Karnov announces submission of a binding offer to acquire carved out legal information-based businesses of both Thomson Reuters in Spain and Wolters Kluwer in Spain and France

The Contemplated Transaction in brief

• Karnov Group has a solid track-record from geographical expansion and integration within its core offering in legal information services, evident by the acquisition of Norstedts Juridik in 2018. The Contemplated Transaction would transform Karnov from one of the leaders in the Nordic markets for legal information services to a European player with strong market presence in Spain and France
• Together the combined Transaction Entities would create a relevant player in Spain and France with preliminary unaudited pro forma revenues of approximately EUR 123.9 million combined with an EBITDA of approximately EUR 17.1 million, equivalent to approximately SEK 1,299.3 million and SEK 179.3 million respectively[1], corresponding to an EBITDA margin of 13.8 percent, for the financial year 2020
  • Further, the combined group (Karnov and the Transaction Entities) would have a contemplated preliminary unaudited pro forma revenue and adjusted EBITDA for the six-month period ended 30 June 2021 of approximately SEK 992.8 million and SEK 292.9 million, respectively[2]
  • By combining the best content and platform and leverage on best practice Karnov can create a strong market presence in Spain and France and create a basis for further development of the local businesses. Karnov will be well-positioned to realize cost efficiency opportunities in Spain to generate fully phased run-rate in-market synergies, on an EBITDA level of up to approximately EUR 10 million with full effect in 2026 and expects the costs of achieving this to amount to a total of up to approximately EUR 24 million
• The Transaction Consideration payable upon completion of the acquisition of the entire share capital and voting rights in the Transaction Entities, certain subsidiaries[3] and the transfer of certain IP rights[4], would be payable in cash and amounts to EUR 160 million on a cash- and debt-free basis
• Karnov considers the Transaction Consideration and stipulated terms to correspond to an attractive acquisition multiple, equivalent to an EV/EBITDA (adjusted) Q2’21 LTM multiple of approximately 9.6x excluding in-market cost efficiencies. In addition, Karnov considers the Contemplated Transaction to be significantly EPS accretive
• Following the execution of the Put Option Agreement, Karnov has been granted exclusivity by the selling shareholders and a share purchase agreement would be entered into in the event of exercise of such put option by the selling shareholders following the completion of the information and consultation processes to be carried out with Wolters Kluwer’s French and European Works Council. Completion of the Contemplated Transaction is envisaged to occur no later than during 2022, subject to clearance by the Spanish Antitrust Authority
• In order to finance the Contemplated Transaction, Karnov has agreed on the terms and secured a new bridge loan facility from Nordea Danmark, filial af Nordea Bank Abp, Finland (“Nordea”). Karnov has undertaken to repay part of the bridge loan facility through an issue of new shares, corresponding to at least 9.9% of the current number of shares in the Company, prior to the completion of the Contemplated Transaction

Pontus Bodelsson, CEO of Karnov, comments:

“Karnov Group is a Nordic leader within legal information services with a solid track record from geographical expansion, which we proved with the acquisition and integration of Norstedts Juridik in 2018. Building on our experiences from previous expansions, we are encouraged to continue growing into other geographies. With the Contemplated Transaction we capture a very attractive opportunity to combine the best of Wolters Kluwer’s and Thomson Reuters’ platform and content with best practices within Karnov to create a best-in-class offering. The Contemplated Transaction would transform us from a Nordic market leader to a European player, providing a platform for accelerated expansion and significant value creation for our customers and shareholders.”

Background and transaction rationale

Karnov Group has a solid track-record from geographic expansion and integration within the core offering in legal information services. Through the acquisition of Norstedts Juridik in 2018, Karnov successfully expanded geographically, strengthened the customer offering and subsequently established a platform for organic growth in Sweden and Denmark. Karnov has since the IPO in 2019 carried out several additive acquisitions to expand geographically, as well as in adjacent categories. The latest markets where the Company has expanded to include Norway (through the investment in Strawberry Law and the acquisition of DIBKunnskap in 2020), and France and Benelux (through the acquisition of Echoline in 2021). Acquisitions within adjacent product segments include knowledge management platforms such as Ante ApS (acquired in 2020), compliance, and monitoring software Echoline (2021) and intelligent application Onlaw ApS (2021).

