Tech firm clinches £6m loan but starts administration process for subsidiary

Adalsteinn Valdimarsson

Manchester software firm K3 Business Technology Group has secured a £6m loan, but also revealed it intends to place a loss-making subsidiary into administration, it announced this morning.

The firm, which last week delayed publication of its results for the year ended November 30, 2019, said the loans are from two major shareholders – Kestrel Partners and non-executive director Johan Claesson – and Barclays Bank.

It said the cash funding will strengthen the group’s liquidity position during this period of unprecedented disruption caused by the coronavirus pandemic.

Barclays is extending its existing loan facilities to K3 by £3m to a maximum of £13m in total.

The terms of the loan facilities, including their duration, are similar to existing facilities, which expire on March 31, 2021.

Kestrel – which has appointed Oliver Scott to the board as its non-executive director representative – and Johan Claesson are providing an unsecured term loan of £3m until June 30, 2021.

This shareholder loan is split equally between the two Lenders.

Mr Claesson will provide his part of the loan via his associated company, CA Fastigheter AB and Kestrel’s loan is provided via its discretionary clients.

K3 revealed that it intends that other major institutional shareholders will be offered the opportunity to participate in further lending of up to £2m on substantially the same terms as the shareholder loan, including the issue of further Warrants (Top-up Facility).

Participation will be at the absolute discretion of the board.

The dilutive impact of the Warrants issued to the lenders would be to increase K3’s issued share capital by 1.2m new ordinary shares, representing 2.8% of K3’s current issued share capital.

This dilution would increase to a maximum of two million new ordinary shares, representing 4.7% of the group’s current issued share capital, in the event that the Top-up Facility is subscribed in full.

The directors believe that the potential dilution arising from the issue of the Warrants is significantly lower than the dilution that would have arisen had K3 attempted to secure this additional financing wholly via an issue of new equity.

Chief executive Adalsteinn Valdimarsson said: “The securing of this additional finance from Barclays and our two major shareholders demonstrates their commitment to K3 and belief in our growth strategy and prospects.

“The additional liquidity puts us in a much stronger financial position and gives us the headroom to undertake any required restructuring, as well as further investment to support our growth strategy.”

In an update on K3’s UK Dynamics subsidiary, K3 Business Technologies Limited, which is a reseller of Microsoft Dynamics, generated an operating loss of in excess of £3m on turnover of £21m for the 12 months to November 30, 2019.

Given the current uncertainties created by the coronavirus crisis, this UK subsidiary is expected to generate further significant negative EBITDA and cash outflows in the year to November 30, 2020.

As a result, and following independent advice, the board of the subsidiary has taken the very difficult decision that it will be filing a Notice of Intention for administration. At the same time, it will seek interest in the sale of the business and/or its assets.

K3 said this decision has no effect on the group’s Microsoft Dynamics practices outside the UK.

The board said it will focus on growing the group’s core profitable business units and accelerating the transition towards its own IP, in particular the new flagship Imagine product.