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Matchtech announces acquisition of Networkers International, its H2 trading update & board change

Under the terms of the Acquisition, which is subject to the Conditions and further terms set out in Appendix I to this Announcement, if the Scheme becomes Effective, Scheme Shareholders will be entitled to receive:

for each Networkers Share - 34 pence in cash and 0.063256 New Matchtech Shares

Based on the Closing Price of the Matchtech Shares on 27 January 2015 (being the latest practicable date prior to this Announcement), the Acquisition represents an indicative value of 67.4 pence per Networkers Share and values the entire issued and to be issued share capital of Networkers on a fully diluted basis at approximately &pound57.9 million.

The indicative value of 67.4 pence per Networkers Share represents a premium of approximately:

22.5 per cent. over the Closing Price of 55.0 pence per Networkers Share on 27 January 2015 (being the latest practicable date prior to this Announcement)

28.6 per cent. to the average Closing Price per Networkers Share for the one month period up to and including 27 January 2015 (being the latest practicable date prior to this Announcement) and

20.4 per cent. to the average Closing Price per Networkers Share for the twelve  month period up to and including 27 January 2015 (being the latest practicable date prior to this Announcement).

If the Scheme becomes Effective, the Acquisition will result in Scheme Shareholders holding approximately 17.9 per cent. of the issued share capital of Matchtech and the existing Matchtech Shareholders holding approximately 82.1 per cent. of the issued share capital of Matchtech.

Following completion of the Acquisition, Matchtech Shares will continue to be admitted to trading on AIM.

The Matchtech Directors and Networkers Directors consider that the Acquisition represents an opportunity to create a specialist recruiter of scale in the UK and internationally. The Matchtech Board believes this will lead to enhanced value for the shareholder base of the Combined Group.

The Matchtech Board believes the Acquisition will accelerate its vision to become the market leading specialist recruiter in engineering and technology, in the UK and internationally, as it can assist to:

sharpen focus on key niche markets in the white collar recruitment space, adding Networkers’ Telecoms and Technology expertise to Matchtech’s existing strength in Engineering and Technology, and enabling the Combined Group to capitalise on the convergence of the skill sets demanded by these markets

continue improvements in gross profitability as Networkers’ higher price points and percentage gross margins are added to Matchtech’s improving performance in this area

allow Matchtech to internationalise its existing service offering by leveraging Networkers’ existing global infrastructure, thereby lowering the cost, time and risk of Matchtech’s planned geographic expansion and allowing Matchtech to better address the skill shortage issues reported by its clients worldwide and

improve opportunities for candidates by enhancing Matchtech’s international capability for example, UK qualified engineers are increasingly seeking to gain experience globally.

The Matchtech Directors expect the Acquisition to be earnings enhancing in the first full financial year.

The Matchtech Board has separately announced this morning that Adrian Gunn, the current Chief Executive Officer of Matchtech believes that this is the appropriate time to bring forward his retirement from the business (which he originally planned for 2016), and is stepping down with immediate effect.  In consequence, Brian Wilkinson will move from being Executive Chairman to being Chief Executive Officer and Ric Piper, currently Senior Independent Non-Executive Director of Matchtech, will assume the role of Interim Non-Executive Chairman until a permanent replacement is identified.

It is intended that, following completion of the Acquisition, a new management board will be formed to develop the strategy for the Combined Group going forward led by Brian Wilkinson and including Tony Dyer as Group Chief Financial Officer and Keith Lewis as Chief Operating Officer of the existing Matchtech businesses, along with the current Networkers Chief Executive, Spencer Manuel, and Networkers Chief Financial Officer, Jon Plassard.

It is also intended that Roger Goodman, currently Non-Executive Chairman of Networkers, will join the Matchtech Board as a Non-Executive Director.

It is intended that the Acquisition will be implemented by means of a Court-sanctioned scheme of arrangement under Part 26 of the Companies Act (or, if Matchtech elects and the Takeover Panel consents, an Offer).  The Acquisition is conditional on, among other things, (i) the approval of Scheme Shareholders at the Court Meeting and the passing of the Resolutions by Networkers Shareholders at the General Meeting and (ii) the sanction of the Scheme and confirmation of the Capital Reduction by the Court.

The Networkers Directors, who have been so advised by Liberum, consider the terms of the Acquisition to be fair and reasonable. In providing its advice to the Networkers Directors, Liberum has taken into account the commercial assessments of the Networkers Directors. The Networkers Directors intend to recommend unanimously that Networkers Shareholders vote (or procure votes) in favour of the Scheme at the Court Meeting and the Resolutions at the General Meeting, or in the event that the Acquisition is implemented by way of an Offer, Networkers Shareholders accept (or procure acceptance of) the Offer, as Networkers Directors who hold Networkers Shares have irrevocably undertaken to do in respect of their entire beneficial holdings in Networkers amounting to, in aggregate, 41,597,703 Networkers Shares, representing approximately 49.5 per cent. of the Networkers issued share capital.

