Cello Plays A Different Tune

AIM-listed Cello Group has paid £3.1 million to acquire Chiaros Holdings, the company that owns the organisational consultancy TMI UK.

We noticed the positive comment on our sale of TMI to Cello, the marketing services group chaired by Kevin Steeds. Bob Willott comments in Fintellect today:

“Given Chiaros’ past performance, the purchase price seems a generous one – suggesting that private equity shareholders may have been particularly successful in negotiating exit terms or that Cello knows something that outsiders don’t.

The company’s recovery in the year to 30 June 2005 produced a post-tax profit (PAT) of £197,000 and the initial purchase price represents a multiple of over 15 times that figure. Chiaros was still fairly heavily borrowed in that year and incurred substantial interest charges. Without the cost of such borrowings the multiple would have been more reasonable at 10.5 times PAT or 7.4 times earnings before tax (EBIT).”

For the audited year to 30 June 2005, TMI UK had a turnover of £4.9 million, gross profit of £2.8 million, which puts the price into context.

The real reason for the deal is that TMI UK is a leading provider of organisational development and consultancy solutions to a range of blue chip clients. TMI works with a range of leading brands including Toyota, hp, Metronet, Marks and Spencer, the Foreign and Commonwealth Office, National Express Group and Serco Solutions.

The total maximum consideration payable for TMI UK is £4.1 million in cash, loan notes and new ordinary shares.

Formed in 1978, TMI UK will join Cello’s brand consultancy platform. The initial consideration consists of £3.1 million, of which £2.3 million is in cash and the balance satisfied by the issue of up to 617,721 new ordinary shares. In addition, there is a maximum deferred consideration of up to £1 million dependent on the financial performance of the business for the period to 31 December 2009. The deferred consideration is payable in a mixture of loan notes and new ordinary shares at Cello’s discretion. The maximum share element will be 75% of the deferred consideration.