Acquisition of Cresta Group Limited
May 10, 2006
SQS Software Quality Systems AG (AIM: SQS.L) the AIM listed leading supplier of
independent software testing and quality management services, today announces
that it has agreed to acquire 100% of the shares of Cresta Group Limited
("Cresta") for a consideration of up to £18m. After several successful
acquisitions in the past, this is the first acquisition the company has made
since its IPO in September 2005 and management expects it to be earnings
enhancing in the current financial year. SQS will merge its UK operation with
Cresta, to create the largest independent pureplay software testing and quality
management consulting practice in the UK. David Cotterell, head of Cresta will
become the CEO of SQS-Cresta in the UK while Bob Bartlett, current head of SQS
UK will, become COO of the combined operations.
Cresta has 200 employees and is headquartered in Central London, with
subsidiaries in Ireland and an office in South Africa. For the year ending 31
December 2005, Cresta recorded turnover of £12.9m (2004: £8.4m) and profit
before tax of £0.72m (2004: £0.53m). The net assets being acquired in this
transaction had a book value of £1.4m as at 31 December 2005.
The consideration for the acquisition will comprise SQS shares up to a maximum
of 78% of the deal value with the remainder in cash. The initial consideration
of £6m (£3m in cash and £3m by the issue of 1,427,743 new ordinary shares in
SQS) will be paid upon completion, with the balance to be paid depending on the
achievement of specific earn out targets over the next two years, up to an
additional maximum of £12m. SQS will apply to AIM for admission of the 1,427,743
initial consideration shares on completion, which is expected to become
effective on 3 July 2006. The new shares will rank parri passu with the existing
ordinary shares.
The acquisition is conditional, inter alia, upon all necessary registrations in
Germany of the increase in share capital which is required to issue the new
ordinary shares on completion. It is expected that completion will take place
after 1 July 2006.
The acquisition creates new opportunities for SQS in the UK, both by increasing
its customer base and extending its reach into new vertical markets. Cresta has
30 concurrent customers at anyone time, including 5 of the top 10 FTSE 100
companies spread across the banking, utility, telecoms, e-commerce and energy
sectors. The UK operation will initially be branded SQS-Cresta.
The combined SQS-Cresta operation in the UK will be three times bigger than
SQS's current UK operation. The combined operation is expected to increase
SQS's UK revenues from approximately 20% to 40% of total Group turnover at an
enhanced margin as overhead economies are achieved.
The Board is pleased to report that trading conditions in SQS's major markets
continue to be encouraging and that revenue in the first three months of 2006 is
up by approximately 20% year on year, in line with the Board's expectations. A
further update on current trading will be made at the AGM on 2 June 2005.
Rudolf van Megen, Chief Executive Officer of SQS, commenting on the acquisition,
said:
"I am delighted by this acquisition as it secures SQS's position as the largest
independent software testing and quality management company in the UK. We look
forward to integrating the two businesses and exploiting the market
opportunities that are now available to SQS."
David Cotterell, Chief Executive Officer of Cresta in UK, said:
"This transaction, puts us ahead by two years and accelerates opportunities for
both our clients and staff - as well as
ensuring our growth continues strongly. The resulting organisation positions
SQS-Cresta as the clear market leader in our field whilst remaining focused as a
pureplay testing consultancy and allowing us to further invest in products and
services to the benefit of our markets and clients."