GBG to acquire IDscan

GBG (AIM: GBG), the identity data intelligence specialist, is pleased to announce that it has conditionally agreed to acquire 100% of IDscan Biometrics, a provider of software that automates on-boarding of customers and employees by simplifying the identity verification and data capture process.

IDscan Biometrics helps authentication of documents including passports, visas, ID cards, driving licenses, utility bills and work permits whilst also capturing facial biometrics which provides proof that those documents are not stolen.

The combination represents a highly complementary capability set alongside GBG's unique global Know Your Customer, Anti-Money Laundering and fraud detection solutions.

The consideration will consist of cash on completion of £37 million, with a further maximum £8 million payable contingent on reaching revenue and EBITDA targets between 12 and 18 months from completion of the Acquisition. The Company intends to finance the acquisition through a non-underwritten share placing to raise up to £25 million and through borrowings under its existing back facilities.  The transaction is expected to be earnings accretive in the first 12 months of consolidated GBG ownership.

The Placing is being conducted through an accelerated bookbuild process which will be launched immediately. Peel Hunt LLP is acting as sole bookrunner in connection with the Placing.

It is expected that the final number of Placing Shares will be agreed by Peel Hunt and GBG at the close of the bookbuild and that the number of Placing Shares and the amount that the Company is to raise under the Placing will be announced shortly afterwards. The timing for the close of the bookbuild and the allocation of Placing Shares shall be at the absolute discretion of Peel Hunt. GBG reserves the right to issue and sell a greater or lesser number of shares through the Placing.

Highlights

Acquisition highlights

• Creates a world leader in proprietary global document validation and biometric and identity verification.
• Provides access to a large global addressable market: spending on credit, fraud, risk and compliance is in excess of US$19 billion a year.
• Enhances GBG's global KYC, AML and fraud solutions capability.
• Automated identity verification technology is scalable within GBG's global footprint.
• IDscan Biometrics is highly synergistic with GBG and opens up new cross-selling opportunities. 
• The transaction is earnings accretive in the first twelve months of ownership.

Placing highlights

• GBG intends to raise approximately up to £25 million before expenses through a placing by Peel Hunt of 9,090,910 new ordinary shares of the Company of 2.5 pence each at a price of 275 pence per share.
• The Placing is being conducted by way of an accelerated bookbuild on the Company's behalf by Peel Hunt. The bookbuild will open with immediate effect following this Announcement.
• The timing of the closing of the bookbuild, the final size of the Placing, and allocations are at the discretion of the Company and Peel Hunt. A further announcement will be made following closing of the placing book confirming the final size of the Placing.
• The Placing Price represents a discount of approximately 4.5 per cent. to the closing mid-market price of GBG's existing ordinary shares of 288 pence on 28 June 2016, being the last practicable date before this announcement.
• It is expected that, if all 9,090,910 Placing Shares are issued, they will represent approximately 7.3 per cent. of the Company's existing issued share capital.
• The Placing is conditional upon Admission.
• Further details of the Placing are set out in the appendix to this announcement.

Richard Law, GBG's CEO, commented,

“I am delighted to announce our acquisition of IDscan Biometrics. GBG has followed IDscan Biometrics over the years and we have seen this business grow strongly, winning significant enterprise customers. IDscan Biometrics has a very strong team, has great products and is a great strategic and cultural fit for GBG. I am very pleased to welcome IDscan Biometrics into the GBG family of companies and myself and the Board are confident of continued success for GBG and IDscan Biometrics.”

Introduction to the acquisition of IDscan Biometrics

GBG, the identity intelligence specialist, is pleased to announce that it has conditionally agreed to acquire 100% of IDscan Biometrics, a provider of software that automates on-boarding of customers and employees by simplifying the identity verification and data capture process.

IDscan Biometrics helps authentication of documents including passports, visas, ID cards, driving licenses, utility bills and work permits whilst also capturing facial biometrics which provides proof that those documents are not stolen.

