Strategic Review and Formal Sale Process

RNS Number : 2727B

Frenkel Topping Group PLC

03 April 2017

 

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF EU REGULATION 596/2014

THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN IS RESTRICTED AND IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN OR INTO OR FROM AUSTRALIA, NEW ZEALAND, SOUTH AFRICA, JAPAN, CANADA, SWITZERLAND OR THE UNITED STATES OR ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF SUCH JURISDICTION

3 April 2017

Frenkel Topping Group plc

("Frenkel Topping" or the "Group")

Strategic review including formal sale process and commencement of offer period under the City Code

Frenkel Topping (AIM: FEN), a specialist independent financial advisor and asset manager focused on asset protection for vulnerable clients, announces that its Board is reviewing strategic options to accelerate the enhancement in Frenkel Topping's competitive positioning and maximise shareholder value, including a potential sale of the Group

Overview

·     Specialist provider of independent financial advice and wealth management services focused on asset protection for vulnerable clients

·     Market leader in an attractive and growing market segment with significant barriers to entry, which is set to be transformed by the recent Ogden rate ruling (effective 20 March 2017)

·     Successfully executed the roll-out of an integrated discretionary fund management and financial planning proposition following the launch of Frenkel Topping Investment Management ("FTIM")

·     Highly scalable and contemporary business model primed for accelerated and sustainable growth, targeting industry-leading financial performance metrics

·     As part of the Board's strategic review of how to maximise the Group's potential to capture fully the substantial market opportunity and to enhance shareholder value, a formal sale process is being commenced, in accordance with Note 2 on Rule 2.6 of The City Code on Takeovers and Mergers (the "Code")

Frenkel Topping, one of the leading independent financial advisors and asset managers to those in receipt of a personal injury or clinical negligence claim, has made considerable progress implementing its strategic plan over the past two years to create a differentiated high growth platform which is expected to deliver superior operating margins together with long-term and sustainable earnings.

The Board believes that the attributes of the business include:

1.    National distribution through a highly skilled and specialist consultancy force;

2.    Very stable long-term client relationships with excellent retention;

3.    Sector-leading expertise in its core business;

4.    A rapidly growing discretionary fund management business;

5.    An established platform which is expected to achieve some of the highest operating margins within UK wealth management, and with exceptional long-term growth prospects; and

6.    Leading player in a market which is expected to exhibit strong growth due to regulatory reform (Ogden review leading to an increase in future client case values), underlying growth in the volume of cases, and medical developments improving client survival rates and life expectancy.

Milestones overseen by the Board have included the launch of the discretionary fund management business (in addition to financial advice) and the specialist investment product range of Safety First Portfolios, a suitability review resulting in over one third of the Group's £745m of AUM transitioning into the FTIM investment solutions, a significant front office recruitment programme and the relocation of the main office. These strategic initiatives have been combined with the delivery of strong operational and financial performance.

The Board believes that these initiatives have ensured that the Group is strongly positioned to accelerate its year-on-year growth in AUM and deliver a step change in its profitability. The announcement in February of the change in the Ogden discount rate has dramatically changed how compensation damages are calculated. The Group estimates that the size of court damages will likely grow substantially (with an average potential uplift of c.80%) and there will be an increase in client preferences for lump sum amounts to be managed (as opposed to Periodical Payment Orders or PPOs). These factors are expected to increase the market opportunity significantly and result in a material uplift in the rate of AUM growth for Frenkel Topping. 

The Board is of the opinion that the scale of the opportunity presenting itself is sufficiently large that in order for Frenkel Topping to capture it fully and make best use of its potential, it may require the Group to combine with a larger, strategic partner. This would enable the Group to take advantage of its competitive positioning more effectively and more quickly than it could be prudently expected to do on its own, and in doing so also generate potentially significant incremental synergies and maximise shareholder value.    

In order for the Board to investigate this strategic option sufficiently with prospective partners who may be able to accelerate the growth of the business and help fulfil its considerable potential, it believes it necessary for the Group to enter into a formal sale process. In all circumstances, the Board remains committed to pursuing the most appropriate course of action for the clients, shareholders and employees of Frenkel Topping.

