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Acquisition of labour solutions Australia
ADCORP HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1974/001804/06) Share Code: ADR ISIN: ZAE000000139
(Adcorp or the Company)
Acquisition of labour solutions Australia
1. Introduction
Adcorp is pleased to announce that it has concluded an agreement
(Transaction Agreement) on 30 October 2013 with the current shareholders
of Labour Solutions Australia Proprietary Limited (Labour Solutions
Australia) to acquire 100% of Labour Solutions Australia for a base
purchase consideration of AUD 44 790 00 (ZAR 421,0 million) (the
Acquisition) with an agreed minimum and maximum purchase consideration
of AUD 26 874 000 (ZAR 252,6 million) and AUD 51 509 000 (ZAR 484,2 million)
respectively (Purchase Consideration).
2. Labour solutions australia nature of the businesses
Labour Solutions Australia is a workforce management firm providing
staffing solutions across blue and white collar roles to the agriculture,
construction, mining, resources and transport sectors. Labour Solutions
Australia was founded in 2004 by Andrew Northcott, who is the current
managing director, and operates in over 36 locations throughout Australia.
Labour Solutions Australias key service offerings include:
sourcing and creating labour pools from local, domestic and international sources;
workforce planning, rostering and training;
candidate competency and skills fit testing;
unique and effective industrial relations platform and payroll services; and
online induction services.
3. Rationale for the acquisition
Labour Solutions Australia is an attractive, highly cash generative
business with strong margins which will provide Adcorp with exposure to
attractive growing industries in the Australian economy. Labour Solutions
Australia has a dynamic, experienced and motivated management team
distinguished by in-depth industrial relations knowledge and a well-established
national platform with a strong support network.
Adcorp believes that the acquisition of Labour Solutions Australia will
provide a number of financial and operational benefits and opportunities
including:
acquiring a business at an early stage of its growth cycle with potential
for significant future growth;
a greater ability to service the Groups multinational blue collar
client base across extended geographies, particularly in the area of
mining and resources;
attractive opportunity for Adcorp to further strengthen its strategic
foothold in the Asia Pacific workforce industry;
adds further scale to Adcorps existing Australian operations;
creation of a central Australian treasury function;
knowledge sharing to achieve best of breed approach;
diversity of risk to earnings given the greater geographical, client and
service line spread; and
a bolstered market capitalisation which is expected to lead to, inter
alia, improved liquidity, a broader institutional shareholder base and
greater analyst coverage.
Following implementation of the acquisition, Adcorp intends to manage the
business of Labour Solutions Australia essentially in the same manner that
it was managed prior to the implementation of the acquisition. Adcorp
intends to continue offering employment to all of those employees
currently working for Labour Solutions Australia. Adcorp will establish
an Adcorp Australia board of directors which will oversee Adcorps businesses
in the Australian and Asia Pacific markets.
4. Vendors
The current shareholders of Labour Solutions Australia are External Pty
Ltd ATF Warriner Family Trust No. 2; Labour Hire Investments Pty Ltd ATF
Northcott Family Trust No. 2; Labour Solutions Australia Recruitment
Holdings Pty Ltd ATF LSA Recruitment Holdings Trust; Labour Solutions
Australia Holdings Pty Ltd ATF Labour Solutions Australia Holdings Trust;
Marionjohanna Pty Ltd and Beeg Pty Ltd (collectively the Vendors). The
Vendors are entities associated with Andrew Northcott, Ken Warriner, John
Moloney and Brian Goldfinch, who are directors or executives of Labour
Solutions Australia, or their respective families. The Vendors were
advised by Catapult Partners Pty Limited.
5. Details of the acquisition
5.1. Purchase Consideration
Adcorp will acquire all of the shares in Labour Solutions Australia for
the Purchase Consideration which will be determined and settled as
follows:
AUD 26 874 000 (ZAR 252,6 million) will be paid to the Vendors in cash
(Cash Consideration) five business days following the fulfilment of the
last of the conditions precedent outlined in paragraph 5.3; and
the balance, which is subject to a maximum of AUD 24 635 000 (ZAR
231,6 million), will be paid to the Vendors in Adcorp shares (Share
Consideration) based on a total Purchase Consideration calculated based
on a 5x EV/EBITDA multiple applied to Labour Solutions Australias audited
results for the year to 30 June 2014. The Share Consideration will be
settled by issuing new Adcorp shares to the Vendors five business days
following the finalisation and agreement of Labour Solutions Australias
audited completion accounts for the year to 30 June 2014.
