St Ives is issuing £13.8m-worth of new shares and taking on an additional £10m of debt in order to fund its biggest marketing services acquisition yet.
The PLC has bought mobile application developer The App Business (TAB) in a cash-and-shares deal worth up to £55m.
The acquisition is the latest in a string of marketing buys over the past five-and-a-half years and means St Ives’ theoretical spend, if all of the businesses reached their earn-out targets, is approaching £300m.
London-based TAB was set up in 2009. It creates mobile apps for a raft of big-name clients including BP, Unilever and Tesco. The firm has also built apps for The Sun for News UK.
Sales at the 120-employee firm more than doubled in the year to 30 April 2015 to £11.3m, as did EBITDA (earnings before interest, taxes, depreciation and amortisation), which jumped from £1.5m to £3.7m.
The initial consideration involves £26m in cash and 3.2m shares in St Ives. The vendors are co-founders Rob Evans and Daniel Joseph, who remain with the business. The duo previously worked at agency TBWA on the launch of Apple’s iPhone and App Store.
St Ives chief financial officer Brad Gray said TAB was similar to US firm Solstice Consulting, acquired in March 2015. “There will be an exchange of ideas and best practice between the two companies. We have high hopes for them,” he said.
If TAB hits its profit targets through to 2018, St Ives will pay a further £27.8m in cash and shares.
St Ives has placed 6.4m new shares at 215p a share to help fund the TAB deal, alongside the £10m increase in banking facilities. The group insisted its balance sheet was still in a strong position and it remained on the lookout for further marketing buys.
At the end of its last financial year net debt at the £345m turnover group had increased from £42.7m to £62.8m, and it had drawn down £79.2m of its £115m banking facility.
St Ives also announced a trading update alongside the TAB announcement. It reiterated the tough trading conditions affecting its Marketing Activation division, where sales are likely to be around 10% down, mainly because point-of-sale business SP has become over-reliant on the grocery sector.
Margins at book wing Clays are likely to slip as a result of the additional costs associated with readying the business to take on the huge Penguin Random House (PRH) contract, which involved new kit and additional employees. The final tranche of the PRH work transferred from CPI last month.
Sales at Clays were broadly in line with the prior year, St Ives said. “We didn’t really see any of those big blockbuster titles last Christmas,” Gray added.
The group will announce its interim results next month.
St Ives’ share price rose from 222.5p to 227p following news of the TAB buy and placing.