Acquisitions Update

RNS Number : 3995C

Kin and Carta PLC

22 February 2022

 

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF SUCH JURISDICTION

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION

For immediate release

22 February 2022

Kin and Carta plc

Acquisitions Update

KIN + CARTA EXPANDS EUROPEAN NEARSHORE SOFTWARE DELIVERY, E-COMMERCE AND ARTIFICIAL INTELLIGENCE CAPABILITIES WITH THREE ACQUISITIONS

Kin and Carta plc ("Kin + Carta" or the "Company"), the global digital transformation ("DX") consultancy, today announces three acquisitions (the "Acquisitions") in line with its stated strategy to grow both organically and through acquisitions that expand its geographic reach and enhance its DX capabilities. The total consideration for the three acquisitions is capped at GBP 30.4 million, with total initial consideration payments estimated at GBP 20.1 million plus customary adjustments for cash, debt and working capital. The Acquisitions have been or will be funded through cash on hand and drawdowns on the Company's revolving credit facility, as well as the issue of new ordinary shares in the Company.

Summary

● Signed an agreement to acquire Melon AD and its subsidiaries ("Melon Group"), a privately held digital transformation consulting firm with a presence in Bulgaria, North Macedonia and Kosovo.

○ Expands Kin + Carta's nearshore software development capacity, enabling high value and lower cost delivery for Kin + Carta's global clients.

● Acquired the remaining 50% ownership of Loop Integration LLC ("Loop"), further strengthening Kin + Carta's digital e-commerce offering.

● Acquired Octain ("Octain"), an artificial intelligence ("AI") platform that enhances the Company's data and AI services.

● The Company expects the Acquisitions to be accretive to adjusted earnings per share in the first full year of ownership.

● The Company continues to pursue an active pipeline of promising acquisition opportunities which includes both larger scale businesses and niche bolt-on targets.

Melon Group

Fast growing and award-winning software development company Melon Group are ranked #1 in Bulgaria, and #23 globally by Clutch out of the top 1,000 B2B companies worldwide. Melon Group is an ISO-certified, Microsoft Gold Partner, serving blue-chip clients including Philips, Burger King and many others. Under the experienced territory leadership of Chief Executive Officer Krum Hadjigeorgiev, Melon Group deploys 300 technology and data specialists across Bulgaria, North Macedonia and Kosovo. The Sofia-headquartered business will be integrated into Kin + Carta Europe, providing nearshore delivery services for Kin + Carta clients immediately on Completion as well as a continuing recruiting source for key talent moving forward. The acquisition complements Kin + Carta's existing investment in Greece to form a new South-Eastern Europe territory from which to enhance margins and accelerate scale.

The acquisition is conditional on the Company receiving clearances from the North Macedonian and Kosovan competition authorities and will complete following the receipt of these clearances, expected to be in the second calendar quarter of 2022 ("Completion").

Melon Group is currently owned by its management, who will continue to serve post-Completion with an earn out measured over the period to 31 December 2023 and payable over three years, and a small number of Bulgarian investors who will exit upon Completion (together the "Sellers").

The consideration payable comprises an estimated initial amount of GBP 17.7 million plus customary adjustments for cash, debt and working capital, of which 40 percent is payable in Kin + Carta ordinary shares, and the balance payable in cash, both amounts to be settled at Completion. In addition, an earn out is potentially payable over three years, linked to growth in adjusted EBITDA from 1 January 2022 to 31 December 2023. Up to 60 percent of the earn out may be payable in Kin + Carta ordinary shares at the Company's discretion. Following the Completion of the acquisition, the Company will have an option to purchase and the minority owners will have an option to sell the 49 percent minority stake in Melon's Kosovo subsidiary, Frakton SH.P.K, for GBP 0.8 million within a 3 month period (the "Frakton option"). In 2020 Frakton became one of the first Kosovo companies ever to be featured in the prestigious Deloitte report, The Deloitte Technology Fast 50 in Central Europe .

The total consideration for Melon including potential earn out amounts is capped at GBP 23.5 million, with a further GBP 0.8 million payable in cash if the Frakton option is exercised by either party.

Melon Group generated revenues of EUR 9.0 million and operating profit of EUR 2.2 million for the year ended 31 December 2021. Melon Group has been growing at 20%+ in recent years. Melon Group's gross assets were approximately EUR 4.3 million as at 31 December 2021. All figures are unaudited.

Loop    

Kin + Carta has acquired the remaining 50% interest, which it did not already own, in Chicago-based e-commerce consultancy Loop, further strengthening the Company's digital commerce capabilities. Loop has delivered end-to-end e-commerce consultancy, integration and optimisation since 2013 with increasing alignment to Kin + Carta's core technology, data, and experience services. This shared approach accelerates efficiency and speed to value for enterprise clients including Southwire and Royal Caribbean. Loop's 30%+ year-on-year growth provides further opportunities post-acquisition for growth in Kin + Carta's e-commerce proposition.

Loop generated net revenue of US$9.3 million and US$1.8 million of adjusted operating profit for the year ended 31 December 2021. Kin + Carta's 50% investment in Loop was equity accounted as a joint venture prior to the acquisition. All figures are unaudited.

