Kin and Carta plc

11/22/2019 | Press release | Distributed by Public on 11/22/2019 01:08

Acquisition of Spire Digital

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN 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 November 2019

Kin and Carta plc

Acquisition of Spire Digital

Kin and Carta plc ('Kin + Carta'or the 'Company'), an international digital transformation (DX) business, today announces the acquisition of Spire Digital, Inc. ('Spire Digital' or 'Spire'), a private US-based digital transformation consulting firm (the 'Acquisition').

The Acquisition supports Kin + Carta's stated ambition to grow both organically and through strategic acquisitions that complement its client offering and expand its geographic reach. It is expected to be earnings-enhancing in the first full year of ownership.

Spire is fast growing, profitable and highly complementary to Kin + Carta's Innovation pillar, which is the fastest growing part of its business and represents 56% of Kin + Carta's FY19 net revenue. Spire has built a set of DX services that are complementary to Kin + Carta's and will expand Kin + Carta's geographic reach to the western United States.

Located in Denver, Colorado, Spire provides digital innovation services for the Fortune 500 and mid-market growth firms. Spire is ranked first in the region and fifth globally for Custom Software Development by software developer and ratings and reviews site Clutch. The team at Spire is comprised of over 100 people with core expertise in technical design, development, software, engineering and product strategy. Adam Hasemeyer, President, and Nick Coppolo, Chief Operating Officer, have been leading the business for the past three years and will remain as Spire senior management. Mike Gellman, Spire's founder, will remain an advisor to Spire Digital. Spire will be integrated into the Kin + Carta Innovation platform in stages starting in the first year following completion of the Acquisition ('Completion').

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

'The acquisition of Spire Digital is directly in line with our growth strategy, delivering a strategic foothold in the western United States with a best-in-class software design and engineering capability that adds to our fast growing Innovation pillar. Spire has a strong reputation of delivering highly innovative solutions and building a winning culture that's hard to find. We're looking forward to bringing the Spire Digital team into the Kin + Carta Connective.'

Adam Hasemeyer, President of Spire said:

'We've grown Spire significantly in recent years and have established a strong reputation in the western US DX market. To realize our fullest potential, we recognized that we needed a partner with deeper resources and a broad geographic reach. We scouted the market from the largest global firms to niche players and decided on Kin + Carta as the perfect choice for Spire. We identify closely with the spirit of entrepreneurialism and agility that we found there and are excited to reach new heights as a part of this impressive organization.'

Transaction highlights

The Acquisition purchase consideration is comprised of an initial cash consideration of approximately $14.8 million on a cash-free and debt-free basis, subject to customary closing adjustments (the 'Initial Consideration') plus additional earnouts. The first earnout, based on 8x Spire EBITDA for the 12 months ending 31 December 2019, less the Initial Consideration, is payable in cash in February 2020. The second earnout, based on 7x incremental Spire EBITDA for the 12 months ending 31 December 2020, is payable in cash and shares in the Company over a period from February 2021 to February 2023. The total consideration is capped at £27 million.

Prior to completion, Spire Digital was owned by its founder, Mike Gellman, with the remaining equity held by minority holders.

Kin + Carta expects the Acquisition to be earnings enhancing in the first full year of ownership, with leverage expected to remain broadly unchanged following Completion of the Acquisition and the Placing. Kin + Carta's previously stated target leverage of 1.0x - 2.0x is expected to be maintained over the medium term. Leverage as at 31 July 2020 is expected to be in the range of 1.7x - 1.8x compared to leverage of 1.68x as at 31 July 2019.

Kin + Carta intends to finance the Acquisition from (i) the net proceeds of an underwritten equity placing announced separately today to raise approximately £13.6 million before expenses, representing approximately 9.9% of the Company's existing share capital as at 21 November 2019 (the 'Placing'); and (ii) drawings under existing revolving credit facility and existing cash resources. The Acquisition is conditional on the Placing. The Acquisition does not require shareholder approval.

Kin + Carta's trading is in line with the Board's expectations as announced on 2 October 2019.

Spire generated revenues of $9.4 million and adjusted operating profit, adjusted for normalisation of owners' compensation, of $1.3 million for the year ended 31 December 2018. Spire's gross assets were approximately $1.8 million as at 31 December 2018. Revenue CAGR from January 2015 to October 2019 is above 20%.

Enquiries:

Kin + Carta

J Schwan CEO

Chris Kutsor CFO

+44 (0) 207 928 8844

Numis Securities Limited (Financial Adviser, Sole Bookrunner and Sole Broker)

Nick Westlake / Matt Lewis / Will Baunton

+44(0) 207 260 1000

Powerscourt

Elly Williamson / Jessica Hodgson

+44(0) 203 328 9386

About Kin + Carta

Kin + Carta provides next-generation, digital transformation services that apply creativity, data, and technology to help clients invent, market, and operate new digital products and services. Kin + Carta operates across the United Kingdom, Europe, the United States, South America, and Asia and fuses three specialisms - strategy, innovation, and communications - under its organisational model called 'The Connective'.

The business serves the healthcare, financial services, transportation, industrial and agriculture, retail and distribution sectors, among others.

Kin + Carta's global team consists of approximately 1,500 strategists and creatives across four continents, connected by culture and shared ways of working. The Company is headquartered in London, the United Kingdom.

Learn more at www.kinandcarta.com

Important notices

This Announcement contains inside information and is issued on behalf of the Company by Daniel Fattal, Company Secretary. This Announcement is issued at 7.00am on 22 November 2019.

This Announcement is not intended to, and does not constitute, or form part of, any offer to sell or issue or any solicitation of an offer to purchase, subscribe for, or otherwise acquire, any securities or a solicitation of any vote or approval in any jurisdiction.

Numis Securities Limited ('Numis') is authorised and regulated in the United Kingdom by the FCA. Numis is acting exclusively for the Company and no one else and it will not be responsible to anyone other than the Company for providing the protections afforded to its clients nor for providing advice in relation to the matters referred to in this Announcement.

This Announcement is being issued by and is the sole responsibility of the Company. No representation or warranty, express or implied, is or will be made as to, or in relation to, and no responsibility or liability is or will be accepted by Numis (apart from the responsibilities or liabilities that may be imposed by the FSMA or the regulatory regime established thereunder) or by any of its respective affiliates or by any of their respective directors, officers, employees, advisers, representatives or shareholders (collectively, 'Representatives') for the contents of this Announcement or any other written or oral information made available to or publicly available to any interested party or its advisers or any other statement made or purported to be made by or on behalf of Numis or any of their respective affiliates or by any of their respective Representatives in connection with the Company or the Acquisition and any responsibility and liability whether arising in tort, contract or otherwise therefore is expressly disclaimed.

The securities of the Company have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the 'Securities Act') or with any securities regulatory authority of any state or other jurisdiction of the United States and may not be offered, sold, delivered or transferred, directly or indirectly, in or into the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and in compliance with any applicable securities laws of any state or other jurisdiction of the United States. There has not been or will not be any public offering of securities in the Company in the United States,

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 Kin + Carta's present and future business strategies, relate to future events and depend on circumstances which are or may be beyond the control of Kin + Carta and Spire which could cause actual results of 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 Kin + Carta and Spire and their 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 Kin + Carta and/or Spire; the effect of operational and integration risks; an unexpected decline in sales for Kin + Carta or Spire; 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 Kin + Carta 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, Kin + Carta 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.