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HEALTHCARE LOCUMS PLC

16 July 2010

£11M PLACING AND ISSUE OF EQUITY

RECOMMENDED ACQUISITION OF A SUBSTANTIAL PROPERTY TRANSACTION

RELATED PARTY TRANSACTION

NOTICE OF GENERAL MEETING

Summary

·      The Board of Healthcare Locums plc ("HCL" or "the Company") announces that it has entered into conditional agreements to acquire the entire issued share capital of Orion, the business and assets of LML and, subject to shareholder approval, the business and assets of Redwood Health Limited (together the "Acquisitions").

·      HCL has for sometime recognised that the specialist nursing market is a further environment in which it can operate from its existing call centre operations without the need for a branch network.  In March 2009 the Company commenced the application process for a nursing licence, to enable HCL to place nurses on a temporary basis with its NHS client base and to enable the Company to tender for contracts on the National Nursing Framework. HCL has recently been granted its nursing licence and two of the Company's existing brands have been awarded a place on the National Nursing Framework and three of HCL's brands have been awarded a place on the new London based nursing framework. As a result of both the granting of the licence to operate in the nursing agency market and securing places on the framework agreements, the Company has recently been awarded preferred supplier status for the South Central nursing framework which has a potential annual revenue of approximately £30 million.

·      The Company also announces that it has completed a placing of 7,333,334 new Ordinary Shares at a placing price of 150p per share to raise funds of £11 million before expenses, subject to Admission.

·      The proceeds of the Placing shall be used to finance the acquisitions of Orion, a specialist nursing and healthcare staffing locum business in the UK and the LML Business, an established Australian medical staffing business with a database of over 3,500 qualified doctors.  Redwood Health Limited is a leading player in the specialist nursing locum placement market and is being acquired for an initial consideration of £5 million together with potential earn-out consideration of up to a further £1.65 million to be paid dependent on the future performance of the business (the "Redwood Acquisition").  The Redwood Acquisition is subject to shareholder approval and the provision of the appropriate debt finance.

·      In the twelve months to 30 April 2010 the unaudited management accounts of Redwood Health showed revenues of £16.6 million, gross margin of £2.6 million and EBITDA of £0.95 million. HCL has identified substantial cost savings which can be made from the business following its acquisition which will include full integration of the back office and other support functions. The initial consideration represents a multiple of 5.3 times historic EBITDA (12 months to 30 April 2010) and a multiple of 3.3 times prospective adjusted EBITDA (12 months to 31 December 2010). Orion and the LML Business, which are not related party transactions, are being acquired on multiples of 3.6 to 4.3 times adjusted historic EBITDA, and they therefore, like the Redwood Acquisition are expected to be earnings enhancing transactions based on HCL's current EBITDA multiple.

·      Redwood's internal unaudited forecasts for the year ended 31 December 2010, the same financial year end as HCL, which comprise the actual unaudited management accounts for the four months ended 30 April 2010, together with a forecast for the remaining eight months of the year, indicate that the Redwood Health Business could generate revenues of £16.1 million, gross margin of £3.0 million and adjusted EBITDA of £1.5 million. On this basis, the initial consideration of £5.0 million represents a prospective EBITDA multiple of 3.3 times which is significantly less than the average prospective EBITDA multiple of 5.3 times which has been paid by the Company on the seven key acquisitions it has made to date.

·      The Redwood Acquisition requires the approval of the Shareholders pursuant to section 190 of the Companies Act due to the fact that Kathleen Bleasdale's husband, John Cariss, owns 99% of the ultimate shareholder of Redwood, Cardale Investments LLP.  

·      The Redwood Acquisition also constitutes a related party transaction under Rule 13 of the AIM Rules and as such the Independent Directors, having consulted the Company's nominated adviser, Fairfax, consider that the terms of the Redwood Acquisition are fair and reasonable in so far as the Shareholders are concerned.

·      The Independent Directors intend to vote in favour of the Resolution in respect of their own beneficial holdings of 254,925 Ordinary Shares representing approximately 0.23 per cent. of the issued share capital of the Company (inclusive of the Placing Shares).

