing largely on financial sector
clients. These US practices are also related to Kurt Salmon's
French business, in particular in terms of their client base.
The Target Business therefore comprises the French operations of
Kurt Salmon and those operations in other geographies which are
related to the French operations. Under the terms of a licence
agreement to be entered into at Completion, the Purchaser will have
the right to use the Kurt Salmon name for a transition period of up
to three years in the territories in which the Target Business
currently operates.
The Kurt Salmon business which will be retained by MCG following
the Disposal comprises the international consulting practice
focusing on clients in the retail and consumer goods sectors, and
currently principally operating in the United States, Canada, the
United Kingdom, Germany, Japan and China, and a healthcare
consulting practice operating principally in the United States.
Kurt Salmon is an established international brand and a leading
management consulting firm addressing clients in the retail and
consumer goods sector. The Kurt Salmon business which will be
retained by MCG represented 48% of the revenues of Kurt Salmon as a
whole in the first half of 2015.
The Board has concluded that the terms of the Disposal provide
an opportunity to exit from the Kurt Salmon business in France and
its related operations, which together form the Target Business, at
an attractive price for Shareholders. The Target Business of Kurt
Salmon is one of the leading consulting firms in France, but as
part of the MCG Group its potential for investment and growth is
limited, both in the French market itself and through the further
expansion of its broad-based industry sector offerings
internationally.
The Disposal provides an opportunity for the Group to
significantly reduce both its leverage and its significant exposure
relative to the Group to the consulting market in France, as well
as allowing the Group to concentrate on the retained businesses of
Kurt Salmon, which will be focused primarily on clients in the
global retail and consumer goods sector, and Alexander Proudfoot.
Following the Disposal, the operations of the MCG group will
comprise the retained Kurt Salmon business, and Alexander
Proudfoot.
3. Key benefits of the Disposal
-- Achieves an attractive value for Shareholders
The agreed gross cash proceeds of approximately EUR84.0 million
(equivalent to approximately GBP59.2 million) (which is subject to
post-closing adjustments relating to amounts of debt, debt like
items, appropriate level of the existing provisions, cash and
working capital in the Target Business at Completion) represents
approximately 80% of the Group's market capitalisation as at 25
November 2015. By comparison the revenue and profit before tax of
the Target Business for the year ended 31 December 2014 represented
approximately 40% of the Group's revenue and 43% of the Group's
profit before tax for that year.
The sale price is based on an agreed enterprise value (i.e.
including debt-like items and before other adjustments) of EUR98.5
million (equivalent to GBP69.4 million). This implies enterprise
value to revenue, and enterprise value to underlying profit from
operations multiples for the Target Business of 0.72x and 16.7x
respectively, based on the financial information for the year ended
December 2014. These multiples compare very favourably to the
equivalent implied 2014 multiples for the Group of 0.44x and
9.1x.(1)
-- Allows the Group to reduce indebtedness
MCG will use the net proceeds to repay the Group's net bank
indebtedness under the existing banking facility, which is expected
to be approximately GBP50 million at Completion and will retain the
remaining net proceeds for general corporate purposes. The Group
has arranged a new Working Capital Facility of GBP15 million, which
will replace the existing banking facility on Completion and,
together with the balance of the net cash proceeds of the Disposal,
be available to fund the Group's ongoing working capital
requirements.
-- Rebalances the Group's portfolio of businesses in geographic terms
The Disposal will reduce the proportion of the Group's business
which is derived from France and continental Europe, and so
increases the relative proportion of the Group's revenues from
other markets, in particular North America. This is consistent with
the Board's strategy to focus on higher growth opportunities in
North America and Asia.
-- The Kurt Salmon business retained by the Group will focus on two industry verticals
The Kurt Salmon business retained by the Group will focus
largely on serving global clients in the retail and consumer goods
sector. Kurt Salmon is recognised as a leading management
consulting firm in that sector. The retained Kurt Salmon business
will also continue to operate a healthcare practice in the US.
4. Principal terms and conditions of the Disposal
The Disposal will be effected by way of a sale of the entire
issued share capital of the Management Consulting Group France SAS
(the "Target Company"). The gross cash proceeds payable by the
Solucom to the Company for the shares in the Target Company shall
be approximately EUR84.0 million (equivalent to approximately
GBP59.2 million) (subject to post-closing adjustments relating to
the debt, debt like items, the appropriate level of existing
provisions, cash and working capital position at Completion).
The Disposal is expected to complete in January 2016. The
Disposal is conditional upon:
(i) the approval by Shareholders of the Disposal Resolution at
the General Meeting;
(ii) there having been no material adverse change in the staff
retention rates and current year forecast operating results of the
Target Business since the date of signing of the Disposal Agreement
up to the later of the passing of the Disposal Resolution by
Shareholders at the General Meeting and 6 January 2015; and
(iii) the French Anti-trust Authority (Autorité de la
Concurrence) approving the Disposal.
In the event that the conditions referred to above have not been
satisfied by 29 February 2016, the Disposal Agreement will
terminate. In addition, Solucom's obligation to complete is subject
to the provision by its financing banks of funding in accordance
with the terms of binding commitment letters entered into between
Solucom and the relevant banks at the same time as the Disposal
Agreement or otherwise on similar terms and Solucom has agreed to
use its best endeavours to procure that such financing is available
to enable completion to occur.
The Company has agreed to grant Solucom a licence to use the
Kurt Salmon name for a period of three years from Completion in
France, Belgium, Switzerland, Luxembourg and, in relation only to
the financial sector and related CIO-advisory business being
acquired by the Purchaser and subject to it being used in
conjunction with the Solucom name, the United States subject to
certain customary terms and conditions.
5. Financial effects of the Disposal and the use of proceeds
MCG will use the net cash proceeds of the Disposal to repay the
Group's net bank indebtedness, which is expected to be
approximately GBP50 million at Completion, and will retain the
remaining net cash proceeds for general corporate purposes.
The Group will continue to monitor its balance sheet, including
the appropriate level of capital, liquidity and debt, taking into
account opportunities to further invest in and grow the Group's
remaining businesses, or to seek value for shareholders through
further disposals should appropriate opportunities arise.
Shareholders should note that the Disposal will generate a one
off IFRS loss on sale of approximately GBP50 million, principally
as a result of the write off of goodwill held in the consolidated
balance sheet of the Group which is allocated to the Target
Business. The Group profit and loss account reflecting the Disposal
will also include non-recurring expenses relating to the Disposal.
Had the Disposal taken place on 30 June 2015, the pro forma net
assets of the Retained Group would have been GBP153.5 million
compared with the reported Group net assets of GBP186.9 million.
The Board believes that the Disposal will not be accretive to
earnings per share, principally as a result of the use of the
proceeds to pay down the Group's net indebtedness and therefore to
eliminate gearing in its balance sheet at Completion.
6. Board, Management and Employees
The current Chief Executive of Kurt Salmon, Chiheb Mahjoub, will
stand down from the MCG Board and from his executive management
role in Kurt Salmon after the General Meeting but before
Completion.
7. Dividend policy
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