Rosenblatt: Acquisition of Convex Capital

16th September 2019 | RBG Holdings plc

Highlights:

  • Convex Capital Limited (“Convex”) is a specialist sell-side corporate finance boutique, based in Manchester, UK
  • The acquisition is in line with the Group’s strategy to diversify the Company beyond legal services and to create opportunities for cross-referral of business
  • The total consideration for the acquisition, assuming all earn-out and deferred consideration payments are made, is £22 million
  • The Board expects the transaction to be immediately, and materially, earnings and value-enhancing for the Group
  • In line with the Board’s approach to acquisitions, the majority of the consideration is to be paid in shares, with a maximum of 40% to be paid in cash from existing resources. A significant proportion of the consideration is deferred on the completion of an earn-out
  • All shares to be issued at a premium to the closing price on 13 September 2019
  • Key management and employees of Convex have agreed to a long-term lock-in for shares and lengthy non-compete clauses
  • The acquisition of Convex is expected to help generate a regular flow of fee-based work for Rosenblatt’s Corporate division, which is focused on commercial transactions
  • To reflect the evolving nature of the Group, to a broader supplier of professional services, the name of the Company will be changed to RBG Holdings plc

Rosenblatt Group plc, the professional services group, has today announced the acquisition of Convex Capital Limited, a specialist sell-side M&A corporate finance boutique, based in Manchester, UK. The acquisition is in line with the Group’s M&A strategy. This strategy aims to diversify the Company beyond legal services, focusing on high-margin professional services companies like Convex, which will also create opportunities for the cross-referral of business.

About Convex

Convex is entirely focussed on helping companies, particularly owner-managed and entrepreneurial businesses, realise their value through sales to large corporates. Convex identifies and proactively targets firms that it believes represent attractive acquisition opportunities.

The Board expects the transaction to be immediately, and materially, earnings and value-enhancing for the Group. For the financial year ended* 30 June 2019, Convex generated revenues of £8.7 million and profit before tax of £4.3 million. As of 30 June 2019, Convex had net assets of £3.7 million and no net debt. Convex was owned by its directors. All directors and employees of Convex are remaining with the business.

Like Rosenblatt, Convex is an entrepreneurial, high-margin and cash generative business in the professional services sector, with a strong network of clients and partners across the UK and Europe. Convex was established in 2011 by Chairman, Mike Driver. It has completed in excess of £1 billion in transactions over the last four years and completed 13 deals in the last year alone with EBITDA margins of more than 50 per cent.

The strategic impact of the acquisition

The acquisition of Convex is expected to help generate a regular flow of fee-based work for Rosenblatt’s corporate division, which is focused on commercial transactions. The Group believes that by working closely together, there will be an opportunity to cross-sell services to the client bases of both companies.

Rosenblatt also intends to use Convex’s Manchester base to create a new regional business hub. The Group will market its expanded professional services offering from the hub, which will also create the opportunity for further cost savings on back-office functions.

Financial terms of the transaction

The acquisition has been structured in accordance with the Board’s M&A strategy. This strategy means that the majority of the consideration is to be paid in shares, with a maximum of 40% to be paid in cash. A significant proportion of the consideration is deferred, to lock in the new business and the talent being acquired. This approach is designed to ensure the value of the acquisition is protected and so that the management of Convex are appropriately incentivised to deliver returns for Rosenblatt shareholders as well as themselves.

The total consideration for the acquisition, assuming all earn-out and deferred consideration payments are made, is £22 million. The consideration is structured as follows:

  • An initial consideration, payable on completion of £13.6 million. Of this £13.6 million, £7 million will be paid in cash from the Company’s existing resources and £6.6 million will be satisfied by the issue of 5.5 million new Rosenblatt shares (the “Initial Consideration Shares”) based on an issue price of 120 pence per share (a premium of 35.6% to the closing price on 13 September 2019).
  • A deferred consideration, payable after one year, of £8.4 million. Of this £8.4 million, £1.8m million will be paid in cash, and £6.6 million will be satisfied by the issue of 4.7 million new Rosenblatt shares (the “Deferred Consideration Shares”), at a minimum price of 140 pence per share (a premium of 58.2% to the closing price on 13 September 2019) or, if higher, the market value of the shares at the time. The Deferred Consideration Shares will only be issued if Convex exceeds a threshold EBITDA of £6 million for the period from 16 September 2019 to 16 September 2020.

Key management and employees of Convex have agreed to a long-term lock-in for Rosenblatt shares and agreed to non-compete clauses. The Initial Consideration Shares and the Deferred Consideration Shares will be subject to a lock-in of three years from their respective issuance dates. Application will be made for the Initial Consideration Shares to be admitted to trading on AIM. Admission of the Initial Consideration Shares is expected to be on 20 September 2019.

Management and employees of Convex will also join the Rosenblatt performance bonus scheme to ensure close alignment with the interests of shareholders.

Name Change

To reflect the evolving nature of the Group, from primarily a provider of legal services to a broader supplier of professional services, the Board has changed the name of the Company to RBG Holdings plc. This change is expected to become effective on the London Stock Exchange from 8 a.m. on 17 September 2019. There is no change to the stock market ticker (AIM: RBGP), the Group’s ISIN (GB00BFM6WL52) or SEDOL (BFM6WL5).

Following the acquisition, the Group will comprise a number of subsidiaries including the law firm, Rosenblatt Limited, Convex Capital Limited, and the Group’s litigation finance arm.

Current Trading

The Group will be announcing its interim results for the six months ended 30 June 2019 on Wednesday 25 September 2019. The Board can confirm trading remains in line with the update published on 1 August 2019.

Nicola Foulston, CEO, Rosenblatt, said:

“Convex is an exciting and successful business, which shares with Rosenblatt a focus on high-margins and cash generation. Like Rosenblatt, it is an entrepreneurial company with a proven ability to create markets where none have existed. We also share a similar client base, often working with entrepreneurs. We have had the pleasure of working with Mike and the Convex team over several years and know there is a strong cultural fit between the two organisations. There is a considerable market opportunity in terms of cross-referrals of business between Rosenblatt and Convex, as well as the opportunity to expand our regional presence.”

Mike Driver, Chairman, Convex, said:

“The combination of Convex and Rosenblatt is a fantastic opportunity to drive the development of both companies. Like ourselves, Rosenblatt builds strong relationships with entrepreneurs and business founders. Working closely with Nicky and her team will expand our network to help identify future transaction opportunities. We can also increase the support that we can offer clients to ensure a successful deal. We are very excited about the future opportunities that this agreement will bring.”

Rosenblatt Investor video

CEO Nicola Foulston on Five Minute Pitch TV

Click here for Rosenblat Investor Relations Video