Acquisition of SDS Holdco, Inc.

THIS ANNOUNCEMENT, INCLUDING THE INFORMATION CONTAINED HEREIN, IS RESTRICTED AND IS NOT FOR PUBLICATION, RELEASE, DISTRIBUTION OR FORWARDING, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN OR INTO THE UNITED STATES, AUSTRALIA, CANADA, JAPAN, THE REPUBLIC OF SOUTH AFRICA OR ANY OTHER JURISDICTION IN WHICH SUCH PUBLICATION, RELEASE OR DISTRIBUTION WOULD BE UNLAWFUL.

FURTHER, THIS ANNOUNCEMENT IS FOR INFORMATION PURPOSES ONLY AND DOES NOT CONSTITUTE AN OFFER OF SECURITIES IN ANY JURISDICTION. PLEASE SEE THE IMPORTANT NOTICES AT THE END OF THIS ANNOUNCEMENT.

For immediate release

LEI: 213800O2CTJ1YFXNXG05

7 June 2021

Craneware plc

("Craneware", the "Company" or the "Group")

Acquisition of SDS Holdco, Inc. ("Sentry")

Introduction

Craneware (AIM: CRW.L), a market leader in Value Cycle solutions for the US healthcare market, today announces that it has entered into a conditional agreement to acquire Sentry for an aggregate consideration of $400 million (on a cash free / debt free basis) (the "Acquisition").

The Acquisition represents a strategically important transaction for Craneware.

Highlights of the Acquisition

·    Sentry, the ultimate holding company of Sentry Data Systems, Inc., a private company headquartered in Deerfield Beach, Florida (US), is a leading provider of SaaS solutions which simplify the complexity of pharmacy procurement, utilisation and 340B regulatory compliance in order to maximise cost savings, improve patient outcomes and ensure precise regulatory compliance. Sentry also provides business intelligence and SaaS analytics solutions and consulting services.

·    Sentry has a customer base of some 10,000 hospitals, pharmacies and clinics, including over 600 US hospitals (of which only approximately 35% overlap as existing Craneware customers).

·    Sentry generated revenue of $92 million and adjusted EBITDA of $23 million (unaudited) for its financial year ending 31 December 2020.

·    The Acquisition represents a compelling strategic fit for Craneware due to:

o  the enhancement of Craneware's focus on pharmacy operations within healthcare providers, the largest cost area for US hospitals outside the workforce, and extending the reach of the Pharmacy Chargelink product family with the retail and contract speciality pharmacies data for those providers and their communities;

o  the complementary strengths of Sentry's business model - a SaaS model with recurring revenues due to its long-term customer relationships and high contract renewal rates;

o  the significant cross-selling opportunities provided by the complementary nature of Sentry's product suite and customer base;

o  the commercialisation opportunity and enhancement to Craneware's Trisus® product suite provided by Sentry's 147 million unique longitudinal patient records collected over a 17 year period; and

o  the scale created by the enlarged business.

·    The consideration for the Acquisition is being satisfied as to $312.5 million (as adjusted) in cash and as to $87.5 million by the issue of shares in the Company to the vendor of Sentry (the "Consideration Shares").

o  Various ABRY Partners funds hold approximately 88.8% of the economic interest in the vendor of Sentry, with the remainder held by Sentry management / Sentry management related vehicles and individual shareholders.

·    The cash consideration will be funded from the Group's existing cash resources, a new debt facility of up to $140 million as detailed below and the net proceeds of an equity placing, to be announced separately today (the "Placing"). 

·    The Consideration Shares, which are expected immediately to be distributed by the vendor of Sentry to the underlying equity holders of the vendor of Sentry, will be subject to the following restrictions, in each case subject to customary exceptions:

o  6 month hard lock-up and subsequent 6 month orderly market arrangements in respect ABRY Partners funds;

o  12 month hard lock-up and subsequent 12 month orderly market arrangements in respect of members of Sentry management or connected therewith.

·    The cash proceeds will be paid and the Consideration Shares will be allotted to the vendor of Sentry upon completion of the Acquisition, which is currently anticipated by early calendar Q3 2021.  Application will be made for the Consideration Shares to be admitted to trading on AIM.

·    The Acquisition is expected to be double-digit per cent. accretive to Craneware's underlying adjusted earnings per share ("EPS") in the financial year ending 30 June 2022, before any potential synergy benefits.

The Acquisition is subject to anti-trust clearance in the United States and certain other customary conditions. The Acquisition will represent a substantial transaction under Rule 12 of the AIM Rules for Companies.

Keith Neilson, CEO of Craneware, commented:

"The acquisition of Sentry will provide immediate additional scale to our operations, expanding our coverage of US hospitals, enhancing our pharmacy offering and cementing Craneware's position as a leading provider of value cycle solutions to the US healthcare market. 

