Inspired PLC (AIM:INSE) said it has inked a deed of variation with the vendors of Ignite Energy Ltd which aims to provide long-term incentives for the vendors, enabling them to continue adding substantial value to Inspired.
The deed, which offers the opportunity for the vendors to secure up to £9.25mln of additional earn-out consideration, is subject to challenging performance thresholds.
To obtain the entire additional contingent consideration, Ignite must achieve year-on-year EBITDA growth exceeding management's current expectations from FY24 until H1 2027, generating a cumulative EBITDA (before deduction of central overheads) of approximately £64.1mln, with FY26 accounting for over £20.4mln.
The payment of the additional contingent consideration is aligned with the company's focus on cash generation, subject to an 80% cash conversion hurdle. This self-funding structure ensures alignment with Inspired's strategic emphasis.
In a statement, Mark Dickinson, CEO of Inspired, expressed enthusiasm about the agreement, stating: "The Optimisation Division delivered significant growth in FY22, driven by an increase in demand as the ongoing energy crisis sharpened clients' focus on the economics of investment in energy reductions, combined with the drive for delivering net-zero. Now is the right time to incentivise the Ignite vendors to deliver for the long term for Inspired PLC."
The acquisition of Ignite was announced by the company on 10 July 2020. The deed, alongside the final payments due under the share purchase agreement, increases the maximum contingent consideration payable to £22.5mln if the vendors achieve the set performance thresholds. The board believes that the vendors possess exceptional talent and have a proven track record of growing the Ignite business.
The deed aims to maximize the current growth opportunity for Inspired and re-incentivize the vendors, recognizing the impact of COVID-19 disruption on their ability to demonstrate the full scale of the opportunity within the three-year timeframe.
The payment of the additional contingent consideration is conditional on achieving challenging financial performance targets, ensuring sustained growth and incentivizing the building of a strong pipeline. The terms of the deed require Ignite to deliver consistent EBITDA growth exceeding current management expectations from FY24 to H1 2027, with a minimum EBITDA of £20.4mln before central overheads in FY26. This performance would result in a cumulative EBITDA of approximately £64.1mln between FY24 and H1 2027.
As the additional contingent consideration is tied to surpassing management expectations, the contingent consideration liability on the balance sheet will remain unchanged for FY24 to H1 2027.