The initial consideration comprised GBP 2.2 million in cash at completion, subject to customary adjustments for cash, debt and working capital, with deferred consideration contingent upon revenue growth for the two years ended 31 December 2023 capped at GBP 3.8 million for a total cap of GBP 6 million. Up to 75% of the deferred contingent consideration amounts may be settled in ordinary shares of the Company at the Company's discretion.

Octain

Kin + Carta has acquired Octain, the Silicon Valley founded responsible AI data platform. Octain provides clients advanced insight, predictions and recommendations governed by socially responsible AI principles. Octain integrates into Kin + Carta's existing data and AI capabilities, which include the December 2020 acquisition of Portland based data science company Cascade Data Labs, and gives the Company the ability to quickly and accurately predict supply chain shortages, detect fraud, measure customer retention, and accelerate data-driven decision making.

The Company paid GBP 0.2 million of initial consideration in cash for this acquisition with potential deferred consideration up to GBP 0.7 million linked to additional net revenue from the platform, up to 100% of which may be settled in Kin + Carta ordinary shares at the Company's discretion.

Commenting on the Acquisitions, Kin + Carta's Chief Executive Officer J Schwan, said:

"We are very pleased to announce three strategic acquisitions today: Melon Group's exceptional engineering talent in the emergent tech hubs of Bulgaria, North Macedonia and Kosovo provide our clients with another high value, lower cost software development choice. This, along with the acquisitions of Loop in the fast-growing e-commerce sector, and Octain with its socially responsible AI data platform, all strengthen Kin + Carta's position as a scaling pure play digital transformation consultancy."

Krum Hadjigeorgiev, Chief Executive Officer, Melon Group said:

"We're thrilled to be joining a fast growing, innovative and diverse company with a clear commitment to using business as a force for good. Our teams are excited to bring Melon Group's passion and capabilities to Kin + Carta's exceptional client-base alongside our own highly valued clients."

Half Year Results

Kin + Carta's half year results for the six months ended 31 January 2022 will be presented via video conference on 24 March 2022.

Enquiries:

Kin + Carta J Schwan CEO Chris Kutsor CFO	[phone]
Powerscourt Robin O'Kelly / Jane Glover	[phone]
Numis Securities Limited Nick Westlake / Matt Lewis Peel Hunt LLP Edward Knight / John Welch	[phone]   [phone]

About Kin + Carta

Kin + Carta is a London Stock Exchange-listed global digital transformation consultancy committed to working alongside clients to build a world that works better for everyone.

Kin + Carta's 1,700 strategists, engineers, and creatives around the world bring the connective power of technology, data, and experience to the world's most influential companies - helping them to accelerate their digital roadmap, rapidly innovate, modernise their systems, enable their teams, and optimise for continued growth. Headquartered in London and Chicago with offices across three continents, the border-less model of service allows for the best minds to be connected to collaborate on client challenges.

With purpose at its core, Kin + Carta became the first publicly-traded business on the London Stock Exchange to achieve B Corp certification as a PLC. It meets the highest standards of verified social and environmental performance, public transparency, and accountability to balance the triple bottom line of people, planet, and profit.

For more information, please visit https://www.kinandcarta.com.

Important notices

This Announcement contains inside information and is issued on behalf of the Company by Daniel Fattal, Company Secretary.

Cautionary statement regarding forward-looking statements

This Announcement may contain "forward-looking statements" with respect to certain of the Company's plans and its current goals and expectations relating to its future financial condition, performance, strategic initiatives, objectives and results. Forward-looking statements sometimes use words such as "aim", "anticipate", "target", "expect", "estimate", "intend", "plan", "goal", "believe", "seek", "may", "could", "outlook" or other words of similar meaning.  By their nature, all forward-looking statements involve risk and uncertainty because they are based on numerous assumptions regarding the Company's present and future business strategies, relate to future events and depend on circumstances which are or may be beyond the control of the Company which could cause actual results or trends to differ materially from those made in or suggested by the forward-looking statements in this Announcement, including, but not limited to, domestic and global economic business conditions; market-related risks such as fluctuations in interest rates; the policies and actions of governmental and regulatory authorities; the effect of competition, inflation and deflation; the effect of legislative, fiscal, tax and regulatory developments in the jurisdictions in which the Company and its respective affiliates operate; the effect of volatility in the equity, capital and credit markets on profitability and ability to access capital and credit; a decline in credit ratings of the Company; the effect of operational and integration risks; an unexpected decline in sales for the Company; inability to realise anticipated synergies; any limitations of internal financial reporting controls; and the loss of key personnel.  Any forward-looking statements made in this Announcement by or on behalf of the Company speak only as of the date they are made.  Save as required by the Market Abuse Regulation, the Disclosure Guidance and Transparency Rules, the Listing Rules or by law, the Company undertakes no obligation to update these forward-looking statements and will not publicly release any revisions it may make to these forward-looking statements that may occur due to any change in its expectations or to reflect events or circumstances after the date of this Announcement.

 

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