Concept Merchandise - A Case Study for creditors

Transcription

1 13 November 2014 LiteBulb Group Limited ("LiteBulb" or the Company" or the Group ) Proposed acquisition of Concept Merchandise Limited Proposed issue of up to 3.5m secured convertible loan notes & Notice of Extraordinary General Meeting LiteBulb (AIM: LBB), the branded product developer, announces that it has entered into a conditional share purchase agreement to acquire the entire issued share capital of Concept Merchandise Limited ( Concept ) (the Acquisition ). Concept has an excellent track record of earnings growth, is highly cash generative and debt free. It has been profitable for the last six years and recorded turnover of 7.5m and profits before tax of 1.1m for year ended 31 December Concept is expected to have a net asset position of over 3.8m on completion, mainly in liquid assets. LiteBulb is acquiring Concept for an initial consideration of 5.0m, to be satisfied as to 4.75m in cash and 0.25m in ordinary shares. There is a further deferred consideration of up to 2.0m based on achieving various performance criteria, further details of which are set out below. The Acquisition is expected to enhance the Group s sales over the next 12 months and have a positive effect on earnings. Concept operates in a new product category for Litebulb. Concept designs, develops and manufactures stationery and party products for the retail market and has been creating bespoke consumer products for some of the largest retailers in the UK for more than 24 years. Based in West Yorkshire, with a staff of 17, its customer base is tightly focused and almost solely UK based. It adds another product category to LiteBulb s offering and further extends the ability of the group to cross-sell throughout its extensive retail network, both at home and abroad. In addition, Concept has focused on designing its own ranges and, whilst proving highly successful, can benefit from the Group s brand relationships. LiteBulb also announces that it intends to raise capital through the conditional issue of up to 3.5m of a new series of secured, convertible loan notes which may be converted into new Ordinary Shares at any time at a conversion price of 1p, a material premium to the current share price. Subscription letters for 3.5m have been received based on various conditions being fulfilled, as outlined below. The Board intends that the net proceeds of the subscription for the new loan notes will be used to partly fund the Acquisition. The Board is pleased with current trading, with sales and committed orders as at 31 October 2014 now standing at over 20m for the financial year with two important trading months still to go. Individual group companies are performing well, with the earliest acquisition Bluw expected to show like-for-like sales growth of over 35% for the full year. This is a good indicator that the Group strategy is beginning to bear fruit. Completion of the Acquisition and the issue of the Loan Notes is conditional on, amongst other things, approval by the Company s shareholders of the resolutions to be proposed at the Extraordinary General Meeting of the Company to be held at the offices of Fladgate LLP at 16 Great Queen Street, London WC2B 5DG at a.m. on 10 December The Directors recommend that shareholders vote in favour of the Resolutions, as they intend to do so in respect of their aggregate holding of 332,135,039 Ordinary Shares, representing c. 13.1% of the Company. The Circular will be made available on the Company website: Simon McGivern, CEO of LiteBulb, commented: I am delighted to welcome another cash generative, highly complementary business to the Group as we continue to deliver on our growth strategy. Concept s expertise in a new sector for us further extends our product offering and we see this as a great opportunity to cross-sell our products across a much wider range of retail relationships.

2 Current trading within the Group remains strong, particularly in the build up to Christmas, and I am delighted that a number of Shareholders, both Institutional as well as High Net Worth Individuals, have again supported us through their participation in the Loan Notes subscription. LiteBulb Group Limited Simon McGivern, Chief Executive Tel: finncap (NOMAD & Broker) Tel: Stuart Andrews/Ben Thompson (Corporate Finance) Joanna Weaving (Corporate Broking) Walbrook PR Limited Tel: or litebulb@walbrookpr.com Paul McManus Mob: About LiteBulb Group ( LiteBulb Group designs, manufactures and distributes innovative brands and products to the global retail market. LiteBulb Products - our wide range of products are sold in over 30 countries through blue chip retailers including: ASDA, BHS, Tesco, Sainsbury's, WH Smith, Halfords, Marks & Spencer, Morrisons, QVC, Next, Fenwick and Toys R Us. LiteBulb Creative is a creative agency with global reach, delivering compelling and agile brand extension programmes to the entertainment industry. LiteBulb Creative has designed products and campaigns for clients around the world, including Disney, Hasbro and Miramax.