Karnov Group has now taken the decision to expand beyond the Nordics and has entered into an exclusive agreement stipulating the intention and terms to acquire 100% of the shares in carved out legal & regulatory information-based businesses of both Thomson Reuters in Spain and Wolters Kluwer in Spain and France. The Transaction Entities entail some of the very well-known brands within the segments of legal information & reference, workflow & analytics, and training spaces in Spain and France.

• Wolters Kluwer France brings together some of the most established legal information service brands in the French legal market, including Lamy (incorporated in 1895) and Liaisons Sociales (incorporated in 1945). The entity has approximately 314 FTEs as of year-end 2020
• Wolters Kluwer Spain, historically operating under the brand LaLey is a historical pioneer within online legal information services in Spain with a strong content enrichment platform called Altamira Naw, a proprietary CMS and publishing platform. The entity has approximately 334 FTEs as of year-end 2020
• Thomson Reuters Spain operates under the Aranzadi brand, a well-known industry brand in the Spanish market with an attractive portfolio of information and reference products. The entity has approximately 350 FTEs as of year-end 2020

Together the combined Transaction Entities would create a strong player in Spain and France with preliminary unaudited pro forma revenues of approximately EUR 123.9 million combined with an EBITDA of approximately EUR 17.1 million, equivalent to approximately SEK 1,299.3 million and SEK 179.3 million respectively[5], corresponding to an EBITDA margin of 13.8 percent, for the year-end 2020. As a platform the Transaction Entities would have approximately 1,000 FTEs as of year-end 2020. In addition, approximately 67 percent of the revenue would be delivered online and would achieve approximately an 84 percent recurring revenue.

The combined group (Karnov and the Transaction Entities) would have a contemplated preliminary unaudited pro forma revenue and adjusted EBITDA for the six-month period ended 30 June 2021 of approximately SEK 992.8 million and approximately SEK 292.9 million, respectively[6]. Following the Contemplated Transaction, Karnov would have approximately 1,300 FTEs with offices in Copenhagen, Stockholm, Oslo, Toulouse, Paris, Madrid, Burgos, Pamplona, Bilbao, and Malmö.

The Contemplated Transaction has great strategic value for Karnov and would transform the Company from one of the leaders in the Nordic markets for legal information services to a European player with strong market presence in Spain and France. The key attractions of the Contemplated Transaction for Karnov includes:

Attractive opportunity to significantly increase the total addressable market while also providing a strong platform for further international expansion

The contemplated acquisition of Wolters Kluwer in Spain and France and Thomson Reuters in Spain is a logical next step and opportunity to enter two attractive markets. Through the Contemplated Transaction Karnov is expected to increase its addressable market size by approximately SEK 15.3 billion, from approximately SEK 2.0 billion to approximately SEK 17.3 billion[7], corresponding to close to a tenfold increased addressable market. The combination of the Transaction Entities would also form a relevant player in Spain and France, creating a solid combined platform for continued expansion and consolidation in the highly competitive Southern European region. Karnov’s strategy for further expansion in the region would entail both expanding the core products into new markets, adding adjacent verticals to the current product portfolio, and continued geographical expansion in Europe through access to French and Spanish speaking regions.

Building on the best from Wolters Kluwer and Thomson Reuters and leverage on best practice Karnov can create a strengthened customer offering and create a basis for value creation within the combined entities

The combination of a strong platform and content from the Transaction Entities together with Karnov Group’s track record from value-creating acquisitions would enable a best-in-class platform and a solid foundation for a strengthened customer offering and increased customer value. By adding well-known local brands and leveraging on best practices, Karnov will be well-positioned to reach new customer groups in Spain and France. Karnov expects the Transaction Entities to generate cost efficiencies in Spain. The fully phased run-rate synergies on an EBITDA level are expected to up to approximately EUR 10 million with full effect in 2026. Karnov further expects the costs of achieving these synergies to amount to a total of up to approximately EUR 24 million. Karnov deems the Contemplated Transaction to have a low integration risk as the Transaction Entities would be separate from Karnov's current platform.

