Xafinity plc acquisition of Punter Southall Holdings Limited for up to £153 million

07 December 2017

Craven Street Capital is pleased to set out below the announcement by Xafinity plc of the proposed acquisition of Punter Southall Holdings for up to £153m. Craven Street Capital was the sole financial adviser to Punter Southall Group in this exciting transaction, which will create the UK’s largest “pure-play” pensions consultancy firm.

 

Xafinity plc

Proposed Acquisition of Punter Southall Holdings Limited for up to £153 million
Proposed Firm Placing and Placing and Open Offer to raise £70 million

 

Introduction

Xafinity plc (“Xafinity” or the “Company”), the pensions actuarial, consulting and administration business, today announces the proposed acquisition from Punter Southall Group Limited (“PS Topco”) of its actuarial consulting, pensions administration and investment consulting businesses (the “Target Group”) for a total consideration of up to approximately £153 million (the “Acquisition”).

The consideration for the Acquisition will be satisfied through the payment of £92,520,000 in cash, the issue of 25,766,871 Completion Shares, the transfer of the operating company of Xafinity’s HR Trustees business to PS Topco at an agreed value of £8,480,000, and the potential issue of up to 6,134,969 Earn Out Shares pursuant to a contingent deferred consideration mechanism.

The cash component of the consideration is proposed to be financed by a combination of (a) a Firm Placing and Placing and Open Offer (the “Capital Raising”) to raise in aggregate approximately £70 million (before expenses) and (b) funds drawn down under New Debt Facilities totalling £80 million (which replaces an existing debt facility of £38 million and will provide £42 million of incremental debt capacity).

The Target Group comprises three businesses: (i) the Actuarial Consulting Business, which provides actuarial advice to the trustees or employer sponsors of approximately 425 UK occupational pension schemes; (ii) the Pensions Administration Business, which administers pensions for approximately 380,000 scheme members belonging to more than 200 UK occupational pension schemes; and (iii) the Investment Consulting Business, which provides specialist consulting services, including investment strategy, risk management and investment governance, to the trustees or employer sponsors of over 115 UK occupational pension schemes.

The Target Group reported revenue for the year ended 31 December 2016 of approximately £51 million and Adjusted EBITDA of approximately £11 million.

The Acquisition is conditional upon, among other things, Xafinity Shareholders’ approval and receipt of proceeds from the Capital Raising, and is expected to complete on 11 January 2018.

 

Highlights of the Acquisition
  • The Xafinity Directors believe that the strategic rationale for the Acquisition is compelling and that the Acquisition represents an opportunity for Xafinity to progress its strategy of consolidating the mid-market in actuarial, investment and administrative services to trustees and sponsors of UK DB Schemes, by creating a new leading player with increased capability to challenge the Global Consultancies.
  • The Xafinity Directors believe that the Target Group’s businesses are highly complementary to Xafinity’s.  In particular, the Xafinity Directors believe that the two groups’ actuarial, investment consulting and administration businesses, each of which has a strong market reputation, a diversified client base, long-standing client relationships and a collegiate employee culture, are very well suited to a combination within the Enlarged Group.
  • The Xafinity Directors believe that the Acquisition will enable clients of both Xafinity and the Target Group to benefit from the combined capabilities of the Enlarged Group.  In the Board’s view, Xafinity has market-leading offerings in certain areas, including de-risking activity through its Centre of Excellence, in technology (with the development of “Radar”, Xafinity’s actuarial and investment software) and in relation to the DC market with the National Pension Trust.  Xafinity has had success introducing these offerings to its own client base and, the Xafinity Directors believe, such services are also likely to be attractive to the Target Group’s clients following Completion.  Similarly, there are areas of expertise within the Target Group that are stronger than Xafinity’s relative capabilities (for example, in the area of pension scheme administration, where significant growth has been achieved, taking on some of the largest contracts in the market, and advice on corporate mergers and acquisitions activity through Punter Southall Transaction Services).  The Xafinity Directors consider that the Acquisition would enable both firms to ‘level up’ in such areas across the Enlarged Group.
  • The markets in which both the Xafinity Group and the Target Group operate are fragmented. The Xafinity Directors believe that the combination of Xafinity’s businesses with the Target Group will create the largest “pure-play” pensions consultancy firm in the UK.  As a result, the Board believes the Enlarged Group would have a high profile in the pensions industry which is expected to lead to an increase in the number of invitations and opportunities received by Xafinity to tender for services to trustees of DB Schemes for the provision of actuarial, administration and/or investment consulting services.  The Xafinity Directors believe that the Enlarged Group would have access to a greater proportion of market opportunities in future by providing a compelling alternative to the Global Consultancies, by virtue of its increased scale and profile.
  • The disposal of Xafinity’s HR Trustees business as part of the consideration for the Acquisition removes a potential barrier to growth for Xafinity, because Xafinity’s addressable market is reduced by HR Trustees’ clients due to the potential conflict of interest that would or could arise if HR Trustees and Xafinity were to share a client.
  • The Target Group achieved revenue of approximately £51 million and adjusted EBITDA (including PS Group central cost allocations of £4.3 million) of approximately £11 million for the year ended 31 December 2016.  In connection with the Acquisition, the Company and PS Topco have agreed a Transitional Services Agreement, under which PS Topco will continue to provide overhead services support and services to the Target Group for up to two years after Completion for a basic charge of £2.125 million per annum.
  • The Acquisition is expected by the Xafinity Directors to be earnings enhancing for the Group for the financial year ending 31 March 2019 and materially earnings enhancing thereafter.

 

Paul Cuff & Ben Bramhall, co-CEOs of Xafinity plc, said:

“We are delighted to announce the merger of Xafinity and the actuarial, administration and investment consulting divisions of Punter Southall.  The deal will create the largest “pure-play” pensions consultancy firm in the UK market.  We both have a personal and long-standing affiliation with Punter Southall, and we believe that the addition of their like-minded and high-quality staff will contribute significantly to Xafinity’s position in the market.  This transaction marks another significant step in our strategy towards becoming the pre-eminent mid-tier pensions consultancy firm in the UK, with the combination of these businesses providing an expanded, yet focused, offering for clients that will position us as the primary alternative to the big three Global Consultancies.”

 

John Batting, CEO of Punter Southall’s Actuarial Consulting Business, said:

“This morning’s announcement is very exciting news for clients and employees of the actuarial, administration and investment consultancy businesses at Punter Southall. This deal will bring together complementary businesses that will ultimately provide increased scale and expertise, an enhanced range and quality of service. Paul and Ben’s history with Punter Southall, and their clear understanding of our reputation and culture has been vitally important to this merger, and I am confident that our current employees will benefit from this unique opportunity to be part of a publicly listed company poised for an exciting growth journey.”