3 Below are extracts from the Circular. The full document is available on the Company s website: About Concept Merchandise Limited Concept: designs, develops and manufactures stationery and party products; distributes to some of the UK s largest retailers; has been operating in the consumer products market for over 24 years with a core of 17 members of staff based in Brighouse, West Yorkshire; and is a highly profitable, cash generative business with no debt and a track record of earnings growth despite the difficulties of the recent consumer recession. It has been profitable for the last 6 years and recorded turnover of 7,491,532 and earnings before tax of 1,100,395 for the year ended 31 December Shareholders funds stood at 3,831,219 as at 31 December The Acquisition is expected to enhance the Group s sales over the next 12 months and have a positive effect on earnings. Benefits of the Acquisition The Acquisition is expected to provide a number of benefits to the enlarged Group, these include: the addition of a new product category to the brands that LiteBulb currently works with: Concept does not work with any brands and this provides a good opportunity for new sales; further providing cross-selling opportunities within the Group s existing retail customer base and the additional customer relationships established by Concept: currently Concept does not sell into the majority of LiteBulb s retail customers and there is an opportunity to increase sales immediately; bolstering existing relationships with mutual customers, increasing the range of products that the Group has available to sell to these customers; providing cost savings through business synergies going forward, including centralised quality control, logistics, accounting function, ERP system and group wide sales agents; continued increase in Group purchasing power due to the economies of scale; reduced risk of pricing pressure from retailers due to an increased critical mass and less reliance on a smaller number of large customers; strong positive cash flows and additional strength for the Group balance sheet; and improved supplier credit terms and working capital facilities across the Group. Principal terms of the Acquisition On 12 November 2014, the Company entered into a conditional share purchase agreement (Agreement) with Howard and Heather Partington (Sellers) pursuant to which, subject to, amongst other things, the approval of the Resolution, it has agreed to purchase and the Sellers have agreed to sell the entire issued share capital of Concept for the initial aggregate consideration of 4,750,000 in cash and 250,000 to be satisfied in Ordinary Shares (Consideration Shares) (issued at the average mid-market price over the five days preceding completion) (Completion Payment). In addition, the Sellers will be entitled to an earn-out relating to the performance of Concept in the financial year ending 31 December Under the earn-out, the Sellers will be entitled to 1.25 in cash for every 1 by which Concept s EBITDA during the earn-out period exceeds 500,000 (up to a maximum of 1,300,000) and 1.25 to be satisfied in Ordinary Shares (Earn-Out Shares) (issued at the average mid-market price over the five days preceding their allotment) for every 1 by which Concept s EBITDA during the earn-out period exceeds 500,000 (up to a maximum of 1,300,000). Assuming that Concept s EBITDA in the financial year ending 31 December 2015 is 1,300,000 or more and assuming a share price of one penny per Ordinary Share, the number of Earn-Out Shares will be 100 million Ordinary Shares. If the Consideration Shares are also issued at one penny per share then the Sellers