Jason Granite, Executive Chairman said:

"Since 2015, the management and Board have successfully implemented a range of strategic initiatives transforming Frenkel Topping both in terms of enhancing our client service proposition and developing a highly scalable platform to drive growth in AUM and profitability.

Whilst the competitive positioning and potential of the firm has been further enhanced by the Ogden discount rate review, the Board recognises that a strategic partner has the capability to maximise the Group's potential, to the benefit of our clients, shareholders and employees."

Formal Sale Process

The Board is announcing today a formal sale process, in accordance with Note 2 on Rule 2.6 of the Code to solicit potential partners to acquire Frenkel Topping. The Group is not in receipt of any approaches at the time of this announcement. Parties with a potential interest in making an offer for Frenkel Topping should contact Spencer House Partners LLP (contact details set out below).

Any interested party will be required to enter into a non-disclosure agreement with the Group on reasonable terms satisfactory to the Board and on the same terms, in all material respects, as all other interested parties before being permitted to participate in the process. Following execution of an agreed non-disclosure agreement, the Group intends to provide interested parties with certain information on the business. After which, interested parties shall be invited to submit proposals to Spencer House Partners LLP. The Group expects to invite proposals to be made during May 2017. A further announcement regarding timings for the formal sale process will be made when appropriate.

The Takeover Panel has granted a dispensation from the requirements of Rules 2.4(a), 2.4(b) and 2.6(a) of the Code such that any interested party participating in the formal sale process will not be required to be publicly identified as a result of this announcement (subject to Note 3 on Rule 2.2 of the Code) and will not be subject to the 28 day deadline referred to in Rule 2.6(a) for so long as it is participating in the formal sale process.

The Board reserves the right to alter any aspect of the formal sale process or terminate it at any time and will make further announcements as appropriate. It also reserves the right to reject any approach or terminate discussions with any interested party at any time. The Board is being advised by Spencer House Partners LLP (as regards the formal sale process) and finnCap Limited (as Rule 3 adviser in the event that Frenkel Topping receives an offer or offers for the issued share capital of the Group).

Code Implications

This announcement is not an announcement of a firm intention to make an offer under Rule 2.7 of the Code.

A copy of this announcement will be made available (subject to certain restrictions relating to persons resident in restricted jurisdictions) at www.frenkeltopping.co.uk by no later than 12 noon (London time) on the business day following the release of this announcement in accordance with Rule 26.1 of the Code. The content of the website referred to in this announcement is not incorporated into and does not form part of this announcement.

As a consequence of this announcement an "offer period" has commenced in respect of the Group in accordance with the rules of the Code and dealing disclosure requirements below will apply.

There can be no certainty that any offer will be made for the Group, or even proposed, or as to the level of any proposal or offer that made be made.

Frenkel Topping: A Specialist, Market Leading and Fast-Growing Wealth Manager

The market for the provision of specialist independent financial advice and wealth management for vulnerable clients is an attractive segment within the UK wealth management sector given:

(i)           Strong historical and projected growth, due to underlying growth in the volume of cases, and medical developments improving client survival rates and life expectancy, and which is expected to be transformed further by the recent Ogden review which came into effect last month, both in terms of the increase in the size of awards and higher take up by clients of lump sum payments (versus PPOs);

(ii)         Significant barriers to entry for potential new participants, given the depth and range of services and specialist knowledge required;

(iii)        Differentiated client dynamics, including stickiness of the client base and the high visibility on new client acquisition, with no reliance on macro wealth creation or winning clients from competitors;

(iv)        Defensive qualities of the client asset base in the event of a market downturn, by nature of the low-risk investment offering required by clients; and

(v)         Opportunity to achieve superior operating margins within the UK wealth management industry.

Frenkel Topping occupies a leading position within this attractive and growing market segment, underpinned by the range of its specialist client service offering, its highly qualified client-facing consultant base, together with its established industry relationships and joint ventures with law firms.