Sentry's focus on the hospital link to community pharmacies adds breadth and depth to our healthcare data, providing extra insight into margin improvement opportunities within hospital operations and pharmacy costs in particular. As the second largest cost centre for hospitals after the workforce, this is an important area of focus for hospital management teams, as they seek to deliver greater value in healthcare.

Sentry's high levels of recurring revenues, customer retention rates, and strong financial metrics, speak to the quality of the business and the people that deliver their offering and we are excited by the scope of the opportunity ahead."

Enquiries:

This Announcement is released by Craneware plc and contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 (MAR) (as transposed  into the laws of the United Kingdom), and is disclosed in accordance with the Company's obligations under Article 17 of MAR.

For the purposes of MAR and Article 2 of Commission Implementing Regulation (EU) 2016/1055 (as transposed  into the laws of the United Kingdom), the person responsible for arranging for the release of this Announcement on behalf of the Company is Craig Preston, Chief Financial Officer.

Background to and reasons for the Acquisition

As set out in the Company's Interim Results announcement on 1st March 2021 (for the 6 months ended 31 December 2020), the Company has continued to make progress on its long-term strategic aim to become ubiquitous in US hospitals, as the intelligence layer sitting across all other systems, delivering the information required to improve financial and operational performance. The global pandemic has highlighted the importance of usable financial and operational data and the Board believes this will drive further investment by US hospitals in the future, resulting in multiple new sales opportunities for the Group.

In addition to the progress towards more normal sales cycles and the accelerated growth drivers supporting platform adoption, the Group recognises the further opportunity presented by the stress in healthcare service providers, which may have been less able to easily navigate the disruption created by the economic uncertainty of the pandemic in adjacent operational areas to those historically serviced by the Group.

This has resulted in the opportunity to acquire Sentry in order to further penetrate the pharmacy and supplies market via retail and contract pharmacies associated with healthcare providers.  Sentry was founded in the US in 2003 by current CEO Travis Leonardi, and was acquired by various ABRY Partners funds in 2015. The vendor of Sentry, Sentry Data Systems Holdings, LLC, is currently owned by ABRY Partners VII, L.P., ABRY Partners VIII, L.P. and other affiliated funds (who together have an economic interest of approximately 88.8%), with the remaining ownership interests held by Sentry management / Sentry management related vehicles and individual shareholders (who together have an economic interest of approximately 11.2%). Sentry is headquartered in Deerfield Beach, Florida, but has a presence across the US working with greater than 10,000 hospitals, clinics and contract pharmacies of which a high proportion are unique healthcare providers that would be new to Craneware.

In evaluating acquisition opportunities the Board implements a strong valuation discipline. This is underpinned by four key acquisition criteria of which target companies must fit into at least one, being:

·    the addition of data sets;

·    the extension of the customer base;

·    the expansion of expertise; and/or

·    the addition of applications.

In the Board's view, Sentry fits all of these criteria.  Sentry is a profitable business with a recurring revenue model, the acquisition of which the Board believes would materially enhance the existing Craneware business.

Addition of data sets

Sentry's solutions have enabled it to collect over 140 million unique longitudinal patient records, providing Sentry with a comprehensive platform of patient data and intelligence, which Craneware believes will provide significant revenue opportunities with multiple healthcare stakeholders (including hospitals and the associated retail and contract speciality pharmacies within their communities) as the US healthcare market continues to move towards value-based healthcare.

Extension of the customer base

Sentry has a customer base of more than 10,000 hospitals, pharmacies and clinics. This customer base includes over 600 US hospitals, of which only approximately 35% overlap as existing Craneware customers. Sentry's extensive network of relationships with pharmacies and clinics provides an opportunity for Craneware to reach customers with whom the Group is not currently engaged.

Expansion of expertise

Pharmacy is the largest cost area for US hospitals outside the workforce. As a result, there is bipartisan support to reduce the cost of pharmacy where possible. The Acquisition will enhance Craneware's focus on and expertise in pharmacy operations within healthcare providers, whilst also extending the reach of the Pharmacy Chargelink product family with the retail and contract speciality pharmacies data for those providers and their communities.

New applications

The Acquisition adds additional cloud-based applications to Craneware's product offering. These will sit alongside the Group's existing Trisus® Platform, broadening the depth of engagement with the Group's customers, whilst also providing another onboarding point to Craneware platform.

Financial rationale

The Acquisition is expected to be double-digit per cent. accretive to Craneware's underlying adjusted EPS in the financial year ending 30 June 2022 before any potential synergy benefits.

Sentry generates 95% of its revenue from software products that deliver gross margins of more than 83% and achieve an EBITDA margin of 25%. In addition, 96% of Sentry's revenue is from subscription and recurring sources.