4 entitlement to Ordinary Shares will be to 125 million Ordinary Shares or 4.7% of the issued share capital as enlarged by the issue of the Consideration Shares and Earn-Out Shares. Completion adjustment Following Completion, the Sellers will produce a completion balance sheet for Concept. If this balance sheet shows net assets which are less than 3,875,000, the Completion Payment will be adjusted so that an amount equal to the deficit is repayable by the Sellers to the Company, within ten business days of the amount being agreed or determined. Warranties The Sellers have given customary warranties to the Company (Warranties). Amongst other things, the Warranties concern Concept s annual and management accounts, taxation affairs, contracts, employees and assets. The Sellers collective liability under the Warranties is limited to the cash sums payable to the Sellers under the Agreement. Any claim under the Warranties must be initiated by the Company on or before 18 months after Completion (unless such claim relates to a breach of any of the Warranties given regarding taxation, in such case a claim must be initiated by the Company on or before the date seven years after Completion). Conditions Completion is conditional upon: the approval of the Resolution by the Shareholders at the EGM; completion of the Fundraising; and Concept s debtor book being sufficient to support a factoring facility, procured by the Company, of up to 1,500,000 and if the book is not sufficient, Concept having the cash reserves to satisfy the shortfall. The conditions must be satisfied on or before 17 December 2014, failing which the Agreement will lapse. Lock-in Each Seller has severally undertaken, subject to customary carve-outs, that he or she will not for a period of 12 months after Completion dispose of his or her respective holding of Consideration Shares without the prior written consent of the Company. Further, each Seller has severally undertaken, subject to customary carve-outs, that for a period of 24 months from Completion he or she will only dispose of his or her respective holding of Consideration Shares through the Company s broker with a view to maintaining an orderly market in the Ordinary Shares. Other terms Following Completion, Howard Partington will continue to act as a director of Concept and, on Completion, will enter into a new service contract with Concept. The composition of the LiteBulb Board will not be affected by the Acquisition. Fundraising and trade finance Loan notes The Board also announced today that it intends to raise capital by the issue of up to 3,500,000 secured, convertible loan notes (Loan Notes), in respect of which as at the date of this document conditional subscription letters have been entered into by institutional and other sophisticated investors for 3,500,000 of Loan Notes in aggregate, a minimum of 3,000,000 of which is conditional on shareholder approval at the EGM, and the balance is also conditional on the Loan Notes being listed on the Channel Island Stock Exchange or similar exchange within 60 days of the EGM.

5 The issue of the Loan Notes is conditional upon the approval of Resolution 1 at the EGM and the Acquisition being unconditional but for the Fundraising. Subject to the satisfaction of these conditions, the Loan Notes will be issued subject to the following terms: the Loan Notes will be redeemable three years from the date of issue; the Loan Notes will bear interest from the date of issue of the Loan Notes to the date of redemption of the principal amount of the Loan Notes at the rate of 10 per cent per annum, payable quarterly in arrears. Interest will be paid in cash or at the election of the holder of the Loan Notes in Ordinary Shares at the conversion price of one penny per share; on redemption, in addition to payment of accrued but unpaid interest, the holders of the Loan Notes will be entitled to a redemption premium of 130% of the principal of the Loan Notes, less the amount of the principal repaid; the Loan Notes may be converted into new Ordinary Shares at any time at a conversion price of one penny per new Ordinary Share. The conversion price is subject to adjustment if, amongst other things, the Company issues new Ordinary Shares at a discount to the conversion price or the then prevailing price of the Ordinary Shares; and the Loan Notes will be secured by the grant of fixed and floating charges in favour of the holders of the Loan Notes over the assets of the Company and certain of its subsidiaries. In addition, certain of the subsidiaries of the Company will guarantee the performance of the obligations assumed by the Company in respect of the Loan Notes. In order to have sufficient authority to allot new Ordinary Shares to effect the conversion of the Loan Notes into new Ordinary Shares, the Board is seeking the approval of the Shareholders of the Resolution at the EGM. The Company has undertaken to the subscribers for the Loan Notes that it will use all its reasonable endeavours to obtain a listing for the Loan Notes on the Channel Islands Stock Exchange within 60 days of the date of issue of the Loan Notes. Trade finance The Company has agreed terms with Aldermore Bank plc (Bank) whereby on completion of the Acquisition, Concept will enter into an invoice discounting facility agreement with the Bank. Concept will assign its debtor book to the Bank and the Bank will advance to Concept up to a maximum facility of 1,500,000. Concept s obligations under the facility will be secured by a debenture to be granted by Concept, a guarantee from the Company and indemnities from the Company s executive directors. The minimum term of the facility will be one year. The cost to Concept will be 10,000 on the commencement date plus 0.25% of the facility amount ( 1,500,000) a year on each anniversary of such date; plus a service fee of 0.20% of the invoice value; plus applicable VAT. Current trading & successful integration of previous acquisitions Current Trading In the Interim Results statement announced on 30 September 2014 the Company described 2013 as a transformational year following the successful completion of three acquisitions (Bluw, Rizon Studios and Meld), and that this increase in scale continued in 2014 with the acquisition of Go Entertainment Group. The Board is confident that LiteBulb has a scalable model that can add value to clients at each stage of the product and merchandising cycle and that is already delivering incremental revenues. Revenues from continuing operations for the six months ended 30 June 2014 increased by 183% to 4.0m (H1 2013: 1.4m), with an increase in gross profit of 157% to 1.5m (H1 2013: 0.6m). We announced that as at 30 September 2014 we had received sales orders for over 12m for delivery in the second half, including: a contract to supply 700 Tesco and 120 HMV stores in the UK with Disney's Frozen products worth

