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HCL Announces Three Acquisitions and An 11M Placing

HCL Announces Three Acquisitions and An 11M Placing
The Board of Healthcare Locums plc announces that it has entered into conditional agreements to acquire the entire issued share capital of Orion, the business and assets of LML and, subject to shareholder approval, the business and assets of Redwood Health Limited.
HCL has for sometime recognised that the specialist nursing market is a further environment in which it can operate from its existing call centre operations without the need for a branch network. In March 2009 the Company commenced the application process for a nursing licence, to enable HCL to place nurses on a temporary basis with its NHS client base and to enable the Company to tender for contracts on the National Nursing Framework. HCL has recently been granted its nursing licence and two of the Company's existing brands have been awarded a place on the National Nursing Framework and three of HCL's brands have been awarded a place on the new London based nursing framework. As a result of both the granting of the licence to operate in the nursing agency market and securing places on the framework agreements, the Company has recently been awarded preferred supplier status for the South Central nursing framework which has a potential annual revenue of approximately 30 million.
The Company also announces that it has completed a placing of 7,333,334 new Ordinary Shares at a placing price of 150p per share to raise funds of 11 million before expenses, subject to Admission.
The proceeds of the Placing shall be used to finance the acquisitions of Orion, a specialist nursing and healthcare staffing locum business in the UK and the LML Business, an established Australian medical staffing business with a database of over 3,500 qualified doctors. Redwood Health Limited is a leading player in the specialist nursing locum placement market and is being acquired for an initial consideration of 5 million together with potential earn-out consideration of up to a further 1.65 million to be paid dependent on the future performance of the business (the "Redwood Acquisition"). The Redwood Acquisition is subject to shareholder approval and the provision of the appropriate debt finance.
In the twelve months to 30 April 2010 the unaudited management accounts of Redwood Health showed revenues of 16.6 million, gross margin of 2.6 million and EBITDA of 0.95 million. HCL has identified substantial cost savings which can be made from the business following its acquisition which will include full integration of the back office and other support functions. The initial consideration represents a multiple of 5.3 times historic EBITDA (12 months to 30 April 2010) and a multiple of 3.3 times prospective adjusted EBITDA (12 months to 31 December 2010). Orion and the LML Business, which are not related party transactions, are being acquired on multiples of 3.6 to 4.3 times adjusted historic EBITDA, and they therefore, like the Redwood Acquisition are expected to be earnings enhancing transactions based on HCL's current EBITDA multiple.
Redwood's internal unaudited forecasts for the year ended 31 December 2010, the same financial year end as HCL, which comprise the actual unaudited management accounts for the four months ended 30 April 2010, together with a forecast for the remaining eight months of the year, indicate that the Redwood Health Business could generate revenues of 16.1 million, gross margin of 3.0 million and adjusted EBITDA of 1.5 million. On this basis, the initial consideration of 5.0 million represents a prospective EBITDA multiple of 3.3 times which is significantly less than the average prospective EBITDA multiple of 5.3 times which has been paid by the Company on the seven key acquisitions it has made to date.
The Redwood Acquisition requires the approval of the Shareholders pursuant to section 190 of the Companies Act due to the fact that Kathleen Bleasdale's husband, John Cariss, owns 99% of the ultimate shareholder of Redwood, Cardale Investments LLP.
The Redwood Acquisition also constitutes a related party transaction under Rule 13 of the AIM Rules and as such the Independent Directors, having consulted the Company's nominated adviser, Fairfax, consider that the terms of the Redwood Acquisition are fair and reasonable in so far as the Shareholders are concerned.
The Independent Directors intend to vote in favour of the Resolution in respect of their own beneficial holdings of 254,925 Ordinary Shares representing approximately 0.23 per cent. of the issued share capital of the Company (inclusive of the Placing Shares).
In addition to the Independent Directors, HCL has received irrevocable undertakings to vote in favour (or to procure such votes) of the Resolution in respect of 21,520,622 Ordinary Shares, representing 19.09 per cent. of the issued share capital of the Company (inclusive of the Placing Shares).
The Redwood Acquisition is conditional upon Shareholder approval. A circular including the Notice of General Meeting has been posted to the Company's shareholders today and will be available on the Company's website at The General Meeting is to be held at 11.00 am on 2 August 2010 at 4 More London Riverside, London SE1 2AU.
Application has been made for the 7,333,334 Placing Shares to be admitted to trading on AIM. Admission is expected to occur on 21 July 2010. Following the issue of the Placing Shares the Company will have a total of 112,750,935 Ordinary Shares in issue.
Commenting on the Acquisitions, Alan Walker, Non-executive Chairman of HCL, said: "These acquisitions represent a significant step towards implementing our recently stated strategy of expanding into the specialist nursing recruitment market. Redwood Health and Orion have built up significant databases of specialised nurses which will provide a platform to capitalise on both the UK and international recruitment opportunities.
"There is an increasing trend for consortia of NHS Trusts to opt out of the National Framework and to develop their own local framework agreements for the purpose of staff recruitment. The Company welcomes this trend as it facilitates the provision of a more tailored and efficient service to its clients. HCL already provides a wide range of specialist healthcare workers to its clients and the ability to offer specialist nurses will further enhance the Company's offering.
"It is intended that the LML business will be integrated into the Company's existing Sydney office and that the increased presence in Australia will contribute to the continued growth of the Company's international placement division.
"'We welcome the Government's recent statement on changes to the NHS devolved management and its continued commitment to prioritising front line services."


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