Acquisition of Product Support Solutions, Inc (“PSS”) to accelerate US growth and support international expansion
Wednesday, 18 November 2015

Posted in

2015

Eckoh (AIM: ECK), is pleased to announce the acquisition of PSS, a US-based company specialising in the management of contact centre and customer experience technology, for a total consideration of $7.6m (approximately £5.0m) (the “Acquisition”). After accounting for $2.0m (approximately £1.3m) of cash in PSS, the net consideration comprises $5.6m (approximately £3.7m).

With PSS's business based in the US, UK, and Australia, the acquisition will support Eckoh's continued expansion in the US where PSS has a significant presence, and further scale Eckoh's business in the UK as well as other potential international marketplaces, notably Australia. It will also bring additional products and services which can be cross-sold into the enlarged customer base.

The cash consideration of $5.6m (approximately £3.7m) has been funded by a new £5.0m banking facility with the remaining balance of the new facility being used to repay the balance of an existing debt facility. The remaining $2.0m (approximately £1.3m) consideration is payable in 2,967,084 new Eckoh ordinary shares of 0.25p each ('Ordinary Shares') at a price of 43.18 pence per share (the 'Total Consideration Shares'), being the average share price for the 20 dealing days preceding completion of the transaction. 1,442,925 of the Total Consideration Shares (the 'Initial Consideration Shares') have been issued and allotted pursuant to the terms of the Acquisition with the balance, namely 1,524,159 Ordinary Shares, being issued and admitted to trading on AIM on the first anniversary of the Acquisition, subject to adjustment to satisfy any future claims which may arise under the warranties contained within the sale and purchase agreement. The Total Consideration Shares will be subject to a lock-up arrangement of two years following completion of the Acquisition and a further 6 month orderly market arrangement.

Through its global alliances with Genesys, Aspect, Avaya, Microsoft, Nuance and other major contact centre technology providers, PSS assists clients in improving the efficiency of their contact centres and the quality of their customer interactions through the various services and solutions it provides. Its large client base encompasses multiple industry sectors and includes well-known brands such as AT&T, CenturyLink, Vodafone, Bank of America and Telstra. Many of PSS's clients require third party support for their legacy systems, with PSS seeking to assist them through the life cycle of their requirements, from transitioning existing architecture through to innovation, design and deployment of new solutions to solve complex issues.

For the year ended 31 December 2014, PSS generated unaudited revenues of $17.4m (approximately £11.3m) and a profit before tax of $1.2m (approximately £0.8m). Included within PSS' revenue is approximately $4.0m (approximately £2.6m) that would be classified as agency fees pursuant to Eckoh's accounting policies and would have been recognised as approximately $0.2m (approximately £130,000) within Eckoh's accounts. Profit would not be affected by this reclassification. As at 31 December 2014, unaudited net assets of PSS were $1.2m (approximately £0.8m). The transaction is expected to be immediately earnings enhancing.

Strategic rationale:

The acquisition of PSS is in line with Eckoh's strategy to become a dominant provider of secure payments products and customer contact solutions for contact centres, primarily in the US and UK markets, through organic growth, partnership and acquisition.

Key strategic benefits of the acquisition include:

  • Further building Eckoh's scale: PSS has a 12 year history of providing contact centre solutions to a worldwide client base with a highly skilled workforce of 76 people based in the US, UK and Australia. PSS will expand Eckoh's total client and partner base considerably, increasing its market presence and share in these markets.

  • Cross-selling Eckoh product offerings into the enlarged customer base: With an enhanced product portfolio, the Directors believe that there is a considerable opportunity to cross-sell Eckoh products into the PSS customer base, many of which need to transition from their legacy systems to more effective, progressive solutions. This is expected to enable Eckoh to increase PSS's service offering and, as a result, revenue per employee.

  • Extending Eckoh's service and product proposition: PSS has a proven product portfolio ranging from supporting client's legacy systems, designing and supporting IVR systems, through to innovative desktop solutions for contact centre agents. Eckoh's strategy has been to provide a range of technology solutions that facilitate much of the consumers' engagement and journey, using their channel of choice, from initial contact through to their interaction with a contact centre agent (if this is required). PSS's product set and partnerships will enable Eckoh to begin to extend the reach of its solutions to the desktop of the agent and to the actual infrastructure that underpins it. This will serve to increase client value and assist with retention.

  • Leveraging PSS's trusted adviser status: PSS delivers a high quality, differentiated service, which underpins strong recurring revenues and client retention rates of 99%. The Directors believe that this is an ideal sales platform from which to introduce Eckoh's secure payments proposition.

  • Enhancing growth prospects in the US: PSS has a team of skilled, experienced employees across two offices in the US, including 10 sales and marketing staff. With PSS's excellent local reputation and blue chip customer base, PSS will support Eckoh's continued expansion in the US, strengthening its direct selling capabilities. In addition, PSS's senior management team will remain with the business to help drive Eckoh's growth ambitions in the US.

  • Supporting premised-based deployments in the US: The secure payment contracts that have been won thus far in the US and the sales opportunities in the pipeline have a far higher proportion of deployments on the client's premises than is the case in the UK market. These installations will need to be supported in a timely and cost effective manner. With a base of support staff and skilled field engineers based in 20 US States and already servicing customers across the whole of the US, PSS gives Eckoh an immediate infrastructure to facilitate support and grow this part of the market.

  • Strengthening the opportunity for additional international expansion: Eckoh has continued to make good progress with its direct international sales over the last year and PSS's international presence will complement Eckoh's current reach. In particular, with PSS already having an established presence in Australia via its contract with Telstra, Australia's largest telecommunications and media company, this provides a significant opportunity to enter the Australian secure payment market from which other markets in the region could also be exploited.

Additional details:

Following the issue of the Initial Consideration Shares, the Company will have a total of 224,788,848 Ordinary Shares in issue, each carrying one voting right. The Company does not hold any Ordinary Shares in Treasury. This figure of 224,788,848 Ordinary Shares may be used by shareholders as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change to their interest in, the share capital of the Company under the FCA's Disclosure and Transparency Rules.

Application has been made for the Initial Consideration Shares, which will rank pari passu in all respects with the Company's existing ordinary shares, to be admitted to trading on AIM which is expected to occur on or about 23 November 2015.

Nik Philpot, Chief Executive Officer of Eckoh, commented:
'PSS is a unique business with a highly experienced workforce and quality service offering, making it a trusted partner to a number of large enterprises in the US, UK and Australia.

'This acquisition not only significantly expands our presence in the US market, a key part of our growth strategy, but it also strengthens our scale and product proposition, with excellent cross-selling opportunities across the enlarged customer base. It therefore represents exciting progress in our aim to become a dominant and best in class provider for contact centre and payment protection solutions.

'We look forward to welcoming the PSS team to Eckoh and remain very excited about the future growth prospects for the Group in the US, UK and now the Australian markets.'

For further enquiries, please contact:

Eckoh plc
Nik Philpot, Chief Executive Officer
Adam Moloney, Group Finance Director
www.eckoh.com
Tel: 01442 458 300