6 0.69m; 4m of orders signed with major retailers including Marks & Spencer, Sainsbury s, Boots and Next; 1m order from a number of major retailers including Christmas Gift Range products for Debenhams and products for the German retailer Tchibo; and a deal to produce 5 styles guides for cable and satellite television network Nickelodeon s own branded fashion range and our appointment as creative partner for Epic Rights. Within these orders, Sainsbury's placed an additional re-stocking order for the Mary Berry range of kitchen gifts that were launched in January this year. The range has been selling well and the Board remain confident that this range should generate over 1m of sales in the first year of launch alone. The Board is pleased with current trading, with sales and committed orders as at 31 October 2014 now standing at over 20m for the financial year with two important trading months still to go. Individual group companies are performing well, with the earliest acquisition Bluw expected to show like-for-like sales growth of over 35% for the full year. This is a good indicator that the Group strategy is beginning to bear fruit. Successful integration of previous acquisitions The Company s strategy of building a larger integrated business focussed on high quality branded products for major UK retailers has been successful, and the Board believe that LiteBulb has a scalable model which allows it to maximise the value of newly acquired businesses by benefitting from economies of scale and through cross-selling across the Group s extensive retailer base. In addition the centralisation of a number of Group functions across the Company should show significant efficiency benefits in Overall the Board remains very confident in the prospects for the business and believe that the proposed Acquisition of Concept will provide an excellent fit within the enlarged Group complementing the Company s strategy for growth, both organically and by carefully selected acquisitions. EGM At the EGM special resolutions will be proposed to: authorise the Directors to allot up to 455m Ordinary Shares in connection with the conversion of the Loan Notes and to approve the dis-application of Article 6.3 of the articles of association of the Company so that Ordinary Shares arising on conversion of the Loan Notes can be issued for cash without the Company first being required to offer such securities to existing shareholders of the Company in proportion to their existing holdings; and authorise the Directors to allot up to 125m Ordinary Shares in connection with the issue of the Consideration Shares and the Earn-Out Shares. For the resolutions to be passed, at least two thirds of the votes cast must be in favour. Admission to trading An application will be made by the Company for admission of the Consideration Shares to trading on the AIM Market (Admission). It is expected that Admission will become effective on or around 11 December The Consideration Shares and Earn-Out Shares (if any) will, when issued, rank equally in all respects with the existing Ordinary Shares. Recommendation The Directors believe that the Acquisition, Fundraising and Resolutions are in the best interests of the Company and the Shareholders as a whole and accordingly recommend that shareholders vote in favour of

7 the Resolutions, as they intend to do so in respect of their aggregate holding of 332,135,039 Ordinary Shares, representing approximately 13.1% of the issued share capital of the Company.