For its financial years ending 31 December 2020, 2019 and 2018, Sentry generated revenue of $92 million, $89 million and $89 million, adjusted EBITDA of $23 million, $23 million and $20 million and a loss before tax of $4.2 million, $7.6 million and $9.1 million respectively (all figures reported under US GAAP and unaudited). The losses before tax recorded in these three financial years were driven by significant interest payments as a result of the relatively high levels of debt within the Sentry business and significant non-cash goodwill and intangible amortisation charges accounted for under US GAAP. As at 31 December 2020, Sentry had gross assets of $251.9 million (unaudited).

Craneware believes that there are clear cross-selling and operational leverage opportunities deriving from the Acquisition going forwards.

Details of the Acquisition

Craneware has agreed to acquire Sentry (on a cash free / debt free basis) for an aggregate consideration of $400m, with the consideration also subject to adjustment as against a benchmark level of working capital, all as calculated and agreed or determined in accordance with the terms of the agreement relating to the Acquisition.

The Acquisition, which is subject to anti-trust clearance in the United States and certain other customary conditions, is expected to complete in early calendar Q3 2021 after the expiration of or termination of all applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and satisfaction of the other conditions. In the event that completion of the Acquisition has not occurred by 5 September 2021 (i.e. within 90 days of the date of the agreement relating to the Acquisition), or such other date as the parties may mutually agree in writing, either party may terminate the agreement, in which case the Acquisition will not proceed.

The consideration for the Acquisition is being satisfied as to $312.5m (as adjusted) in cash and as to $87.5m by the issuance of the Consideration Shares to Sentry Data Systems Holdings, LLC, the vendor of Sentry. The Consideration Shares are then expected to be promptly distributed by the vendor to the underlying equity holders in the vendor.  The equity in the vendor is currently owned by certain ABRY Partners funds (ABRY Partners VII, L.P., ABRY Partners VIII, L.P., ABRY Partners VII Co-Investment Fund, L.P., ABRY Partners VIII Co-Investment Fund, L.P., and ABRY Investment Partnership, L.P.) who together are expected to receive approximately 88.8% of the sale proceeds, with the remainder held by Sentry management / Sentry management related vehicles and individual shareholders (T&S Lion Holdings LLC, John Randazzo, Brian Ramsey, Adriana Kovalovska, Lidia A. Rodriguez Hupp Trust-Series A and Daniel Swem) who together are expected to receive approximately 11.2% of the sale proceeds. The Consideration Shares will be subject to 6 month hard lock-up and subsequent 6 month orderly market arrangements in respect of the underlying equity holders in the vendor who are private equity funds and to 12 month hard lock-up and subsequent 12 month orderly market arrangements in respect of the underlying equity holders in the vendor who are members of Sentry management or connected therewith (in each case subject to customary exceptions).

The cash consideration will be funded from the Group's existing cash resources, a new $140m debt facility and the net proceeds of the Placing. The new debt facility comprises a term and revolving facilities agreement between the Company (as borrower), Silicon Valley Bank (as mandated lead arranger), Silicon Valley Bank (as agent) and Silicon Valley Bank (as security trustee). Craneware's pro forma LTM net leverage is, as at 30 June 2021, expected to be in the range of 1.3x to 2x.

The cash proceeds will be paid and the Consideration Shares (which will be subject to customary lock-up arrangements) will be admitted to trading on AIM and allotted to the vendor of Sentry upon completion of the Acquisition, which is anticipated by early calendar Q3 2021.

IMPORTANT NOTICES

THIS ANNOUNCEMENT IS FOR INFORMATION PURPOSES ONLY AND DOES NOT CONSTITUTE OR FORM ANY PART OF AN OFFER TO SELL OR ISSUE, OR A SOLICITATION OF AN OFFER TO BUY, SUBSCRIBE FOR OR OTHERWISE ACQUIRE, ANY SECURITIES IN THE UNITED STATES (INCLUDING ITS TERRITORIES AND POSSESSIONS, ANY STATE OF THE UNITED STATES AND THE DISTRICT OF COLUMBIA (COLLECTIVELY, THE "UNITED STATES")), AUSTRALIA, CANADA, THE REPUBLIC OF SOUTH AFRICA, JAPAN OR ANY OTHER JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. ANY FAILURE TO COMPLY WITH THESE RESTRICTIONS MAY CONSTITUTE A VIOLATION OF THE SECURITIES LAWS OF SUCH JURISDICTIONS. NO PUBLIC OFFERING OF SECURITIES IS BEING MADE IN ANY JURISDICTION.

This Announcement is not for public release, publication, distribution or forwarding, in whole or in part, directly or indirectly, in or into the United States, Australia, Canada, the Republic of South Africa, Japan or any other jurisdiction in which such release, publication, distribution or forwarding would be unlawful.

Any securities referred to herein have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the "Securities Act"), or under the securities laws of any state or other jurisdiction of the United States, and may not be offered or sold, directly or indirectly, in or into the United States except pursuant to an applicable exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and in compliance with any applicable securities laws of any state or other jurisdiction of the United States. No public offering of securities is being made in the United States.