Earnings Enhancing Acquisition of The Edge
01 March 2021
(“Instem” or “the Company” or “the Group”)
Earnings Enhancing Acquisition of The Edge
Acquisition of Discovery Technology Solutions Provider, Issue of Equity and Total Voting Rights
Instem plc (AIM: INS), a leading provider of IT solutions to the global life sciences market, announces that it has acquired the entire issued share capital of discovery software solutions provider, The Edge Software Consultancy Ltd (“The Edge”), for a total consideration of up to £8.5m, net of any cash acquired adjusted for a normalised level of working capital. The consideration will be satisfied by a combination of cash and new ordinary shares in the Company (the "Acquisition").
- The Acquisition provides a platform for increased:
- Recurring software revenue streams
- Cross selling opportunities
- Data management and solutions reach
- The Edge forms part of a broader acquisitive growth strategy, consolidating leading software and technology enabled services suppliers in the global pharmaceutical and wider life sciences market, with Instem having:
- A pipeline of acquisition targets – including near-term opportunities of scale
- Proven experience integrating acquisitions to deliver strong organic growth
About The Edge
The Edge has an established client base across the pharmaceutical, biotechnology, biopharmaceutical and animal health sectors. It provides technology and services aimed at improving the efficiency of drug discovery research and development, enhancing client productivity while ensuring that critical high-quality data from studies and experiments is efficiently captured, stored and shared. As such, it effectively bridges the gap between research and IT, translating the needs of scientists into terms that technology professionals can understand and deliver.
Its suite of tightly integrated technology solutions include:
- Laboratory Information Management Systems, which enable clients to manage samples, test results and associated data to improve lab productivity
- Electronic Laboratory Notebook solutions
- Data Aggregation and Analytics
Clients use these solutions to increase productivity and reduce time to market as drug and similar candidates are identified and advanced into the latter stages of research and development (where Instem’s existing market leading solutions feature strongly).
The Edge will be integrated into the Company’s Study Management and Data Collection business unit, further broadening its reach within existing and new clients and enhancing its technology offering. The Edge is already the go-to partner for many of Instem’s clients looking to revolutionise their R&D processes, and the combined operations will be able to provide a simplified service structure. Furthermore, the Acquisition strengthens Instem’s position within Discovery – helping it to meet growing interest for the wider sharing of data.
In the year ended 31 July 2020, The Edge had unaudited, normalised profits before tax of £1.7m on sales of £2.7m, of which £0.8m was recurring revenue. Its 2020 sales benefitted from high levels of professional services revenue, expected to be replaced by significant future growth in recurring software revenue.
The Acquisition is expected to be earnings enhancing in 2021. As at 31 July 2020, The Edge had net assets of approximately £2.4m.
Increased Market Opportunity
As The Edge’s and Instem’s solution portfolios are almost entirely complementary, the Acquisition further broadens Instem’s reach into the closely adjacent Discovery Study Management market. The Edge has particular strengths in the Drug Metabolism & Pharmacokinetics (DMPK) field, with among other things, clients benefiting from the ability to:
- Read raw data files from instruments such as Mass Spectrometers;
- Identify and analyse the peak area data;
- Apply statistics and curve fitting; and
- Calculate and visualise end point results
Importantly, there is significant scope following the Acquisition to drive value by targeting existing clients with new products and growing the Group’s overall reach. Instem will integrate The Edge quickly and will be targeting increased cross-selling, particularly into Instem’s large client base, while leveraging Instem’s global Sales, Marketing, Delivery and Client Management teams to facilitate geographic expansion of the acquired solutions.
Terms of the Acquisition
The consideration comprises £6.0m payable on completion of the Acquisition (the "Initial Consideration"), £0.5m of deferred consideration (the "Deferred Consideration") and up to a further £2.0m which is payable contingent upon the future financial performance of The Edge (the "Earn Out"). Further information on the terms of the Acquisition is set out below.