·      In addition to the Independent Directors, HCL has received irrevocable undertakings to vote in favour (or to procure such votes) of the Resolution in respect of 21,520,622 Ordinary Shares, representing 19.09 per cent. of the issued share capital of the Company (inclusive of the Placing Shares).

·      The Redwood Acquisition is conditional upon Shareholder approval.  A circular including the Notice of General Meeting has been posted to the Company's shareholders today and will be available on the Company's website at www.hclplc.com. The General Meeting is to be held at 11.00 am on 2 August 2010 at 4 More London Riverside, London SE1 2AU.

·      Application has been made for the 7,333,334 Placing Shares to be admitted to trading on AIM. Admission is expected to occur on 21 July 2010. Following the issue of the Placing Shares the Company will have a total of 112,750,935 Ordinary Shares in issue.

Commenting on the Acquisitions, Alan Walker, Non-executive Chairman of HCL, said:

"These acquisitions represent a significant step towards implementing our recently stated strategy of expanding into the specialist nursing recruitment market. Redwood Health and Orion have built up significant databases of specialised nurses which will provide a platform to capitalise on both the UK and international recruitment opportunities.

"There is an increasing trend for consortia of NHS Trusts to opt out of the National Framework and to develop their own local framework agreements for the purpose of staff recruitment. The Company welcomes this trend as it facilitates the provision of a more tailored and efficient service to its clients. HCL already provides a wide range of specialist healthcare workers to its clients and the ability to offer specialist nurses will further enhance the Company's offering.

"It is intended that the LML business will be integrated into the Company's existing Sydney office and that the increased presence in Australia will contribute to the continued growth of the Company's international placement division.

"'We welcome the Government's recent statement on changes to the NHS devolved management and its continued commitment to prioritising front line services."

Enquiries

Healthcare Locums plc

Tel: 020 7451 1451

Alan Walker, Non-Executive Chairman

Kate Bleasdale, Executive Vice-Chairman

Diane Jarvis, Chief Financial Officer

Pelham Bell Pottinger

Tel: 020 7861 3232

David Rydell/Emma Kent/Duncan Mayall

Fairfax I.S. PLC

Tel: 020 7598 5368

Simon Bennett/Ewan Leggat/Laura Littley

Terms used in this announcement have the meaning given to them in Appendix 1.

1.            Introduction

The Company today announces that it has entered into conditional agreements to acquire the entire issued share capital of Orion, the business and assets of LML and, subject to shareholder approval, the business and assets of Redwood Health Limited (together the "Acquisitions").

The Company also announces that it has completed a placing of 7,333,334 new Ordinary Shares at a placing price of 150p per share to raise funds of £11 million before expenses, subject to Admission. The proceeds of the Placing shall be used to finance the acquisitions of Orion, a specialist nursing and healthcare staffing locum business in the UK and the LML Business, an established Australian medical staffing business with a database of over 3,500 qualified doctors.  Further details of Orion, the LML Business and the terms of the Acquisitions are set out in paragraph 2 below.

Redwood Health Limited is a leading player in the specialist nursing locum placement market and the Redwood Health Business is being acquired for an initial consideration of £5 million together with potential earn-out consideration of up to a further £1.65 million to be paid dependent on the future performance of the business (the "Redwood Acquisition").  The Redwood Acquisition is subject to shareholder approval and the provision of the appropriate debt finance.

Further details of the Redwood Health Business and the terms of the Redwood Acquisition Agreement are set out in paragraphs 2 and 3 below.

The purpose of this announcement is to explain the background to and reasons for the Acquisitions, to explain why the Board considers the Redwood Acquisition to be in the best interests of the Company and its Shareholders and why the Independent Directors unanimously recommend that Shareholders vote in favour of the Resolution to be proposed at the General Meeting, notice of which is set out in the circular that will be sent to Shareholders today.  

The Redwood Acquisition requires the approval of the Shareholders pursuant to section 190 of the Companies Act due to the fact that Kathleen Bleasdale's husband, John Cariss, owns 99% of the ultimate shareholder of Redwood, Cardale Investments LLP.  

