Acquisition of Forfab
Forfab was founded in 1984 and is based in Dunfermline. Forfab currently employs 130 staff and has manufacturing facilities in Dunfermline and Aberdeen and specializes in the mechanical design and manufacture of pressure vessels, storage vessels, heat exchangers, evaporators and condensers, modular skid packages and pipework systems.
Sales to the oil and gas industry account for 75% of Forfab's revenues, although the company also supplies products to the international petrochemical, pharmaceutical, brewing and water industries.
The range of services that Forfab provides is complementary to those provided by the Group's existing fabrication businesses, OIL and CPS, and expands the capabilities and range of services that the Group offers.
In the year ended 31 October 2005, Forfab had audited turnover of £11.56 million, achieving a profit before taxation of £392,527. Net assets at 31 October 2005 were £2.87 million. For the twelve months ended 31 October 2006, Forfab had unaudited turnover of £15.34 million and profit before taxation of £1.24 million as extracted from Management Accounts.
The consideration of £4.85 million was satisfied by a payment in cash of £4.80 million and by the issue of 22,988 new ordinary shares. All key personnel are continuing with the business.
New Banking Facilities
Sovereign has also entered into a new £50 million credit facility with Merrill Lynch International Bank. The new facilities consist of a £30 million Senior Term Loan and Revolving Credit Facility and a £20 million Mezzanine facility.
Sovereign has drawn down £15.2 million of these facilities to repay existing debt with Barclays Bank Plc and to pay the consideration for Forfab. The remainder of the facilities is available for further acquisitions, to fund certain future capital expenditures and for other general corporate purposes.
Merrill Lynch will receive an arrangement fee at market rates and 611,157 ordinary Sovereign shares, which equates to 3.5% of the enlarged fully diluted share capital of the Group.
Merrill Lynch will also receive two deferred fees for the mezzanine facility if Sovereign's market capitalization reaches £100 million and £150 million respectively then Merrill Lynch will receive an amount equivalent to 0.75% of the enlarged capitalization of the Group in cash or new ordinary shares at the option of the Group.
The new facilities will replace the existing £8.0 million credit facilities with Barclays Bank Plc.
The Board anticipates that in the year ending 31 March 2007, a one-off exceptional charge of £0.35 million relating to the change in banking facilities will be incurred by the Group.
The 634,145 new ordinary shares issued pursuant to the new banking arrangements and the acquisition of Forfab will rank pari passu with the existing ordinary shares of the Company, and trading is expected to commence on 29 January 2007. Following admission of these shares, the Company will have 17,046,211 ordinary shares in issue, with each ordinary share holding one voting right.
Graham Burgess, Chief Executive of Sovereign Oilfield Group plc stated:
"The acquisition of Forfab gives Sovereign an excellent new subsidiary and greater critical mass in both the North Sea and international fabrication markets and illustrates Sovereign's continuing ability to identify earnings enhancing deals that both complement and expand the Group's range of services.
"We are delighted to welcome Merrill Lynch both as a shareholder and as provider of these excellent new credit facilities, enabling the Group to pursue further acquisitions and to target larger deals in the UK and internationally.
"We view this financing as a significant step in the evolution of Sovereign into a diversified international oil and gas service group and as a validation of our operational and growth strategy."
Sovereign, which joined AIM in September 2005, was formed in October 2003, by Dr Peter Felter and Mr Graham Burgess, for the specific purpose of developing an oilfield service company focused on:
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