Inflexion pays premium price to take chunk of Marlowe PLC

Worknest in action

AIM-listed compliance software specialist Marlowe has sold a chunk of its business to private equity investor Inflexion for £430million, a 121% premium on its current total market capitalisation of £348m.

Included in the deal are Worknest, previously known as Ellis Whittam, the Chester based employment and health safety adviser, which Marlowe acquired from LDC in 2020 for £59 million; Vista Employer Services, a Manchester- based business, and CQC Compliance, located in Preston.

The £430 million purchase price represents a multiple of 16.2x proforma adjusted cash EBITDA in the year ended 31 March 2023.

It was admitted to AIM in April 2016 when it merged with a shell company and acquired Salford-based Swift Fire and Security.

As a buy-and-build Marlowe has seen its value plummet in recent years from the dizzy heights of £1billion in January 2022, following the £135 million purchase of Optima Healthcare.

Like many stock market-listed businesses Marlow’s share price has slid and the challenges for all AIM listed companies of raising further equity have increasingly restricted its progress. Its market capitalisation was £348 million at close on Monday.

Alex Dacre

Alex Dacre, son of Paul Dacre, former editor of the Daily Mail, is resigning as chief executive of Marlowe to lead the divested business.

Inflexion is buying 20% of Marlowe plc’s turnover and 40% of its adjusted EBITDA yet it is being sold for 123% of its current market capitalisation, an illustration of how the market capitalisations of listed companies have in a fair few cases sunk below the underlying value of their assets.

The 25 acquisitions which created the division cost approximately £300 million and in addition to Worknest, Vista and CGC, also include: Glasgow based Law at Work which was bought for £10 million; Israel based Vinci Works which they paid £54 million for; William Martin (£33 million); IMSM (£17 million); and Barbour EHS which was bought for £32 million.

Marlowe intends to use the proceeds from the deal to pay off debt and return cash to shareholders, but will continue to sweat the remaining assets.

The sale is conditional on approvals from the Financial Conduct Authority, the Solicitors Regulation Authority and the National Security and Investment Act.

David Bowcock

Legal advisers on the deal were law firm FieldFisher led by Manchester office senior partner David Bowcock and director Adam Jones with help from Chris Galley, Julia Venckute, Charlotte Round, Andrew Prowse and Keith Woodhouse.

Goldman Sachs (Owain Evans and Khamran Ali) and Cavendish Corporate Finance (Ben Jeynes) acted for Marlowe.

The buyer has been represented by Slaughter and May, EY and Houlihan Lokey all out of London.

Commenting on the Divestment, Kevin Quinn, Marlowe’s Chairman said in  a statement to the stock market this morning: “This divestment represents an excellent outcome for Marlowe and its shareholders and underscores the significant value that has been created through the delivery of our growth strategy. The valuation achieved demonstrates the substantial potential within our business and will reset our capital structure, giving Marlowe strategic agility whilst delivering meaningful returns to our shareholders.

“Following the sale, Marlowe’s business will consist of two market-leading compliance service divisions in Testing, Inspection and Certification and Occupational Health, with a clear and refocused strategy in our core compliance service markets.

“Since 2015, Alex has been instrumental in developing Marlowe into a UK powerhouse in regulatory compliance which, through a combination of over 80 acquisitions and strong organic growth, has been transformed into a company with more than £500 million in revenues, over 5,000 colleagues and thousands of clients across the UK. On behalf of the Board, I would like to thank Alex for this exceptional achievement and his outstanding leadership in building Marlowe.”

Alex Dacre, Marlowe’s outgoing chief executive said: “It has been a privilege to lead Marlowe since its inception and through the Group’s rapid evolution into the UK’s leader in safety and compliance. This divestment represents a significant premium to our market capitalisation and clarifies the Group’s forward strategy to focus on the highly attractive and regulated compliance service markets.” 

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