The Redwood Acquisition also constitutes a related party transaction under Rule 13 of the AIM Rules and as such the Independent Directors, having consulted the Company's nominated adviser, Fairfax, consider that the terms of the Redwood Acquisition are fair and reasonable in so far as Shareholders are concerned.

Kathleen Bleasdale's interest in Redwood is solely as the wife of John Cariss and until the recently announced change in the Company's strategy to expand into the specialist nursing market, Redwood was not in competition with the Company. The Redwood Acquisition therefore eliminates any conflict or potential conflicts of interest between the Company and its Executive Vice Chairman.

2.            Background to and reasons for the ACQUISITIONS and Effect on the Company

In the Company's trading update, released on 26 May 2010, the Company announced that it intended to rapidly expand into the specialist nursing market organically and to explore acquisition opportunities. The acquisition of the Redwood Health Business and Orion represent a significant step towards implementing the strategy we have outlined.  There are a number of key reasons why the Board believes that now is the right time to be making a move into the specialist nursing market and the acquisitions of both Orion and the Redwood Health Business offer a strategic fit and a sound platform from which to implement the Company's entry into this market. 

The nursing agency market grew by 47% between 2008 and 2009.  This growth has been driven by a number of factors, including the ageing and growing population, which is a key determinant in establishing the requirements of healthcare provision. There are currently just over 660,000 nurses and midwives on the Nursing and Midwifery Council (NMC) register (approximately 2% less than 2008).  The average age of a nurse in the UK is 42, and it is anticipated that 200,000 nurses, representing 30% of the nurse population, are due to retire in the next ten years. 

The current shortage of nursing staff in the UK is particularly acute in the highly specialised areas such as Midwifery, Special Care Baby Unit, Theatres, Intensive Care and Paediatrics.  It is in these areas in particular that the Company intends to grow its business. 

Furthermore, it is currently proposed that nurse training will become a four-year degree course rather than the current three-year course.  If this directive is implemented over the next few years, it is anticipated that the current shortages of specialist nurses will increase, therefore further driving the demand for specialist nursing staff. 

HCL has for sometime recognised that the specialist nursing market is a further environment in which it can operate from its existing call centre operations without the need for a branch network.  In March 2009 the Company commenced the application process for a nursing licence, to enable HCL to place nurses on a temporary basis with its NHS client base and to enable the Company to tender for contracts on the National Nursing Framework. HCL has recently been granted its nursing licence and two of the Company's existing brands have been awarded a place on the National Nursing Framework and three of HCL's brands have been awarded a place on the new London based nursing framework. As a result of both the granting of the licence to operate in the nursing agency market and securing places on the framework agreements, the Company has recently been awarded preferred supplier status for the South Central nursing framework which has a potential annual revenue of approximately £30 million.

In addition, the main competitor for most of the companies in this market has historically been National Health Service Professionals ("NHSP"). NHSP was a government-funded public body that has accumulated losses of over £100 million over the last five years.  However, on 1 April 2010, NHSP became a limited company and HCL considers this to be positive for private operators in the nursing market, as a heavily subsidised non-commercial 'competitor' will now have to operate on the same basis as other market participants.

The Redwood Acquisition

The Redwood Health Business consists of two operations, Montagu Nursing and MPS. Montagu Nursing, which was founded in 1928, is one of the oldest and most respected trading names in the nursing industry. It provides temporary nurses of all levels and specialisations in England, predominantly in London. Since April 2009, Montagu Nursing has been focused on the provision of qualified, specialist nurses. It is currently the fifth largest supplier of specialist nurses to the NHS in London.  MPS is based in Cardiff and is a leading agency focused on providing qualified and specialist nurses to the South Wales market. Through its two operations, Redwood has built up a significant database of highly specialised nurses and over the last year has increasingly focused on this high value niche part of the nursing market.