The Group has demonstrated a proven ability to generate new business and continued to do so over the last 12 months (total AUM grew by £79m / 12% in the year to 31 December 2016), notwithstanding the internal focus on suitability reviews and transition of existing clients into the FTIM investment offerings. The refocus of the front office staff on organic growth, combined with the positive impact of the Ogden rate review, is expected to drive strong growth in AUM. Frenkel Topping's specialist investment product range, Safety First Portfolios, specifically designed for vulnerable clients, should further enhance its ability to secure assets. The Group is also seeking to build on this growth through additional hires of high quality personnel coupled with broader geographic expansion in the UK, thereby consolidating its leading market position.

Frenkel Topping has achieved consistently high client retention for its wealth management services (99% for the eighth consecutive year), whilst the proportion of recurring revenues has steadily increased and, for the year ending December 2016, amounted to approximately 80% of total revenues.

Since the launch of FTIM during 2016, Frenkel Topping has successfully executed the roll-out of its integrated discretionary investment management and financial planning offering, and has transitioned a significant proportion of clients into the in-house investment solution (£253m out of total AUM of £745m, as at 31 December 2016). This has enabled the Group to deliver a broader, integrated service offering to its clients as well as retaining a greater economic contribution and increasing operational leverage within the business. The Board expects a resultant step change in the Group's profitability from 2017 onwards, targeting industry-leading financial performance metrics.

Consequently, the Board believes that Frenkel Topping represents a market-leading business in one of the most attractive segments of the industry with a well-established brand, high quality infrastructure and impressive business plan execution, with strong growth prospects ahead.  It is the Board's opinion that the potential of Frenkel Topping is most likely to be achieved more quickly and its value maximised through a combination with a strategic partner which can deliver economies of scale, a greater breadth of service offering and other synergies.

Financial performance

As previously guided in the announcement on 20 March 2017 of Frenkel Topping's full year results, trading for the current financial year has started in line with expectations.

The Board confirms that its previous guidance, targeting revenue of c.£8.5m and profit from operations of c.£3.5m in the current financial year and revenue of c.£10m and profit from operations of c.£5m in 2018, remains valid and has been properly compiled on the basis of the assumptions stated below and that the basis of accounting used is consistent with the Group's accounting policies.

Assumptions

·     Delivery of c.£100m of new AUM for 2017 and c.£180m for 2018;

·     Maintenance of current margins and cost control; and

·     Delivery of a return on the cash balance.

Investor enquiries Jason Granite, Executive Chairman Richard Fraser, Chief Executive Officer Julie Dean, Chief Financial Officer	[phone]
finnCap Limited                                                           Adrian Hargrave, James Thompson (Corporate Finance) Tony Quirke (Corporate Broking)	[phone]
Spencer House Partners LLP Jeremy Sillem Andrew Malcolm	[phone]

finnCap Limited, which is regulated in the United Kingdom by The Financial Conduct Authority, is acting for the Group in relation to the matters described in this announcement and is not advising any other person, and accordingly will not be responsible to anyone other than the Group for providing the protections afforded to customers of finnCap or for providing advice in relation to the matters described in this announcement.

Spencer House Partners LLP, which is regulated in the United Kingdom by The Financial Conduct Authority, is acting for the Group in relation to the matters described in this announcement and is not advising any other person, and accordingly will not be responsible to anyone other than the Group for providing the protections afforded to customers of Spencer House Partners or for providing advice in relation to the matters described in this announcement.

The directors of Frenkel Topping accept responsibility for the information contained in this announcement. To the best of their knowledge and belief (having taken all reasonable care to ensure that such is the case), the information contained in this announcement for which they are responsible is in accordance with the facts and does not omit anything likely to affect the import of such information.

About Frenkel Topping

Frenkel Topping provides specialist independent financial advice and wealth management focused on asset protection for vulnerable clients. The specialist financial services group has a market leading position providing advice and fund management services for personal injury and clinical negligence awards and is well placed tom provide services to a wider customer base.

It has a national presence with offices in Manchester, Birmingham, Cardiff, London and Leeds and has relationships and infrastructure in place to further grow its reach and target markets.

As at 31 December 2016, the Group has over 1,600 clients with £745m of Assets Under Management (AUM) with £253m on a discretionary mandate.