The Initial Consideration is being satisfied by £4.0m in cash and £2.0m in new ordinary shares of 10 pence each in the Company (the "Initial Consideration Shares"), equating to the issue of 391,920 shares at a deemed price of approximately 510.3 pence per share. The cash payment is being funded from the Group’s existing financial resources.
The shareholders of The Edge comprise its four directors (“the Vendors”), each of whom will continue to be employed by the Group following the Acquisition. The Initial Consideration Shares will be subject to lock-in agreements, precluding the Vendors from selling any of their Initial Consideration Shares prior to the 24-month anniversary of completion of the Acquisition.
The Deferred Consideration, to be satisfied in cash, comprises £0.5m payable to the Vendors on the 12-month anniversary of completion.
The Earn Out comprises up to £2.0m payable in cash, contingent upon The Edge achieving certain EBITDA targets in the twelve-month period post-completion, with up to £1.0m paid on or before the 15-month anniversary of completion and up to a further £1.0m paid on the 24-month anniversary of completion.
Issue of Equity
Application has been made to the London Stock Exchange for the admission to trading of the 391,920 Initial Consideration Shares to AIM ("Admission"). It is expected that Admission will occur and that dealings will commence at 8.00 a.m. on 4 March 2021. The Initial Consideration Shares will rank pari passu with the existing ordinary shares in the Company.
Total Voting Rights
Following the issue and allotment of the above Initial Consideration Shares, the Company's issued share capital comprises 20,873,829 ordinary shares of 10 pence each. The Company does not hold any ordinary shares in treasury, therefore the total number of voting rights in the Company is 20,873,829.
The figure of 20,873,829 may be used by shareholders as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change of their interest in, the Company under the FCA's Disclosure and Transparency Rules.
Phil Reason, CEO of Instem, commented: “We are delighted to have continued our acquisition strategy with such a strong addition to our portfolio. The Edge has an excellent reputation with its clients and we believe their suite of products, and scientific and technology know-how will further enhance our industry reach and standing. We are particularly pleased to extend our coverage in Bioanalytical / Drug Metabolism & Pharmacokinetics, both of which are hugely important across other phases of R&D that Instem targets.
“Additionally, we continue to evaluate a number of potential acquisition opportunities and are well placed to build on this very exciting addition in due course. With our core focus on enhancing margins, growing revenue stream visibility, and strengthening opportunities within existing and new client bases, The Edge is the ideal way for us to advance our broader acquisition strategy.”
Andrew Lemon, Managing Director at The Edge added: “We are very pleased to have joined the wider Instem family. Harnessing the global resources, processes and reach of Instem will give us exactly what we need to take the next step in our journey to bring our innovative solutions to more scientists around the world. Combining our story with a well-established and proven life sciences leader like Instem further validates our entire approach in the market and offers new and exciting opportunities for our clients and staff.”
This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014.
For further information, please contact:
|Phil Reason, CEO||Via Walbrook|
|Nigel Goldsmith, CFO|
|N+1 Singer (Nominated Adviser & Broker)||+44 (0) 20 7496 3000|
|Wallbrook Financial PR||Tel: +44 (0) 20 7933 8780|
Instem is a leading provider of IT solutions & services to the life sciences market delivering compelling solutions for Study Management and Data Collection; Regulatory Solutions for Submissions and Compliance; and Informatics-based Insight Generation.
Instem solutions are in use by over 500 customers worldwide, including all the largest 25 pharmaceutical companies, enabling clients to bring life enhancing products to market faster. Instem's portfolio of software solutions increases client productivity by automating study-related processes while offering the unique ability to generate new knowledge through the extraction and harmonisation of actionable scientific information.
Instem products and services address aspects of the entire drug development value chain, from discovery through to market launch. Management estimate that over 50% of all drugs on the market have been through some part of Instem's platform at some stage of their development.
To learn more about Instem solutions and its mission, please visit instem.com.
About The Edge
The Edge helps create new and efficient processes for capturing and analysing data in the laboratory that can easily be distributed across scientific teams. Through highly refined automated data capture software, clients are able to reduce cycle times by establishing reliable scientific workflows which enables them to execute tests more quickly and efficiently.