Over 95 per cent. of Redwood's existing sales are to the NHS. Furthermore, approximately 200,000 nurses work in the private sector in the UK. HCL plans to utilise its existing relationships within the private sector to maximise the gross margins of the Redwood Health Business. The Company therefore expects that it will have a significant opportunity to cross sell the specialist nurses on Redwood's database into its own client base for both temporary and permanent assignments, and the Redwood Health Business will benefit from the recently awarded contracts as well as the National Framework status of HCL.

The UK is dependent on recruiting nurses from abroad to supplement the pool of trained nurses.  HCL, with its significant international reach, is well positioned to further develop this opportunity as demand for nurses increases.  The Redwood Health Business provides a platform to capitalise on both the UK and international recruitment opportunities, with its database of over 10,000 nurses, many of whom are believed to be looking for opportunities to work worldwide.  This is expected to add to the Company's database of over 21,500 candidates currently looking for international placements.

There is an increasing trend for consortia of NHS Trusts to opt out of the National Framework and to develop their own local framework agreements for the purpose of staff recruitment.  The Company welcomes this trend as it facilitates the provision of a more tailored and efficient service to its clients. HCL can already provide a wide range of specialist healthcare workers to its clients and the ability to offer specialist nurses will further enhance the Company's offering. It is the Company's intention to expand into the specialist nursing market organically and through the acquisition of the Redwood Health Business and Orion.  The Company intends to look for further acquisitions in the area once the Redwood Health Business and Orion have been successfully integrated into the Group. 

In 2009 the market place in which the Redwood Health Business and Orion operated had an annual value in excess of £650 million. As part of the Redwood Acquisition, HCL's subsidiary, Medical Technical will acquire the trading names "Montagu Nursing" and "MPS", the candidate database, customer relationships, and goodwill of both businesses along with the work in progress, senior management and recruitment consultants.

In the twelve months to 30 April 2010 the unaudited management accounts of Redwood Health showed revenues of £16.6 million, gross margin of £2.6 million and EBITDA of £0.95 million. HCL has identified substantial cost savings which can be made from the business following its acquisition which will include full integration of the back office and other support functions. The initial consideration represents a multiple of 5.3 times historic EBITDA (12 months to 30 April 2010) and a multiple of 3.3 times prospective adjusted EBITDA (12 months to 31 December 2010). Orion and the LML Business which are not related party transactions, are being acquired on multiples of 3.6 to 4.3 times adjusted historic EBITDA, and they therefore, like the Redwood Acquisition are expected to be earnings enhancing transactions based on HCL's current EBITDA multiple.

Orion

Orion is based in Basildon, Essex and its clients include the NHS, Ministry of Defence, Her Majesty's Prison Service, independent hospitals and other public sector clients. For the year ended 31 March 2010 Orion achieved a turnover of £10.3 million, over 80 per cent. of which was with the NHS and a gross margin of £2.23 million. Of this gross margin, 35% was earned by placing theatre staff, 21% from allied healthcare and health science staff ("AHS and HSS"), 18% from nursing staff, 14% from doctors and 12% from cardiology staff. Orion is part of the National Frameworks for nursing, AHS and HSS and doctors/medical locums.

For the year ended 31 March 2010 Orion generated an adjusted EBITDA of £0.86 million. Pursuant to the Orion Acquisition Agreement, HCL is paying an initial consideration of £3.7 million, equivalent to an adjusted historic EBITDA multiple of 4.3 times, with further additional cash consideration payable of up to £7.0 million dependent on the profitability of Orion over the next two years.  The prospective adjusted EBITDA for Orion for the 12 months to 31 December 2010 is expected to be £1.2 million which is equivalent to an EBITDA multiple of 3.0 times.  

LML

LML is based in Sydney, New South Wales, Australia and primarily provides locum doctors to public and private hospitals. Over 50 per cent. of the hospitals in Australia are located in New South Wales and Victoria. LML has built up a database of 3,000 doctors, of which 500 actively use LML to source locum work. The majority of the doctors provided by LML have three to five years post graduation experience. There are a number of factors which may lead to an increase in demand for locums in Australia in the coming years, such as the ageing population, with the proportion of the Australian population over 65 years expected to double to approximately 25% over the next 40 years, and the ageing doctor population with over 30% of doctors now aged over 55 years. It is intended that the LML business will be integrated into the Company's existing Sydney office and that the increased presence in Australia will contribute to the continued growth of the Company's international placement division.

