Disposal

LONDON--()--

Mechan Controls plc

(the ”Company”)

(incorporated in England and Wales with Registered Number 03802853)

Proposed sale of the business and assets of Mechan Controls plc

Proposed change of name to Mandicon Plc

Posting of Circular to Shareholders

Notice of General Meeting

The Board of Mechan Controls PLC (MECP), whose shares are traded on the NEX Exchange Growth Market, is pleased to announce that it has agreed, subject to shareholder approval, to dispose of the business and assets of Mechan Controls plc (other than the shares in its subsidiary Nirvana Engineering Limited) to Mechan Controls (2017) Limited, a new company ultimately controlled by Mabruk Farrah, the current Technical Director of the Company.

Pursuant to the requirements of the Companies Act 2006 (as amended); the sale of business and assets is conditional on approval by shareholders as it is a disposal of a substantial non-cash asset to a director.

Background and Reasons for the Sale

In June 2015 the Board embarked on a formal sale process to realise value for shareholders through seeking to sell the individual operating businesses within the Company. As well as the business carried out by Mechan Controls plc itself, this also included Nirvana Engineering Limited and PJO Industrial Limited.

At the time the Board received a number of acquisition proposals for the acquisition of these businesses but these did not match the Board’s view of their value. In the Company’s announcement of 20 April 2016 the Board indicated that they would continue to explore opportunities for sale of the individual businesses and additional ways of realising value for Shareholders. The Group has continued to be profitable as a whole and it was able to declare an interim dividend to Shareholders for the financial period ending 31 December 2016 on 9 September 2016.

The Board are now delighted to have had an offer for the business and assets of the Company from Mechan Controls (2017) Limited, the terms of which the Board believes are acceptable.

Key Terms of the Sale

On 3 May 2017 the Company entered into an Asset Purchase Agreement with Mechan Controls (2017) Limited for the sale of the business and assets of the Company.

The business and assets being disposed of consist of the goodwill, property, fixed assets, movable assets, contracts, stock, business information, records, third party rights, business intellectual property, IT system, book debts, and all (if any) of the other assets, property or rights relating to or connected with, or required for use in, the business or in the property.

Subject to shareholder approval, the Company will sell the business and assets of the Company to the Buyer for the “Purchase Price” being a minimum sum of £1,640,000 up to a maximum of £2,000,000.

The Purchase Price will be satisfied by the as follows:

a) Payment of £1,240,000 (less any Book Debts Shortfall (if any)) in cash on completion of the asset purchase agreement;

b) Payment of £50,000 of the Deferred Payment to the Company in cash on the First Deferred Payment Date;

c) Payment of £50,000 of the Deferred Payment to the Company in cash on the Second Deferred Payment Date;

d) Payment of the balance of £300,000 of the Deferred Payment to the Company in cash on the Third Deferred Payment Date, together with the amount of any Book Debts Shortfall (if any); and

e) A final payment amount of up to £360,000 to be paid to the Company, on or before the Third Deferred Payment Date.

This final payment is contingent on the sale of some or all of the ordinary shares controlled by the Buyers Founders, being 142,300 or 7.11 per cent of the ordinary shares of the Company, between completion and the second anniversary of the completion date .

In the event that the sale of the ordinary shares controlled by the Buyers Founders does not realise the total final payment amount, then the Buyer is required to pay an amount equal to the amount realised from the sale of the ordinary shares of the Buyers Founders and fifty per cent of the difference between the amount realised from the sale of the ordinary shares, and the maximum final payment amount of £360,000.

As part of the asset purchase agreement the Buyers Founders have each pledged as security for the final payment the ordinary shares in the Company under their control.

As further security the Buyer, will on completion, grant a second legal charge over the Property in favour of the Company.

Financial Information on the Business and Assets being sold

The Board has provided extracts from the Group’s audited accounts for the year ending 31 December 2015 and the unaudited interim results as at 30 June 2016 reflecting the business and assets of Mechan Controls plc.

