Harvey Nash buying Crimson in deal worth up to £15m

Technology recruitment and outsourcing group Harvey Nash announced the acquisition of Crimson on Tuesday in a deal worth up to £15m.

The AIM-traded firm said the acquisition “cemented” the group's position as the “market leading” technology talent provider in the UK's IT and digital sectors.

Crimson, founded in 2000, is a UK IT solutions and recruitment company which specialises in digital and technology transformation solutions, as well as offering a “full range” of IT recruitment services, both permanent and contract.

For the year ended 31 March 2017, Crimson reported a profit before tax of £1.7m on turnover of £23.5m, with gross assets of £5.4m.

During that period, approximately 50% of Crimson's gross profit was derived from IT solutions and 50% from recruitment, of which the majority was contracting or annuity revenues.

“I am delighted to welcome the team from Crimson into the group,” said Harvey Nash CEO Albert Ellis.

“This is a transformative acquisition firmly establishing the group's business as the leading full service technology talent provider in the UK's IT and digital sectors.”

Ellis said the “breadth and depth” of technology expertise and talent resources offered by the combined businesses was “unrivalled” in the market, and the board expected to achieve cross selling synergies in coming months.

“In particular, our world class Vietnam offshore IT project and software development service will complement Crimson's already established and well respected onshore consulting teams.

“The announcement demonstrates our commitment to executing our stated strategy of delivering growth, both organically and through acquisitions.”

Under the terms of the acquisition, Harvey Nash Group will acquire 100% of the shares in Crimson for an initial cash consideration of £6m, plus an adjustment for working capital on completion, expected to result in a payment of no more than £0.1m.

Deferred cash consideration of up to £4m will be paid in two equal tranches on the first and second anniversary of completion with 50% guaranteed and the remainder subject to achieving a minimum level of EBITDA in each year of £1.5m, or an aggregate over two years of £3m or more.

In addition to the initial consideration and the deferred consideration, an earn-out of up to £5m would be payable in cash over the period of three years following completion, in two tranches.

The first of up to £2m will be paid based on the increase in adjusted EBITDA delivered by Crimson during months 13-24 following completion, with the amount payable being five times the difference between such adjusted EBITDA and the adjusted EBITDA of £2.5m for the year ended 31 March 2017.

A second tranche of up to £3m would be paid based on the increase in adjusted EBITDA delivered by Crimson during months 25-36 following completion, with the amount payable being five times the difference between such adjusted EBITDA and £2.5m.

The initial consideration, the deferred consideration and, if applicable, the earn-out consideration, would be satisfied from the group's existing cash flows resources and facilities, the Harvey Nash board confirmed.

It said the total maximum consideration payable for the acquisition of Crimson was up to £15m in cash, on a cash-free and debt-free basis, but assuming a normal level of working capital, which was around £1.2m during the year ended 31 March 2017.

Of the three shareholder directors, Robert Mallaband and Simon Chave would continue as CEO and CIO of Crimson respectively, remaining with the business along with the current management team, post-acquisition.

“Harvey Nash is well established with a unique portfolio of services and strong brand, and was the obvious choice when we were seeking a strategic partner to support us as we accelerate our own growth,” said Crimson’s CEO Rob Mallaband.

“I am delighted that Crimson is now part of the Harvey Nash Group and am confident that substantial success and opportunity lies ahead now that we have the backing and support of a much larger group with a global footprint.”