For the year ended 30 June 2009 LML generated EBITDA of A$2.1 million (£1.2 million). Further to the LML Acquisition Agreement, HCL is paying an initial consideration of A$7.8 million (£4.7 million) equivalent to an historic EBITDA multiple of 3.6 times, with further additional consideration payable of up to A$5.0 million (£3.0 million) dependent on the profitability of the LML business over the next three years. The prospective adjusted EBITDA for the LML business for the 12 months to 31 December 2010 is expected to be A$2.2 million (£1.3 million) which is equivalent to an EBITDA multiple of 3.6 times. 

Any additional consideration by HCL will be settled in cash or by the issue of new Ordinary Shares in the Company, at HCL's option.    

Completion of the acquisition the LML Business is subject to the transfer of the registration of LML on the NSW Health Register of Medical Locum Agencies to HCL's acquiring subsidiary.

3.            REDWOOD Acquisition aGREEMENT

Under the terms of the Redwood Acquisition Agreement, Medical Technical, a wholly-owned subsidiary of the Company, has agreed to acquire the business and assets of Redwood in consideration for a maximum payment of £6.65 million.  £5.0 million of the consideration is payable in cash on completion and up to £1.65 million is subject to an earn-out calculated and payable on the basis set out below. 

Redwood's internal unaudited forecasts for the year ended 31 December 2010, the same financial year end as HCL, which comprise the actual unaudited management accounts for the four months ended 30 April 2010, together with a forecast for the remaining eight months of the year, indicate that the Redwood Health Business could generate revenues of £16.1 million, gross margin of £3.0 million and adjusted EBITDA of £1.5 million. On this basis, the initial consideration of £5.0 million represents a prospective EBITDA multiple of 3.3 times which is significantly less than the average prospective EBITDA multiple of 5.3 times which has been paid by the Company on the seven key acquisitions it has made to date.

The earn-out payment is calculated on the gross margin contribution (being gross sales less costs of sales) of the Redwood Health Business during the 13 week period from 1 January 2011.  The gross margin must exceed £3.142 million on an annualised basis for such period and the amount payable shall be calculated on the amount by which the annualised gross margin exceeds that amount, subject to a cap of £1.65 million.  For every £1,000 that the gross margin exceeds £3.142 million, Medical Technical will pay a further £4,125.  For the total earn-out, which in aggregate amounts to £1.65 million, to be earned the Redwood Health Business will need to have achieved an EBITDA equivalent to an annualised rate of £1.9 million for the first quarter of 2011. The earn-out payment, if the target is achieved, is payable within two months of the end of the first quarter of 2011. The total maximum possible consideration for the Redwood Health Business is in aggregate £6.65 million.

The obligations of Medical Technical pursuant to the Redwood Acquisition Agreement are guaranteed by the Company.

The Redwood Acquisition Agreement includes warranties and indemnities which are considered to be usual for a transaction of this nature.  John Cariss, who is a director of the Seller, has given a guarantee in respect of all obligations and liabilities of the Seller under the terms of the Redwood Acquisition Agreement.  John Cariss will not be employed in any capacity by HCL following the Redwood Acquisition.

4.            Acquisition Funding

The consideration for the Redwood Health Acquisition is to be satisfied from a term loan facility currently being agreed by the Company.

In addition, the Company has completed a placing of 7,333,334 new Ordinary Shares at a placing price of 150p per share to raise funds of £11 million before expenses, subject to Admission. The acquisition of Orion and the LML Business will be funded by the placing proceeds. The intended use of the placing proceeds is set out below.

5.            Trading Update

At the Company's annual general meeting on 26 May 2010 the Board announced that cumulatively, trading in the first four months of the year was in line with management's expectations, despite slower than expected trading in April, due mainly both to the disruption caused to travel which effected the placing of international permanent staff and a softening in domestic demand for locum staff in the run up to the general election. This softening in demand for UK locums continued through May, however in June trading continued to improve week on week. In addition, the Company is pleased to report that since the year end it has a won a number of new key contracts for its UK locum divisions, from large NHS and PCT operators across the UK. The Company estimates that the total potential annual value of these contracts is in excess of £43 million of revenues.

