Cello acquires Defined Health

Press Release: Cello Group plc (AIM: CLL; “Cello”, the “Group” or the “Company), the healthcare focused strategic marketing group, is pleased to announce that it has raised £15.0 million (before expenses) by way of a placing of 15,463,919 new ordinary shares of 10 pence each (the “Placing Shares”) at a price of £0.97 per ordinary share (the “Placing”). The Placing, which was oversubscribed, has received strong support from both new and existing institutional shareholders.

The Placing proceeds will in part be used to finance the acquisition of the assets of Defined Healthcare Research, Inc. and Cancer Progress, LLC (“Defined Health”), a business delivering scientific strategic advisory services to a wide range of US, European and global biotech and healthcare clients (the “Acquisition”). The proposed initial consideration for the Acquisition is US$5.75 million, of which US$5.25 million is payable in cash, with the balance satisfied by the issue of 398,904 new ordinary shares (the “Consideration Shares”). Further cash consideration will be paid to the vendors of the Acquisition on a dollar for dollar basis to the extent that the acquired net current assets of Defined Health are over US$0.75 million at the date of completion, being 31 January 2017. In addition, deferred consideration of up to US$3.25 million will be payable dependent on performance over the period from 1 February 2017 to 31 December 2019. These further payments will be in a mixture of cash and new ordinary shares, with a minimum overall cash consideration of 73 per cent.

The Placing and Acquisition are not inter-conditional. The balance of funds raised via the Placing not used to fund the Acquisition will be used to assist the Company in pursuing further investment and acquisition opportunities. Further details on the Placing are set out below.

Information on Defined Health

Defined Health was founded by Ed Saltzman over 20 years ago. It is well established as a leading consultancy to development-stage biotech and healthcare businesses. The company is based in Florham, New Jersey and currently employs 27 people.

For the year to 31 December 2016, Defined Health had an unaudited turnover of US$6.6 million, gross profit of US$5.9 million and unadjusted operating profit of US$0.9 million. Defined Health as at 31 December 2016 had unaudited net assets of US$2.0 million.

Defined Health will complement existing Cello Health capabilities in consulting, market research, and science-based communications and will accelerate Cello Health’s push into the biotech and development stage healthcare market as well as reinforcing Cello Health’s position in the core US market. This is consistent with Cello Health’s overall aim of becoming a leading global health services company.

Stephen Highley, Chairman of Cello Health, commented: “We are very pleased to welcome Defined Health to the Group. Defined Health has achieved a strong reputation by working closely with clients to build and strengthen biotech development-stage assets. Understanding the commercial opportunity and applicability of early stage assets is of fundamental importance to our clients and Defined Health positions Cello Health to be able to deliver to this requirement.”

Ed Saltzman, Founder of Defined Health, commented: “Over the years we are proud to have developed a team widely recognised for industry thought leadership and an enviable client roster across big pharma, specialty pharma and biotech with a particular focus on pre-commercial stage biotech. The combination with Cello Health greatly strengthens our ability to provide services which will lead to even greater value generation for our client companies and their development programmes. We are extremely excited by the opportunity in front of us.”

Details of the Placing

The Placing will raise gross proceeds of £15.0 million (net proceeds of approximately £14.1 million) for the Company. The Placing price of £0.97 per Placing Share represents a premium of 0.5 per cent. to the closing mid-market price on 31 January 2017, being the last practicable date before this announcement.

A total of £5.0 million, representing the issue of 5,154,640 Placing Shares (the “Firm Placing”), has been raised utilising the Company’s existing share authorities as granted at the Company’s most recent AGM. The balance of the Placing, being £10.0 million, representing 10,309,279 Placing Shares (the “Conditional Placing”), is conditional on the passing of certain shareholder resolutions (the “Resolutions”) at the Company’s general meeting convened for 17 February 2017. A circular is today being posted to shareholders containing the notice of general meeting.

Subject to the satisfaction of the conditions under the Firm Placing and the conditions under the Conditional Placing, the Company will issue in total 15,463,919 Placing Shares. The Placing Shares have been conditionally placed by Cenkos, as agent for the Company.

Application has been made for the Firm Placing Shares and the Consideration Shares to be admitted to trading on AIM, with dealings expected to commence on 7 February 2017.

The Firm Placing is conditional, amongst other things, upon:

i) compliance by the Company in all material respects with its obligations under the Placing Agreement; and

ii) admission of the Firm Placing Shares to trading on AIM becoming effective by not later than 8.00 a.m. on 7 February 2017. (or such later date as is agreed between the Company and Cenkos, being not later than 8.00 am on 28 February 2017).

In due course application will be made for the Conditional Placing Shares to be admitted to trading on AIM and, on the assumption that, amongst other things, the Resolutions are passed, dealings are expected to commence on 20 February 2017.

The Conditional Placing is conditional, amongst other things, upon:

i) the Resolutions being passed without amendment;

ii) compliance by the Company in all material respects with its obligations under the Placing Agreement; and

iii) admission of the Conditional Placing Shares to trading on AIM becoming effective by not later than 8.00 a.m. on 20 February 2017. (or such later date as is agreed between the Company and Cenkos, being not later than 8.00 am on 28 February 2017).

The Placing Shares issued pursuant to the Placing will represent approximately 14.9 per cent. of the Company’s enlarged share capital. The Placing Shares and Consideration Shares will, following Admission, rank in full for all dividends and distributions declared, made or paid in respect of the issued ordinary share capital of the Company after the date of their issue and will otherwise rank pari passu in all other respects with the Company’s existing ordinary shares.

Pursuant to the Placing Agreement, Cenkos, as agent for the Company, has agreed to use its reasonable endeavours to procure subscribers for the Placing Shares at the placing price of £0.97. The Placing is not underwritten.

Shareholders and investors should be aware that the Firm Placing and Conditional Placing are not inter-conditional and therefore the Firm Placing may proceed without the Conditional Placing completing.

Further information on the Placing and the Acquisition is contained within a circular sent to Shareholders today. A copy of the circular will be made available on the Company website: www.cellogroup.com.