Shareholder value expected for Karnov’s owners

Karnov believes that the Transaction Consideration and stipulated terms corresponds to an attractive acquisition multiple equivalent to an EV/EBITDA (adjusted) Q2’21 LTM multiple of approximately 9.6x excluding in-market cost efficiencies. In addition, Karnov considers the Contemplated Transaction, including expected in-market cost efficiencies, the future potential as well as the intended Contemplated Transaction financing, to be significantly EPS accretive.

Preliminary pro forma financials

Preliminary unaudited IFRS pro forma financials for the six-month period ended 30 June 2021 are presented below with the purpose of describing the financial situation after the Contemplated Transaction. The Transaction Entities has thus far had EUR as its reporting currency. The EUR figures have been converted to SEK using the average FX rate for the period of 1 January 2021 to 30 June 2021, with EUR/SEK at 10.1308. All numbers are preliminary and unaudited.

Financing

The Transaction Consideration would be financed by a new bridge loan facility, and other debt facilities, of EUR 160 million. As of 30 September 2021, Karnov had a cash position of approximately SEK 247 million. The bridge loan facility has been secured through Nordea and will be entered into on prevailing market terms and conditions. Karnov has undertaken to repay part of the bridge loan facility through an issue of new shares, corresponding to at least 9.9% of the current number of shares in the Company, prior to the completion of the Contemplated Transaction.

Karnov’s financial target is “aims to have a ratio of Net debt to adjusted EBITDA of no more than 3.0x. This level may temporarily be exceeded, for example as a result of acquisitions”. Following the Contemplated Transaction, Karnov expects its pro forma net debt position as of 30 June 2021 to amount to approximately SEK 2.9 billion, equivalent to a net debt ratio of approximately 5.5x excluding synergies. Following the issue of new shares, Karnov expects its proforma net debt/Adjusted EBITDA as of 30 June 2021 to be approximately 4.5x[8]. Further it is expected that the strong cash flow of the combined group will allow for rapid deleveraging following the closing of the Contemplated Transaction.

Closing conditions and regulatory approvals

Following the execution of the Put Option Agreement, Karnov has been granted exclusivity by the selling shareholders and a share purchase agreement would be entered into in the event of exercise of such put option by the selling shareholders following the completion of the information and consultation processes to be carried out with Wolters Kluwer’s French and European Works Council. Completion of the Contemplated Transaction is envisaged to occur no later than during 2022, subject to clearance by the Spanish Antitrust Authority. The Transaction Entities would then be consolidated into Karnov’s consolidated financial reporting from the closing of the Contemplated Transaction.

Advisers

Deloitte Financial Advisory and Carnegie Investment Bank AB (publ) are financial advisers to Karnov in relation to the Contemplated Transaction. Carnegie acts as sole financial adviser to Karnov in relation to securing the loan facility. Bruun & Hjejle Advokatpartnerselskab and Latham & Watkins are legal advisors to the Company.

Conference call for investors, analysts, and media
Pontus Bodelsson, CEO of Karnov and Dora Brink Clausen, CFO of Karnov, will participate in a conference call which will also be webcast on 9 December at 10:00 am CET.

Telephone numbers and access code:
SE: +46 856642651
UK: +44 3333000804
US: +1 6319131422
Participant access code: 70302575#
Webcast URL: https://tv.streamfabriken.com/pressconference-dec-2021

For more information, please contact:

Pontus Bodelsson, President and CEO
Telephone: +46 709 957 002
Email: pontus.bodelsson@karnovgroup.com

Erik Berggren, Investor Relations Specialist
Telephone: +45 52 19 65 52
Email: erik.berggren@karnovgroup.com

This press release contains inside information that Karnov Group AB (publ) is obliged to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication, through the agency of the contact persons set out above, on 9 December 2021 at 08:45 am CET.