The combination represents a highly complementary capability set alongside GBG's unique global Know Your Customer, Anti-Money Laundering and fraud detection solutions.

The consideration will consist of cash on completion of £37 million, with a further maximum £8.0 million payable contingent on revenue and EBITDA targets between 12 and 18 months from completion of the Acquisition.  The acquisition is financed through £12 million debt and a £25 million equity placing as detailed below.  The transaction is expected to be earnings accretive in the first 12 months of consolidated GBG ownership.

Financial information on IDscan Biometrics

For the year ended 31 July 2015, IDscan Biometrics' revenues were £7.6 million (2014*: £3.2 million), delivering a gross profit of £6.1 million (2014: £2.6 million) and an adjusted operating profit of £3.2 million¹.  The balance sheet of IDscanBiometrics had £1.6 million in cash and net assets of £1.2 million.

* Unaudited accounts as the company was below the threshold at which an audit is required.

(1) After adjusting for fully expensing of research and development costs in IDscan Biometrics.

Acquisition rationale

The acquisition of IDscan Biometrics moves GBG from being a software aggregator to a proprietary operator of both Document and Identity Data Validation. The Acquisition would place GBG as the sole provider of a proprietary document validation, biometric, global identity and address data verification and fraud detection solution. It removes the reliance on third-party software, provides GBG with IP for an emerging technology, and creates an expanded global product offering.

Global spending on credit, fraud, risk and compliance is in excess of US$19 billion a year. With GBG's total addressable market estimated to be $15.7bn, the demand for registering identities and managing risk will continue to rise geographically, across industries and enterprise of all sizes. As a result of this Acquisition, GBG will have global sales and channel opportunities in the UK and 13 countries worldwide.

Integration strategy

The Founders of IDscan Biometrics will remain with the business for up to 18 months post-completion of the Acquisition and an accelerated handover plan will be implemented. GBG will invest further in the Sales, Marketing and Product, including an expanded salesforce, alignment with GBG IDV and Fraud Solutions and investments to expand into new geographies.  A senior GBG Sales Director and Head of Products will be seconded to IDscan Biometrics to help with the integration and synergies with existing platforms.

Details of the proposed placing

Under the terms of a placing agreement entered into today between Peel Hunt and the Company (the "Placing Agreement"), Peel Hunt has agreed to use its reasonable endeavours to procure persons to subscribe for the Placing Shares at the Placing Price of 275 pence each to raise up to £25 million (before expenses) for the Company. The Placing Price represents a discount of approximately 4.5 percent. to the closing mid market price of shares in the Company at 28 June 2016, the latest practicable date prior to the publication of this announcement. If all the Placing Shares are issued, they will represent approximately 7.3 per cent. of the Company's enlarged issued share capital.

The Placing Shares will, following Admission, rank pari passu with the existing issued Ordinary Shares and will have the right to receive all dividends and other distributions declared, made or paid in respect of the issued Ordinary Share capital of the Company following Admission including the final dividend of of 2.08 pence per share declared on 8 June 2016.

The Placing Agreement contains customary warranties from the Company in favour of Peel Hunt in relation to, inter alia, the accuracy of the information in this announcement and other matters relating to the Group and its business. In addition, the Company has agreed to indemnify Peel Hunt in relation to certain liabilities it may incur in respect of the Placing. Peel Hunt has the right to terminate the Placing Agreement in certain circumstances prior to Admission, in particular, in the event of a material breach of the warranties given to Peel Hunt in the Placing Agreement or the failure of the Company to comply in any material respect with any of its obligations under the Placing Agreement.

The Placing is conditional upon, amongst other things, Admission becoming effective and the Placing Agreement becoming unconditional in all respects by no later than 8.00 a.m. on 1 July 2016 or such later date (being not later than 8.00 a.m. on 15 July 2016) as the Company and Peel Hunt may agree. Application has been made to the London Stock Exchange for the Placing Shares to be admitted to trading on AIM. It is expected that Admission will occur and that dealings will commence at 8.00 a.m. on 1 July 2016.