5.2. Funding of the Purchase Consideration
The Cash Consideration will be funded by means of a vendor placement
(Vendor Placement) in terms of the Listings Requirements of the JSE
Limited (Listings Requirements) whereby 8 100 000 Adcorp shares will be
issued to Adcorp shareholders at a price of 3,161 cents per share. The
Vendor Placement price represents a 5% discount to the 60 day VWAP to
Thursday, 17 October 2013 of 3,328 cents per Adcorp share.
Adcorp has received irrevocable undertakings to subscribe for 8 100 000
new Adcorp shares to be issued in terms of the Vendor Placement. The
listing of the new Adcorp shares in terms of the Vendor placement is
expected to take place on 2 December 2013.
The Share Consideration will be settled by issuing the relevant number of
Adcorp shares to the Vendors based on the 30 day volume weighted average
price (VWAP) up to and including 29 October 2013 of 3,291 cents. A
maximum number of 7 011 777 Adcorp shares will be issued to settle the
Share Consideration.
5.3. Conditions Precedent
The Transaction Agreement is subject to the following conditions
precedent:
the requisite majority of Adcorp shareholders providing the necessary
approvals to implement the Acquisition;
the requisite approval having been received from the South African
Reserve Bank;
Commonwealth Bank providing its consent and the release of personal
guarantees from Andrew Northcott;
employment contracts being concluded with key employees;
signature of amended shareholder agreements in non-wholly owned
entities;
Andrew Northcott and John Moloney and the relevant financier and Labour
Solutions Australia group company signing deeds of novation to novate
certain vehicle leases which have been excluded from the Acquisition; and
Adcorp successfully raising the necessary capital to fund the Cash
Consideration.
5.4. Effective date
The effective date of the transaction is expected to be 1 December 2013
(Effective Date).
6. Shareholder undertakings
Adcorp has received irrevocable undertakings from certain Adcorp
shareholders holding between them 60 762 491 Adcorp ordinary shares or B shares,
representing in aggregate 55,8% of the total voting rights in Adcorp, to
vote in favour of the resolutions required to implement the Acquisition.
The aforesaid undertakings, however, only apply to Adcorp shares which
these shareholders hold on the date of the relevant Adcorp shareholder
meeting and the number of Adcorp shares which they will vote may therefore
increase or decrease prior to such meeting.
Adcorp has also received irrevocable undertakings from certain Adcorp
shareholders to subscribe for 8 100 000 new Adcorp shares at a price of
3,161 cents per share in terms of the Vendor Placement.
7. Financial effects on adcorp shareholders
The pro forma financial effects of the Acquisition on Adcorp shareholders,
for which the Adcorp board is responsible, are provided for illustrative
purposes only to provide information about how the Acquisition will affect
the Adcorp shareholders by illustrating the effect thereof on the earnings
per share (EPS), normalised earnings per share (NEPS), headline
earnings per share (HEPS), diluted EPS and diluted HEPS of Adcorp as if
the Acquisition had become operative on 1 March 2013 and, for the purpose
of net asset value per share (NAVPS) and net tangible asset value per
share (NTAVPS) of Adcorp, as if the Acquisition had become operative on
31 August 2013. Because of their nature the pro forma financial effects may
not give a fair presentation of Adcorps financial position and results of
operations after the Acquisition. The pro forma financial effects have
been compiled using accounting policies that comply with IFRS and that are
consistent with those applied in the audited consolidated financial
statements of Adcorp for the six months ended 31 August 2013.
Before the After the
Acquisition Acquisition %
(Note 1) (Note 2) Change
EPS (cents) 22,3 19,7 (11,7)
NEPS (cents) 176,5 171,8 (2,7)
HEPS (cents) 22,4 19,8 (11,7)
Diluted EPS (cents) 21,3 18,8 (11,6)
Diluted HEPS (cents) 21,4 18,9 (11,5)
NAVPS (cents) 2 130,1 2 215,0 4,0
NTAVPS (cents) 348,3 309,6 (11,1)
Weighted average number of shares in
issue (000) 91 279 99 379 8,9
Diluted weighted average number of shares
in issue (000) 95 659 103 759 8,5
Number of shares in issue (000) 91 992 100 092 8,8
Notes:
1) The financial information in the Before the Acquisition column has
been extracted from Adcorps unaudited interim financial results for the
six months ended 31 August 2013.
