Acquisition of 40% of Ignite Energy & Excl Option
2 August 2019
Inspired Energy plc
("Inspired" or the "Group")
Acquisition of 40% interest in Ignite Energy LTD and exclusive call option to acquire the balancing 60% in the company
Inspired (AIM: INSE), a leading energy consultant to UK and Irish corporates, is delighted to announce that it has today completed the acquisition of an initial 40 per cent of the issued share capital of Ignite Energy LTD ("Ignite") (the "Strategic Investment"). Inspired has paid net £5.0 million, calculated on a cash free debt free basis, for the Strategic Investment. Inspired also has an exclusive option, until 31 July 2021, to acquire the balancing interest of 60 per cent under the terms of an option agreement ("Option Agreement"). The Board believes the strategic investment accelerates the Group's ability to deliver on the stated strategy to grow its market share within the third-party intermediary optimisation services market.
INFORMATION ON IGNITE
· Ignite offers a full spectrum of energy management services, with a strong focus on delivering energy efficiency projects and optimisation services to large, multi-site estate intensive, commercial energy customers, including Halford's, SSP, Network Rail and WH Smith.
· Ignite's optimisation services support clients through increasing the effectiveness of their energy consumption by implementing large scale energy demand reduction projects.
· Ignite's specialism in efficiency projects and optimisation services is highly complementary to Inspired's customer base, with a particular relevance to the Group's estate and energy intensive customer segments.
· Ignite also provides consultancy services such as energy procurement and energy accounting services to UK corporates, aligned to Inspired's core Corporate offering.
KEY TERMS
· Initial consideration of £5.0 million ("Initial Consideration") to acquire 40 per cent of issued share capital of Ignite on a debt free, cash free, normalised working capital basis.
· Further contingent consideration of up to £3.0 million may become payable in cash, subject to the achievement of certain financial performance targets for the year ending 31 December 2019.
· The profits available for distribution of Ignite, will be paid by dividend to its shareholders on a bi-annual basis on 1 January and 1 July each year, pro rata to its shareholdings.
· The Initial Consideration has been financed from the Group's existing resources, with funding provided by a drawdown of the Group's existing £12.5 million acquisition facility with Santander.
· Mark Dickinson and Paul Connor will join the board of Ignite, which will consist of five people.
OPTION AGREEMENT
· Under the Option Agreement, from completion until 31 July 2021, Inspired has an exclusive one-way call option to acquire the outstanding balance of 60 per cent of the issued share capital of Ignite ("Remaining Ignite Shares").
· Under the terms of the Option Agreement, Inspired will pay consideration for the Remaining Ignite Shares which equates to an enterprise value of 6.0x earnings before interest, tax, depreciation and amortisation ("EBITDA") ("Option Consideration").
· The Option Consideration shall be based off a minimum EBITDA of £3.0 million, and at the time of exercising the Option Agreement, an amount of £10.8 million will become payable by Inspired.
· Should the EBITDA be greater than £3.0 million in either of the scenarios shown below, then additional consideration will become payable by Inspired, being the higher of:
- 6.0x Ignite's EBITDA for the last 12 months ending on the date of the exercise of the option under the Option Agreement, or;
- 6.0x Ignite's EBITDA for the financial year ending the year in which the option is exercised under the Option Agreement;
- Less the £10.8 million already paid on exercise of the option, subject to a maximum EBITDA of £7.0 million.
· Any additional consideration due will be payable within 90 days following the end of the financial year in which the option agreement is exercised, Ignite's financial year end is 31 December.
Commenting on the transaction, Mark Dickinson, CEO of Inspired said: "We are delighted to conclude our strategic investment in Ignite, a business which is highly complementary to Inspired's core Corporate Division. The Strategic Investment significantly broadens and accelerates our optimisation service offering. Ignite has proven itself, over many years, to be capable of achieving material improvements to the energy efficiency of its clients. Inspired currently has over 500 clients within the estate and energy intensive segments who meet the Ignite customer profile, and could benefit from the services that Ignite provides.
"We look forward to working closely with the highly experienced and knowledgeable team of Ignite and welcoming them into the Group as we continue to extend our position as a market leader."
Commenting on the strategic investment, David Higgins, Director of Ignite said: "When contemplating strategic options for the development of Ignite, we were looking for a partner who we could work alongside to both bring benefits to our customers and provide a platform to develop and scale the business. We believe Inspired to be the perfect partner for Ignite and are looking forward to working with the Inspired team to further improve the services we offer to the Inspired and Ignite clients. We believe that by working together, we will benefit from significant new opportunities both in terms of winning new clients but also in bringing benefits and savings to our existing portfolios."
Rationale for the Strategic Investment
As part of its stated strategy, the Board believes that optimisation services represents a very significant future opportunity for the Group, leveraging its established market leading position in energy consultancy. The UK optimisation services market remains relatively immature and service delivery models in this area, which are typically project based rather than recurring, will evolve over time as both customer understanding and technology develops. Against this backdrop, the Board believes that it is important to remain flexible and able to adapt its offering in this area in line with market developments, which complements its growing optimisation services capabilities.
The Strategic Investment is structured to enable Inspired to accelerate its own optimisation service offering to the Inspired customer base through the skills and experience of the Ignite team, whilst enabling Ignite to scale and dilute their existing customer concentration through access to and servicing of the Inspired customer base. The strategic investment aligns the interests of Ignite's management with those of the Group, as the Option Consideration captures the benefits should they be able to accelerate growth over the next two years. From the Group's perspective, the Option Agreement enables Inspired to secure ownership of Ignite at an attractive valuation, whilst retaining operational and capital flexibility in the short term.
The Board believes that the strategic investment will further enhance Inspired's core Corporate Division, complementing the Group's existing offering and accelerating its optimisation service offering.
Information on Ignite
Ignite began trading in 2009 and is led by David and Ben Higgins. Ignite employs 51 people based across 3 locations in the UK, aiming to provide a comprehensive range of energy management solutions to large multi-site commercial energy users.
Ignite's service offering includes energy optimisation services, energy procurement including risk managed solutions, energy accounting and data management including validation, budgeting support and data analysis.
Ignite provide large scale energy demand reduction projects, ranging from building management system installation, local space control systems, plant efficiency measures and lighting upgrades. These projects are often long term, multi-phase projects with a duration between one and five years.
The business has a highly respected and knowledgeable team who generate revenues from a small portfolio of customers including multi-site private and public sector estate intensive energy consumers to reduce the supply and demand cost of energy.
For the financial year ended 31 December 2018, Ignite delivered revenues of £12.41 million and profit before tax of £3.08 million, as well as generating operating cash of £1.50 million. Net assets as at 31 December 2018 stood at £4.08 million.
Certain information contained in this announcement would have constituted inside information (as defined by Article 7 of Regulation (EU) No 596/2014) ("MAR") prior to its release as part of this announcement and is disclosed in accordance with the Company's obligations under Article 17 of those Regulations.
Enquiries:
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Inspired Energy plc Mark Dickinson, Chief Executive Paul Connor, Finance Director
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+44 (0) 1772 689250
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Shore Capital (Nomad Adviser and Joint Broker) Dru Danford Edward Mansfield James Thomas
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+44 (0) 20 7408 4090 |
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Peel Hunt LLP (Joint Broker) Mike Bell Ed Allsopp
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+44 (0) 20 7886 2500
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Gable Communications Justine James John Bick |
+44 (0) 20 7193 7463 +44 (0) 7525 324431 |
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