Mechan Controls Profit Summary   Unaudited Interim 30/06/16   Year Ending 31/12/15
         
Net Profit before tax   £153,701.00   £304,593.00
         
EBITDA calculation        
PBT   £153,701.00   £304,593.00
Add:        
Interest   £178.00   £3,647.00
Interest received       -£2,025.00
Amortisation   £22,548.00   £45,095.00
Depreciation   £8,022.00   £14,504.00
Profit/Loss on sale        
Consolidated amortization   £35,933.00    
EBITDA Total   £220,382.00   £365,814.00
Book Value of Assets to be Sold   Unaudited Interim 30/06/16   Year Ending 31/12/15
         
Goodwill   £111,509.00   £127,440.00
         
IP   £57,223.00   £63,840.00
         
Intangibles   £168,732.00   £191,280.00
         
Property   £161,500.00   £163,200.00
         
IT equipment   £1,661.00   £2,075.00
         
Other Fixed Assets   £41,299.00   £39,495.00
         
Tangible assets   £204,460.00   £204,770.00
         
Total per Balance Sheet   £373,192.00   £396,050.00

Remaining Business of the Company and Use of Funds

Subject to the approval of the shareholders, following completion of the Sale, the Company will become a holding company, with Nirvana Engineering Limited (“Nirvana”) as its operating subsidiary. The Company continues to seek potential purchasers for Nirvana, which in the year ended 31 December 2015 had audited sales of £1,619,132 and profit before tax of £352,121.

The Board has decided that for the time being it remains in the interest of the Company to remain a public company, quoted on the NEX Exchange, under the new name of Mandicon plc, pending a sale of its shareholding in Nirvana, at which point the Board will put forward proposals to return capital to Shareholders.

The funds from the sale after costs will be retained by the Company. The Company does not propose to alter its existing dividend policy by payment of a special dividend.

Current Trading and Prospects

The Company plans to release its preliminary results for the year ended 31 December 2016 by 31 May 2017.

Following completion of the sale, Nirvana will be the only trading company, and it continues to perform in line with expectations.

Circular

A circular will be posted to shareholders today setting out the background, and key details, of the proposed transaction and convening a General Meeting of the Company to vote on the resolutions.

Notice of General Meeting

The General Meeting will be held at 14-16 Seddon Place, Stanley Industrial Estate, Skelmersdale, Lancashire, WN8 8EB, at 9:30 a.m. on 31 May 2017 to consider and, if thought fit, pass the resolutions namely:

a) The approval of the sale of the business and assets of the Company to Mechan Controls (2017) Limited, and;

b) Subject to the sale being approved the change of name of the Company to Mandicon Plc.

Expected Timetable

Last time for receipt of Forms of Proxy for the GM - 9:30 a.m. on 29 May 2017.

Latest time for receipt of Forms of Proxy for the GM - 9:30 a.m. on 31 May 2017.

Issued shares and total voting rights

As at 6:00 p.m. on 3 May 2017, the Company’s issued share capital comprised 2,000,000 ordinary shares of 2.5p each, of which 198,900 are held in treasury by the Company. Each ordinary share not held in treasury carries the right to one vote at a general meeting of the Company and, therefore, the total number of voting rights in the Company as at 6:00 p.m. on 3 May 2017 is 1,801,100.

Definitions

Book Debts   all trade and other debts and amounts owing to the Seller at the Effective Time in respect of the Business (whether or not invoiced);
Book Debts Shortfall the amount (if any) by which the value of the Book Debts assigned to the Buyer at Completion is less than £250,000;
Buyers Founders Mr Mabruk Farrah and Mr Andrew Chadwick;
Deferred Payment the sum of £400,000 plus the amount of the Book Debts Shortfall (if any);
First Deferred Payment Date the earlier of:

(a) the date that is the first Business Day after the date that falls 15 months after the Completion Date;

(b) the date of the sale of the Business or a substantial part of the Business by the Buyer; or

(c) the date of a change of control of the Buyer;

Property the freehold property known as 14 – 16 Seddon Place, Skelmersdale, WN8 8EB and registered at HM Land Registry with title number LA609918;
Second Deferred Payment Date the earlier of:

a) the second anniversary of the Completion Date;

b) the date of the sale of the Business or a substantial part of the Business by the Buyer; or

c) the date of a change of control of the Buyer;

Third Deferred Payment Date the earlier of:

a) the third anniversary of the Completion Date;

b) the date of the sale of the Business or a substantial part of the Business by the Buyer; or

c) the date of a change of control of the Buyer;

The Directors accept full responsibility for this announcement

Short Name: MECP
Category Code: DIS
Sequence Number: 582798
Time of Receipt (offset from UTC): 20170504T124046+0100

Contacts

Mechan Controls Plc

Contacts

Mechan Controls Plc