NETCALL PLC
(“Netcall”, the “Company” or the “Group”)
Acquisition of Govtech Holdings Limited
Extending Local Government footprint and enhancing Liberty portfolio with innovative digital solutions
Netcall plc (AIM: NET), a leading provider of intelligent automation and customer engagement software, is pleased to announce the acquisition of Govtech Holdings Limited(1), a digital process automation company (the “Acquisition”).
Highlights:
| · | Complementary offering to Netcall’s existing suite of Liberty solutions, expanding the portfolio and increasing the Group’s customer base within Local Government |
| · | Expected to be immediately earnings enhancing, with Govtech operating a compatible cloud recurring revenue model |
| · | Substantial cross-selling potential across the portfolio |
| · | Initial cash consideration of £9.6 million, including £1.5 million relating to cash retained by Govtech, with an additional earnout, resulting in a maximum consideration of up to £13.0 million |
About Govtech
Govtech (www.govtech.co.uk) is a technology company specialising in digital process automation, with a strong focus on local government revenues and benefits processes. Its platform handles approximately 30 million transactions annually, achieving up to 80% automation for its customers. This high level of automation results in significant productivity savings, with up to a 50% increase in efficiency for revenues and benefits teams, leading to an improved citizen experience and faster service delivery.
Headquartered in Cirencester, Gloucestershire, Govtech serves around 50 local authorities including Leeds City Council, The City of Edinburgh Council and Bristol City Council. All 39 employees, including the founders, will remain with Netcall and continue to be based in Cirencester.
For the financial year ended 31 March 2024, Govtech reported a 17% increase in revenue to £3.5 million (2023: £3.0 million), adjusted EBITDA(2) of £0.79m (2023: £0.65m), and a profit before tax of £0.73 million (2023: £0.59 million). Gross assets as of 31 March 2024 were £3.1 million (2023: £2.6 million). Annual recurring revenue from cloud subscriptions grew by 13% to £3.4 million (2023: £3.0 million). At the time of completion, Govtech expects to have approximately £1.5 million in cash. All figures are unaudited.
Acquisition Rationale
The acquisition of Govtech is expected to be immediately earnings enhancing for Netcall. It significantly strengthens the Group’s market share in the local government sector, increasing the Group’s customer base from 26% to 34% of UK councils. Additionally, it provides an entry into councils’ revenues and benefits function, complementing Netcall’s existing applications across housing and social care processes for local government.
Govtech’s solutions will be integrated into Netcall’s Liberty platform, alongside its existing automation capabilities, such as AI-enhanced citizen experience technology, chatbots, robotic process automation, and rapid application development. This integration will create substantial new opportunities for cross-selling within the expanded portfolio, thereby increasing the stickiness of the Liberty platform across various council functions.
Consideration for the Acquisition
The total consideration for the Acquisition is up to £13.0 million. The initial consideration is £9.6 million, payable in cash from Netcall’s existing cash resources. Of this, £9.15 million is payable on completion, while £0.45 million is held back and deferred for 12 months.
Of the up to £3.4 million of contingent consideration, up to £0.4 million is payable in cash, subject to Govtech achieving specific financial metrics within 12 months of the acquisition date. The balance of up to £3.0 million of consideration is contingent on Govtech meeting certain financial hurdles and achieving an Annual Contract Value (“ACV”) growth target of £5.2 million within two years of the acquisition.
Payments related to financial hurdles will be measured annually and paid entirely in cash. Payments relating to ACV will also be measured annually, with two-thirds paid in cash and one-third in Netcall shares. Any Netcall shares issued will be subject to a 12-month lock-in for Govtech’s management shareholders.
James Ormondroyd, Chief Executive of Netcall, commented: “The acquisition of Govtech significantly expands our presence in the local government sector, strengthening our product proposition and providing substantial new cross selling opportunities, while adding to our growing base of recurring revenues. We look forward to welcoming the Govtech team to Netcall and are confident in the Group’s continued success.”
(1) Govtech Solutions Limited (“Govtech”) is the trading subsidiary of Govtech Holdings Limited. Govtech Holdings Limited was owned by the Govtech management team, comprising Andrew Melvin, Nigel Phillips, Mark Hanson and Andrew Williams, who collectively held 95.4% of the company, the remaining 4.6% was owned by Morgan Lloyd SIPP Trustees Limited.
(2) Profit before interest, tax, depreciation and amortisation adjusted to exclude the effects of share-based payments, acquisition, impairment, profit or loss on disposals, contingent consideration and non-recurring transaction costs.