Nasstar plc Acquisition of Kamanchi Limited

Posted: 24th July 2014 09:33

Nasstar, a provider of Hosted Desktop cloud computing, is pleased to announce the acquisition of the entire issued share capital of Kamanchi Limited ("Kamanchi"), a specialist IT outsourcer and Hosted Desktop provider in the recruitment sector, for a consideration of £2.5m. The acquisition is expected to be immediately earnings enhancing.
Of the £2.5m consideration, £1.5m will be payable in cash, and £1m in new Nasstar Ordinary Shares.  As a result, Nasstar has agreed to issue (conditionally only on Admission as defined below) 12,484,394 Ordinary Shares at 8.01 pence per share to the vendors of Kamanchi.  The Kamanchi vendors are Kevin Winfield and Raymond Pennie. All the new Ordinary Shares will be locked in for a period of six months with orderly marketing provisions for a further six months thereafter. Application has been made for the new Ordinary Shares to be admitted to trading on AIM ("Admission"). Admission is expected to occur today. The new Ordinary Shares rank parri passu with the existing issued ordinary share capital.  Immediately following Admission there will be 366,444,447 Ordinary Shares of 1p each in issue.
The cash element of the total consideration will be paid as to £500,000 on 24 July 2014 with deferred consideration of £1,000,000 being paid on 14 October 2014 subject to confirmation of Kamanchi's net profit in completion accounts for the year ended 30 June 2014. The cash element of the deferred consideration may be adjusted downwards if Kamanchi's net profit as derived from the completion accounts is below an agreed amount.
Raymond Pennie, the Commercial Director who has been instrumental to Kamanchi's success, will remain employed within the Group following completion.  Raymond Pennie is a qualified chartered accountant and recruitment industry specialist. He recently completed a 4 year term as a member of the APSCO Executive Committee, the only dedicated trade body that represents the interests of the UK Professional Staffing industry, and is Chair of APSCO's Technology Forum.  Kevin Winfield, Kamanchi's founding director, will remain with Kamanchi as a consultant for an initial period of three months and will leave the business thereafter.
Kamanchi employs 31 full time staff who work from its Northampton Head Office and its London office.
Kamanchi key financial information
For the year ended 30 June 2014, Kamanchi generated revenues of approximately £2m and adjusted EBITDA of approximately £0.45m.  On acquisition, the business will be debt free with £250,000 of working capital retained.
In the year to 30 June 2013 Kamanchi made pre-tax profits of £0.27m on revenues of £1.9m and had net assets of £0.3m at the year then ended.   
Currently Kamanchi generates around 60% of its revenues from long term recurring revenue contracts with 22 retained clients, with the remaining 40% from recruitment application consulting projects.
Rationale for the Acquisition

The acquisition of Kamanchi is consistent with Nasstar's stated expansion strategy of organic growth augmented by selective acquisitions where the Company can add intellectual property, technical expertise and sector knowledge and contacts in its three main vertical markets (recruitment, legal and finance).
Kamanchi has built a leading position providing specialist IT services to the recruitment sector. Since Raymond Pennie joined Kamanchi in March 2009, the business has focused exclusively on this market. Today, it provides worldwide recruitment clients with a variety of IT systems and services, including fully managed Hosted Desktop, as well as development and consultancy services on buying and integrating new recruitment applications.
Through its exclusive sector focus, Kamanchi has built strong relationships with the specialist recruitment software providers including CRM providers Bond Adapt, Bullhorn, JobScience and Invenias and other applications providers in the sector including Broadbean, Daxtra, Saber Analytics, Cube 19 and Intime enabling it to offer clients a one-stop solution for all their essential recruitment applications. It also provides IT help desk services and project-based IT consultancy. All Kamanchi software application services are delivered from the Cloud on their Hosted Desktop platform branded SilverBullet.
Kamanchi has established a loyal customer base totaling 22 contracted recruitment clients with over 525 end users with an average recurring revenue per user per month of £190.  The acquisition secures a further significant foothold in a key strategic vertical market and places Nasstar at the head of the Hosted Desktop market for the recruitment sector delivering Hosted Desktop services to 33 recruitment firms totalling 2,682 recruitment consultant end users.
The Board sees a significant opportunity for the Group in rolling out Kamanchi's recruitment application development and consultancy services to its current recruitment clients to improve revenues and profitability, while adding further value to the client and ultimately improving client loyalty and retention.  The Board also intends to apply the marketing and new business generation expertise it successfully developed through to Kamanchi's business.
Raymond Pennie, Commercial Director of Kamanchi, said:

"The opportunity to combine the Enlarged Group's technical expertise, marketing and sales techniques with Kamanchi's specialist application services is an exciting prospect. I feel we will be able to create a compelling offering to the recruitment vertical and am very much looking forward to helping grow the Enlarged Group. This is a significant step in Kamanchi's evolution and will enable it to take advantage of its excellent reputation in the market."
Nigel Redwood, Chief Executive Officer of Nasstar, commented:

"The acquisition of Kamanchi further enhances our standing in one of our core vertical markets and adds considerable user numbers to our Hosted Desktop community.  Whilst adding further contracted recurring revenue to the Group we will be able to roll out a much broader package of bespoke cloud hosted services to our clients and will have considerably more consultancy resources. What's more, we see many opportunities to promote these services far more systematically to companies within our vertical sectors using our strongly established sales and marketing channels.  We are delighted to welcome Raymond and all the Kamanchi employees to the Nasstar Group."

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