LONDON (ShareCast) - (Sharecast News) - IT governance, risk management and compliance products and services supplier GRC International Group has conditionally agreed to acquire the entire issued share capital of data consulting and technology solutions company DQM Group Holdings, it announced on Monday.
The AIM-traded firm said it expected the acquisition to be "significantly" earnings-enhancing in the 2020 financial year and beyond, adding that it marked the completion of the majority of its investment programme intended to position it to become cash generative.

In addition, and in connection with the acquisition, GRC proposed to raise £5m by way of a conditional placing of five million new ordinary shares at 100p each.

The company said it intended to use the net proceeds of the placing primarily to finance the initial cash element of the consideration for the acquisition, and to provide additional working capital for the enlarged business.

GRC said the DQM acquisition would bring four main revenue streams to the group, in managed services, GDPR consulting, third-party auditing, and GDPR technology solutions.

It said the acquisition would also bring established earnings, with "significant" revenue for the year ended 28 February 2018 derived from clients using more than one product or service.

Revenues at DQM for the financial year to 28 February 2018 totalled around £2.9m, with an EBITDA of approximately £0.72m.

Its organic revenue compound annual growth rate (CAGR) was 26% over the two years to 28 February 2018.

Initial consideration for the acquisition would total £5.89m, comprising a cash payment of £3.53m and the issue of 2.02 million ordinary shares, worth £2.35m based on an issue price of 116.5p per ordinary share.

Deferred consideration would be calculated by reference to eight times DQM's adjusted EBITDA for the financial year ending 28 February 2019, less the initial consideration and certain other adjustments.

The deferred consideration would be satisfied through a cash payment of 60%, and the issue ordinary shares for 40% of the total, and was currently anticipated to be in the range of between £2.5m and £3.5m, not exceeding £5m.

GRC's board said it believed the acquisition would provide a number of earnings-enhancing benefits to the group, including the extension of its existing offering to include high margin, data governance services.

It would also add market share to the group, by introducing additional household name clients with ongoing contracts, and provide cross-selling and upselling opportunities through the complementary offerings of the two firms.

GRC also claimed the acquisition would "broaden and strengthen" its second-tier management team, through the retention of existing DQM management, as well as add customer account management capability and provide "strategic opportunities", such as enabling it to gain 'Data Privacy Seal' accreditation.

Finally, the board said it would provide sector crossover, such as an increased financial sector exposure.

"This strategic acquisition is another step forward in the growth strategy of GRC International, enabling us to capitalise further on the significant opportunities within the IT governance, risk and compliance market and to extend GRC's existing capabilities and the range of products and services we offer to our customers," said GRC International chief executive officer Alan Calder.

"DQM boasts market-leading expertise in data consultancy, an impressive customer base and unique solutions, providing us clear opportunities for cross-selling and up-selling of our products and services.

"We look forward to welcoming DQM into the GRC International Group."

Peter Galdies, founder and director of DQM, added that his company was "looking forward" to becoming part of the GRC International Group.

"Our existing offerings will complement GRC's products and services well and the opportunities for synergy creation and cross-selling, we believe, will significantly strengthen the future prospects for the group," Galdies said.

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