The international division continues to grow with significant increases in the database of healthcare staff applying for international permanent placements.  Since the trading update in May, HCL has grown its international data base from 18,000 candidates to 21,500 candidates who are registered to take up international positions, an increase of 72 per cent. over the 12,500 candidates we had registered at the end of 2009. The US expects to see job openings for approximately 1.2 million Registered Nurses by 2014 and this number is set to increase, as a further 32 million people now will have access to healthcare as a result of the new healthcare bill passed in the US.

6.            General Meeting

A circular containing notice on the General Meeting to be held at 11.00 am on 2 August 2010 at 4 More London Riverside, London, SE1 2AU will be posted to shareholders today and will be available on the Company's website at www.hclplc.com.  At the General Meeting an ordinary resolution will be proposed to approve the Redwood Acquisition, it being a substantial property transaction for the purposes of section 190 of the Companies Act.

7.            Action to be taken

Shareholders will find enclosed with this document a Form of Proxy for use at the General Meeting.  Whether or not you intend to be present at the General Meeting, you are requested to complete and return the Form of Proxy so as to reach the Company's registrars Capita Registrars (Proxies), The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU as soon as possible and, in any event, so as to be received not later than 48 hours before the time fixed for the General Meeting.

Completion and return of a Form of Proxy will not however prevent you from attending at the General Meeting and voting in person if you should wish to do so.

8.            irrevocable undertakings

The Company currently holds or has received irrevocable undertakings to vote in favour of the Resolution from those Independent Directors who are also Shareholders in respect of 254,925 Ordinary Shares representing 0.23per cent. of the issued share capital of the Company following the issue of the Placing Shares.

Furthermore, Equinox Partners L.P. and Mason Hill Advisors LLC have provided an irrevocable undertaking to vote (or to procure such votes) in favour of the Resolution in respect of an aggregate of 21,520,622 Ordinary Shares, representing in aggregate 19.09 per cent. of the issued share capital of the Company following the issue of the Placing Shares.

Therefore in total HCL has received irrevocable undertakings to vote in favour (or to procure such votes) of the Resolution in respect of 21,775,547 Ordinary Shares, representing 19.31 per cent. of the issued share capital of the Company following the issue of the Placing Shares.

9.            Recommendation

The Executive Vice-Chairman of the Company, Kathleen Bleasdale's husband, John Cariss, holds a 99% interest in the Seller's ultimate shareholder, Cardale Investments LLP.  Accordingly, the Redwood Acquisition constitutes a related party transaction for the purposes of the AIM Rules and a Substantial Property Transaction under section 190 of the Companies Act and consequently requires Shareholder approval. 

For the purposes of the AIM Rules, the Independent Directors consider, having consulted with the Company's nominated adviser, Fairfax, that the terms of the Redwood Acquisition are fair and reasonable insofar as Shareholders are concerned and accordingly unanimously recommend Shareholders to vote in favour of the Resolution at the General Meeting.

Kathleen Bleasdale took no part in the Independent Directors' decision to recommend Shareholders to vote in favour of the Resolution. Kathleen Bleasdale will abstain from voting on the Resolution in respect of her beneficial shareholding in the Company, as will her husband, John Cariss.

In giving advice to the Independent Directors, Fairfax has taken into account the Independent Directors' commercial assessments of the Redwood Acquisition.

The Independent Directors intend to vote in favour of the Resolution in respect of their own beneficial holdings of 254,925 Ordinary Shares representing approximately 0.23 per cent. of the issued share capital of the Company following the issue of the Placing Shares.

10.          Expected timetable of Principle Events

* assuming that the Resolution is passed by Shareholders

11.          Key statistics

APPENDIX I

DEFINITIONS

In this announcement, the following words and expressions have the following meanings (unless the context requires otherwise):

Exchange Rates

An exchange rate of £1=A$1.65 has been used throughout this announcement.