All Leisure Group announced that it has reached an agreement with the shareholders of Page & Moy Travel Group Limited to acquire, on a debt free basis, 100% of the share capital of Page & Moy Travel Group.
The consideration will be a total of £4.2 million, before deduction of Page & Moy Travel Group’s transaction costs, payable in cash. The consideration will be funded with a £5.8 million loan from a consortium of individual investors.
Summary information on the Acquisition
Page & Moy Travel Group, a leading tour operator offering holidays to a wide range of overseas destinations, has been offering a broad range of holidays, including touring holidays, city breaks, river and ocean cruises, safaris and classic rail journeys to the over-55s for more than 50 years. It currently trades under 3 brands, Travelsphere, Page & Moy and Just You, selling predominantly directly to its passengers from its dedicated call centre in Market Harborough. In the year to 30 November 2011 the group carried c. 88,000 passengers across its three brands.
Background to and reasons for the Acquisition
All Leisure has a consistent strategy which is to achieve growth by exploiting the increasing demand for destination-led cruise holidays and by providing an increasing choice of other niche holiday products into the over-55 English speaking market. The Directors believe that the Group’s chosen niche markets have a number of fundamental attractions:
• Significant barriers to entry. The Directors believe that a growing focus by regulators on safety and consumer protection is raising the barriers to entry for those wishing to enter the Group’s markets. This is benefiting established brands with strong balance sheets.
• High levels of repeat business. The Group enjoys significant repeat passenger business, underlining the benefits of customer loyalty.
In realising this strategy, organic growth opportunities will be complemented by strategic acquisitions, reinforcing existing positions as well as increasing All Leisure’s exposure to new and attractive markets.
Rationale for the Acquisition
The Board believes that the acquisition of Page & Moy Travel Group is wholly aligned with this strategy and has excellent commercial rationale, as it both reinforces the Group’s existing positions, offering holidays to customers in the same age profile, and increases All Leisure’s exposure to new markets. The advantages of this transaction include, but are not limited to:
• Page & Moy Travel Group has a large UK customer database which is compatible with All Leisure’s. The enlarged group will have access to a list of nearly 4 million households (mainly 55 and over) and this is expected to lower the cost of customer acquisition
• Opportunities for greater cross selling across brands, particularly to fill All Leisure’s expanded cruise programme
• Reducing dependency on the cruise market, and introducing more balanced global destinations such as China and North America
• Providing numerous synergies across the two businesses
• Strong use of scheduled flights will reduce transport costs for fly cruises
• Majority of enlarged business will be direct and with both All Leisure and Page & Moy Travel Group having high level of repeat business.
• Significant trading losses historically which should result in future corporation tax savings.
Financial information on the Acquisition
In the year to 30 November 2011, Page & Moy Travel Group’s revenue was £107.6 million an operating loss of £5.6m and, following the one-off impairment in full of the company’s goodwill of £35.6 million, a loss before tax of £45.1 million. The financial statements for the year ended 30 November 2011 were signed on completion of the deal and will be filed at Companies House within the statutory time limits.
As at 30 November 2011, Page & Moy Travel Group had fixed assets of £4.4 million, including freehold property valued at £3.6 million, and net current assets of £3.1 million.
Effect on All Leisure
Page & Moy Travel Group has a good new management team and is targeting a return to profitability in its current financial year. All Leisure will be working closely with them to implement an integration plan over the coming months. The Company expects to incur significant costs this year and next year to obtain the synergies that it is seeking as a result of the Acquisition and subsequent integration.
All Leisure will fund the consideration with the Loan, which will be repayable over 5 years. Given this outstanding debt and integration costs, the Directors believe that a dividend is unlikely to be paid by the Company in the foreseeable future as it will be concentrating on maximising profits and shareholder value in the medium to long term.
The directors of the Group anticipate that the Acquisition will be earnings enhancing in the first full financial year following acquisition. This statement regarding earnings enhancement is not a profit forecast and should not be interpreted to mean that All Leisure’s earnings per share will necessarily match or exceed the historical earnings of All Leisure or Page & Moy Travel Group.
Principal terms of the Acquisition
The Company will acquire the entire shareholding of Page & Moy Travel Group, for a consideration of £4.2 million, payable immediately on completion and which will be funded by the Loan. The existing bank debt of Page & Moy Travel Group will be capitalised prior to completion, such that Page & Moy Travel Group will be acquired on a debt free basis.
Principal terms of the Loan
The Loan of £5.8 million is being provided by the Consortium, the members of which include, but are not limited to, Roger Allard, Executive Chairman of the Company, and his interests; Nigel Jenkins, Non-Executive Director of the Company; and David Wiles, Director of All Leisure Holidays Ltd, a subsidiary of the Company, and his interests.
As such, the Loan constitutes a related party transaction pursuant to Rule 13 of the AIM Rules for Companies. The directors of All Leisure excluding Roger Allard and Nigel Jenkins, having consulted with the Company’s nominated adviser, Panmure Gordon (UK) Limited, consider that the terms of the Loan are fair and reasonable insofar as the Company’s shareholders are concerned.