Relevant Securities in Issue

In accordance with Rule 2.9 of the Code, Frenkel Topping confirms that it has 76,990,683 Ordinary Shares of 0.5 pence each in issue at the close of business on 31 March 2017 with ISIN code  GB00B01YXQ71.

No Offer of Securities

This announcement is not, nor should be construed as, an offer of, or solicitation of an offer purchase or subscribe for, any securities to any person in any jurisdiction. In particular, this announcement does not constitute an offer for sale of, or a solicitation to purchase or subscribe for, any securities in the United States. No securities of the Group have been, or will be, registered under the US Securities Act of 1933, as amended (the "Securities Act"), and securities of the Group may not be offered or sold in the United States absent an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and in t compliance with any applicable securities laws of any state or other jurisdiction of the United States.

Forward-looking Statements

This announcement, including information included or incorporated by reference in this announcement, may contain certain "forward looking statements" regarding the financial or business strategy or plans for the future operations of the Group. All statements other than statements of historical fact included in any document may be forward looking statements. Forward looking statements also often use words such as "believe", "expect", "estimate", "intend", "anticipate" and words of a similar meaning. By their nature, forward looking statements involve risk and uncertainty that could cause actual results to differ materially from those suggested by them. Much of the risk and uncertainty relates to factors that are beyond the Group's abilities to control or estimate precisely, such as future market conditions and the behaviours of other market participants, and therefore undue reliance should not be placed on such statements which speak only as at the date of this announcement. The Group does not assume any obligation to, and do not intend to, revise or update these forward looking statements, except as required pursuant to applicable law.

Code Disclosure Requirements

Under Rule 8.3(a) of the Code, any person who is interested in 1% or more of any class of relevant securities of an offeree company or of any securities exchange offeror (being any offeror other than an offeror in respect of which it has been announced that its offer is, or is likely to be, solely in cash) must make an Opening Position Disclosure following the commencement of the offer period and, if later, following the announcement in which any securities exchange offeror is first identified. An Opening Position Disclosure must contain details of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any securities exchange offeror(s). An Opening Position Disclosure by a person to whom Rule 8.3(a) applies must be made by no later than 3.30 pm (London time) on the 10^th business day following the commencement of the offer period and, if appropriate, by no later than 3.30 pm (London time) on the 10^th business day following the announcement in which any securities exchange offeror is first identified. Relevant persons who deal in the relevant securities of the offeree company or of a securities exchange offeror prior to the deadline for making an Opening Position Disclosure must instead make a Dealing Disclosure.

Under Rule 8.3(b) of the Code, any person who is, or becomes, interested in 1% or more of any class of relevant securities of the offeree company or of any securities exchange offeror must make a Dealing Disclosure if the person deals in any relevant securities of the offeree company or of any securities exchange offeror. A Dealing Disclosure must contain details of the dealing concerned and of the person's interests and short  positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any securities exchange offeror(s), save to the extent that these details have previously been disclosed under Rule 8. A Dealing Disclosure by a person to whom Rule 8.3(b) applies must be made by no later than 3.30pm (London time) on the business day following the date of the relevant dealing.

If two or more persons act together pursuant to an agreement or understanding, whether formal or informal, to acquire or control an interest in relevant securities of an offeree company or a securities exchange offeror, they will be deemed to be a single person for the purpose of Rule 8.3.

Opening Position Disclosures must also be made by the offeree company and by any offeror and Dealing Disclosures must also be made by the offeree company, by any offeror and by any persons acting in concert with any of them (see Rules 8.1, 8.2 and 8.4).

Details of the offeree and offeror companies in respect of whose relevant securities Opening Position Disclosures and Dealing Disclosures must be made can be found in the Disclosure Table on the Takeover Panel's website at www.thetakeoverpanel.org.uk, including details of the number of relevant securities in issue, when the offer period commenced and when any offeror was first identified. You should contact the Panel's Market Surveillance Unit on [phone] if you are in any doubt as to whether you are required to make an Opening Position Disclosure or a Dealing Disclosure.

 

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