REACT Group plc (LON:REAT), the leading specialist cleaning and soft facilities management services provider, has announced the acquisition of 24hr Aquaflow Services Limite), the drainage and plumbing services company based in London and the South East, by its subsidiary, React SC Holdings Limited, for a total consideration of up to £7.4 million on a debt-free and cash-free basis.
The Company also announces a proposed placing of up to 1,358,025 new Ordinary Shares to raise gross proceeds of up to £1.1 million at a price of 81 pence per Placing Share to provide the Company with additional working capital. The Placing is being undertaken by Singer Capital Markets Securities Limited.
The Company is also providing an update on trading for the year ended 30 September 2024, which has continued to be strong despite headwinds in the current climate. The Board expects revenue should be £20.7 million (FY23: £19.6 million), a c.5.6% increase on the prior year, and gross profit to be £5.7 million (FY23: £5.2 million) demonstrating continual improvement in gross profit margin from 26.5% in FY23 to 27.5% in FY24. Adjusted EBITDA is expected to be at least £2.4 million (FY23: £2.3 million).
Acquisition Highlights
· Aquaflow is a profitable, cash generative, commercial drainage and plumbing services company established over 20 years ago and operating in London and parts of the South East.
· Focuses on all aspects of blocked drainage, leaking pipework, planned preventative maintenance and reactive callouts.
· Track record of 79% of business being repeatable, 43% of which is planned preventative maintenance.
· Facilities Management (“FM”) customers account for >95% of the customer base, many of whom will be new to the Company.
· In its financial year ended 30 April 2024, Aquaflow generated unaudited revenue of £6.1 million, gross profit of £3.4 million (56% margin) and adjusted EBITDA of £1.2 million.
· Aquaflow’s strong management team, including founders, are staying with the business.
· The Directors believe the Acquisition will:
– Provide sought after and complementary services that the Company’s FM customers demand;
– Introduce new and strong relationships with FM customers to the Company;
– Enable the Company to offer another lead-in service for organic growth within the FM sector, especially in London and the South East; and
– Enhance earnings per share (EPS) immediately with the Acquisition expected to be 31% accretive to adjusted EPS in its first full year of consolidation (year ending 30 September 2026).
Acquisition Terms
· The total consideration of up to £7.4 million (“Total Consideration“), comprises initial consideration of approximately £5.0 million (“Initial Consideration“) and performance based contingent consideration of up to approximately £2.4 million, payable in cash (“Contingent Consideration“), subject to EBITDA performance criteria. Further details of the Total Consideration are set out below.
· The Initial Consideration comprises £4.0 million in cash, which is intended to be funded via new debt provided by HSBC (“HSBC Facility“) and from the Company’s existing resources, and a further £0.48 million in cash to be paid in June 2025. Further details regarding the HSBC Facility, including the expected timing of drawdown, are provided below and this announcement should be read in full.
· As part of the Initial Consideration, the vendors of Aquaflow (the “Vendors“) will also be issued 617,283 Ordinary Shares at the Placing Price (“Consideration Shares“).
The Consideration Shares will be subject to a 3-year lock-in period, during which the relevant Consideration Shares cannot be sold or transferred, followed by a 12-month orderly market period.
The Initial Consideration represents c.4.1x Aquaflow’s 2024 EBITDA and the Total Consideration (assuming all Contingent Consideration is paid) will represent c.4.3x Aquaflow’s 2026 EBITDA (pursuant to EBITDA performance criteria).
Shaun Doak, Chief Executive Officer of REACT, commented:
“We are delighted to welcome Sherry Mundy, Paul Mundy, Neil Holmes and the Aquaflow team into the REACT group. Over the last 20 years they have established a very strong reputation for consistently delivering high-quality services and solutions greatly valued by customers.
“The Acquisition is expected to be immediately earnings enhancing and contribute significantly to the future profitability of the Group. This is REACT’s third acquisition and further demonstrates the Company’s stated inorganic growth strategy. We are excited by the opportunities that lie ahead as we continue to invest in profitable growth and offer our complementary services across the broadening customer base of the enlarged business.“
Paul Mundy, Director of Aquaflow, commented:
“On behalf of the team, we are excited to be joining the REACT group and see a great deal of synergies with its culture and services. We have reached an exciting point in our journey having built the business over the last 20 years. The Acquisition enables us as vendors to benefit from this investment and provide us with the right support to continue this growth.”
Admission, Settlement and Dealings
It is expected that admission of the Placing Shares and the Consideration Shares to AIM (“Admission“) will occur and that dealings will commence at 8.00 a.m. on 29 October 2024. The Placing Shares and the Consideration Shares will rank pari passu with the Existing Ordinary Shares.
Following Admission, the Company will have 23,527,069 Ordinary Shares in issue and no Ordinary Shares in treasury. Therefore, the total voting rights in the Company will be 23,527,069.
This figure may be used by shareholders as the denominator for the calculation by which they may determine if they are required to notify their interest in, or any change to their interest in, the Company under the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority.