Matchtech has also received irrevocable undertakings to vote or procure votes in favour of the Scheme at the Court Meeting and the Resolutions at the General Meeting (or in the event that the Acquisition is implemented by way of an Offer, to accept the Offer) from Jon Moulton, Hargreave Hale and Dowgate Capital in respect of 19,688,328 Networkers Shares, in aggregate, representing approximately 23.4 per cent. of Networkers’ issued share capital.

As a result, holders of a total of 61,286,031 Networkers Shares, representing approximately 72.9 per cent. of Networkers’ issued share capital have committed to vote in favour of the Scheme at the Court Meeting and the Resolutions at the General Meeting (or in the event that the Acquisition is implemented by way of an Offer, accept (or procure acceptance of) the Offer).

Further details of the Acquisition will be contained in the Scheme Document which is intended to be posted to Networkers Shareholders along with notices of the Court Meeting and General Meeting and the Forms of Proxy as soon as practicable and, unless the Panel consents otherwise, within 28 days of the date of this Announcement. 

Commenting on the Acquisition, Brian Wilkinson, Chief Executive Officer of Matchtech, said:

“We’re delighted to have reached agreement with the Networkers board of directors and are very excited with the prospects of the enlarged group.  We continue to see major opportunities in our core markets of white collar engineering and technology recruitment. Both digitization and converging technology is creating further opportunities in these areas and the addition of telecoms recruitment to our portfolio creates an even stronger specialist Group. In addition, Networkers’ long-standing, substantial and profitable overseas operations will enable us to accelerate the introduction of our Engineering services to our international customers with a considerably reduced cost, risk and time profile.”

Commenting on the Acquisition, Spencer Manuel, Chief Executive Officer of Networkers, said:

“Networkers has enjoyed loyal support from its shareholders as an independent company since it was admitted to AIM in 2006. The Acquisition provides Networkers Shareholders with an opportunity to realise part of their investment at a premium for cash today and the Board believes the compelling characteristics of the combined business will be positive for its shareholders, customers and employees.”

Brian Wilkinson, current Executive Chairman of Matchtech, will become the new Chief Executive of the combined group, with Adrian Gunn, the current Chief Executive of Matchtech, bringing forward his planned retirement, with immediate effect.

Adrian Gunn will step down as Chief Executive and from the Board with immediate effect. With the announcement today of the Group’s proposed acquisition of Networkers International plc, Adrian believes that this is the appropriate time to bring forward his retirement from the Group, which he originally planned for 2016.

Brian Wilkinson, Executive Chairman of the Group since December 2013, will take up the role of Chief Executive today. Alongside this, current Senior Independent Non-Executive Director, Ric Piper, will assume the role of interim Non-Executive Chairman until a permanent replacement is identified.

Brian Wilkinson commented, “The Board of Matchtech wishes to thank Adrian for his immense contribution to the Group over the 26 years he has been with us and, in particular, for the progress made since flotation during his 8 years as CEO. He has been instrumental in developing Matchtech to its present position as the UK’s largest specialist white-collar engineering recruiter and leaves the business well placed to capitalise on the exciting opportunities presented by the proposed acquisition of Networkers. We wish him well for the future."

Matchtech has also published its pre-close trading update for the six months ending 31 January, 2015

The company said, "Since our last update on 14 November 2014 we have continued to see strong demand in the UK and worldwide for skilled engineers. The Board believes that the Group is well placed to continue to benefit from this demand due to its market leading position, balanced business model of Contract and Permanent recruitment and our niche focus within the engineering and technology sectors."

The Board expects the results for the full year to be in line with its expectations.

Net Fee Income (“NFI”)

NFI in the first half of FY 2015 to 31 January 2015 was up 2% compared to the same period last year.

NFI performance is analysed as follows:

Contract NFI performance is analysed as follows:

Permanent Fees

Permanent Fees of &pound6.3m are up 2% compared with the same period last year.

Permanent fee performance is analysed as follows:

Demand for permanent staff from our customers within the Engineering segment continues to improve, with NFI up 22% on last year, including 60% growth in Infrastructure, 40% in General Engineering and 25% in Maritime.

The 10% decline in the Professional Services segment was due to an underperformance in Professional Staffing, with NFI down 13% compared with the same period last year with penetration into the Group’s non-core markets proving challenging. Technology NFI was broadly similar to the same period last year.

Headcount

 

Headcount at the end of each period can be analysed as follows:

H1 2015 Change H2 2014 Change H1 2014

Engineering 193 13 180 26 154

Professional Services 118 -16 134 -13 147

Sales Headcount 311 -3 314 13 301

Shared Services 114 6 108 -4 112

Total Headcount 425 3 422 9 413

During 2014 and H1 2015 we invested to accelerate growth in our Engineering business through increased consultant headcount, with the reduction in Professional Services headcount reflecting the underperformance in Professional Staffing (as noted above) and delivering improved productivity in Technology.

The Group intends to release its Interim Results for the period ending 31 January 2015 on 9 April 2015.

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