2) The financial information in the After the Acquisition column has
been prepared based on Labour Solutions Australias six month after tax
earnings to September (the calculation of which has been based on actual
three month after tax earnings to September 2013 extracted from Labour
Solutions Australias management accounts of AUD 0,525 million multiplied
by 2). These amounts have been converted into Rands using a ZAR:AUD
exchange rate of 9,15, being the average exchange rate for the period
1 July 2013 to 30 September 2013. In addition the following assumptions
have been made:
a) The Purchase Consideration will be limited to the minimum purchase
consideration of AUD 26,874 million based on the annualisation of the
EBITDA earned by Labour Solutions Australia for the three months to
September 2013 of AUD 0,812 million. The Purchase Consideration has been
translated at a spot ZAR:AUD exchange rate of 9,40.
b) In terms of the requirements of IFRS 3 and based on Adcorp managements
best estimate, the excess of ZAR 237,1 million of the Purchase
Consideration paid to Labour Solutions Australia over the net asset value
at 30 September 2013 has been allocated as follows:
i. ZAR 94,9 million to intangible assets which have been amortised based
on an expected useful life of five years;
ii. ZAR 142,3 million to goodwill;
iii. The final allocation will require a detailed identification and
valuation exercise which will be completed only once the Acquisition is
implemented. These amounts were derived using a ZAR:AUD exchange rate of
9,34 being the exchange rate as at 30 September 2013.
c) The Purchase Consideration is funded by the issue of approximately
8,1 million new Adcorp Shares in terms of the Vendor Placement issued at
3,161 cents per Adcorp share, being a discount of 5% to Adcorps 60 day VWAP to
17 October 2013.
d) Once-off transaction costs of R3,6 million have been taken into account
in calculating the effect on Adcorps EPS, HEPS, diluted EPS and diluted
HEPS.
3) It is expected that the Acquisition will have a positive effect on
Adcorps earnings in future.
4) There are no post-balance sheet events requiring adjustment to the pro-
formas.
8. Categorisation, documentation and notice of general meeting
The Acquisition constitutes a category two transaction in terms of the
categorisation rules contained in the Listings Requirements.
In terms of Adcorps memorandum of incorporation and the Listings
Requirements it is necessary for Adcorp shareholders to place the unissued
shares under the control of the Adcorp directors in order to issue the new
Adcorp shares in terms of the Vendor Placement and, to the extent
required, issue shares to the Vendors in terms of the Share Consideration.
Accordingly, a circular will be sent to Adcorp shareholders containing,
inter alia, a notice of the general meeting of Adcorp Shareholders and a
form of proxy. The Adcorp circular will be posted to Adcorp shareholders
on 31 October 2013.
The general meeting will be held in the Boardroom at the registered office
of Adcorp at Nicolway Bryanston, Cnr William Nicol and Wedgewood Link,
Bryanston, 2021, Johannesburg on Thursday, 28 November 2013 at 10h00, to
consider and, if deemed fit, pass, with or without modification, the
ordinary resolutions required to implement the Acquisition.
9. Salient dates and times
Record date to be entitled to receive the
Circular incorporating the notice convening the
general meeting Friday, 25 October 2013
Circular and notice of general meeting posted to
shareholders on Thursday, 31 October 2013
Last day to trade in Adcorp shares in order to be
recorded in Adcorps securities register to vote
at the general meeting on Friday, 15 November 2013
Record date to be entitled to attend, participate
in and vote at the general meeting by close of
trading on Friday, 22 November 2013
Proxy forms for the general meeting to be received
for administrative purposes by 10h00 on
(or alternatively by 10h00 on 28 November 2013) Tuesday, 26 November 2013
General meeting held at 10h00 on Thursday, 28 November 2013
Results of the general meeting released on SENS
on Thursday, 28 November 2013
Expected date of listing on the JSE of the new
Adcorp shares issued in terms of the Vendor
Placement Monday, 2 December 2013
Notes:
a) All dates and times may be changed by Adcorp. Any change will be
published on SENS and in the South African press.
b) Shareholders should note that as transactions in Adcorp Shares are
settled in the electronic settlement system used by Strate, settlement of
trades takes place five business days after such trade. Therefore, Shareholders
who acquire shares after Friday, 15 November 2013 will not be eligible to vote
at the general meeting.
c) All times given in this announcement are local times in South Africa.
d) If the general meeting is adjourned or postponed, forms of proxy
submitted for the initial general meeting will remain valid in respect of
any adjournment or postponement of the general meeting.
Bryanston
31 October 2013
Investment Bank and Transaction Sponsor to Adcorp: Investec Bank Limited
Sponsor: Deloitte & Touche Sponsor Services (Pty) Ltd
Date: 31/10/2013 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
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