Option Arrangement re Happy Friends
1 March 2021
CIP MERCHANT CAPITAL LIMITED
("CIP" or the "Company")
Option Arrangement re Happy Friends
CIP is pleased to announce that it has entered into an agreement with certain shareholders in 7Star S.r.l. ("7Star" or "Happy Friends"), a private Italian company founded in December 2016 which operates a chain of three veterinary hospitals under the brand name 'Happy Friends', in relation to an option to potentially acquire a further equity interest of up to 41.6 per cent. of the existing issued share capital of Happy Friends for nominal consideration of, in aggregate, €5 (the "Option Arrangement").
Following CIP's initial investment in December 2018 for a 49 per cent. equity interest in Happy Friends, of which an economic interest of 27.8 per cent. was subsequently syndicated, as announced on 24 June 2019, CIP currently holds an economic interest of 35.4 per cent. in Happy Friends (the "Initial Investment").
Details of the Option Arrangement
Pursuant to the agreement, CIP has been granted an option to acquire a further 41.6 per cent. of Happy Friends' existing issued equity capital (the "Option Shares"), being the entire interest currently held by the selling shareholders (the "Selling Shareholders"), for an exercise period of 12 months at a nominal exercise price of, in aggregate, €5 (the "Call Option"). The Selling Shareholders comprise five private corporate entities, three of which are owned separately by the three founders of Happy Friends, being Mr Federico Reggiani, Mr Christian La Monaca and Mr Paolo Miglietta (the "Founders"), and the remaining two of which are owned by associates of the Founders.
Under the terms of the Option Arrangement, the Call Option can be exercised by CIP at any time during its 12 month term (the "Call Option Period") and CIP also has the right to nominate a third party to receive the Option Shares. On expiry of the Call Option, the Selling Shareholders have the right, for a period of thirty calendar days thereafter, to put the Option Shares on to CIP (or to a third party to be nominated by CIP) for an aggregate nominal consideration of €5 (the "Put Option"). The Option Arrangement has been agreed in conjunction with CIP consenting, pursuant to its rights under the Happy Friends' investment and stakeholders agreement, to the repayment of €203,818 of shareholder loans to the Selling Shareholders and the writing off of the balance of such shareholder loans, being €320,474, by Happy Friends. The Option Arrangement allows CIP to facilitate an orderly exit for the Selling Shareholders whilst providing CIP with an option to increase its equity interest in Happy Friends for nominal consideration. The Board of CIP (the "Board") believes that there is the potential for value enhancement through corporate activity and other strategic and organic growth initiatives in relation to Happy Friends and believes that the Option Arrangement provides an improved platform and greater alignment of stakeholders for such potential activity.
The Board notes that, were the Call Option or Put Option to be exercised, ceteris paribus, CIP's voting interest in Happy Friends could increase to up to 90.6 per cent. and its economic interest could increase to up to 65.4 per cent. of Happy Friends. In the event either option were to be exercised, CIP intends to continue to treat Happy Friends as a non-consolidated investee company, both in terms of its day to day operational management and for accounting purposes, thereby continuing to hold the investment at fair value utilising the investment entity exemption under IFRS10, and notes that, until such time as either the Call Option or Put Option is exercised, the Selling Shareholders will retain their majority representation on the board of Happy Friends.
Additional information on 7Star
7Star currently operates three veterinary hospitals, under the brand name 'Happy Friends' in Lombardy, Northern Italy.
For its financial year ended 31 December 2019, 7Star achieved revenues of €0.7 million and a loss before tax of €1.1 million, and, as at 31 December 2019, had total assets of €6.5 million.
As at 31 December 2020, being the date of the Investment Manager's most recent quarterly assessment of Happy Friends in accordance with the Company's valuation and accounting policies, CIP's carrying value for its total economic interest in Happy Friends was approximately €2.23m (approximately £1.92m at the prevailing Euro:GBP exchange rate).
For further information, please contact:
Merchant Capital Manager Limited (Investment Manager)
Wikus van Schalkwyk
+44 1481 749363
Strand Hanson Limited (Nominated Adviser and Broker)
Matthew Chandler / Ritchie Balmer / James Bellman
+44 20 7409 3494
The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulation (EU) No. 596/2014.