Consideration for the acquisition is expected to be in the region of US$21.4 million (approximately £14.3 million) in cash to be funded out of the Group’s existing cash reserves. In view of Pyramid’s size in relation to the Group, the acquisition will be conditional , inter alia, upon the approval of shareholders. A Circular and Notice of Extraordinary General Meeting will be sent to shareholders in due course.
Pyramid develops and distributes software applications to third party administrators of insurance claims, insurance carriers and self-insured businesses. Pyramid’s primary focus is claims handling software as well as other specialist lines such as risk management and health advisory systems. Pyramid operates its business through a wholly owned trading subsidiary Pyramid Services, Inc., which was founded in 1987. Pyramid employs approximately 90 people based predominantly at the corporate headquarters in Danbury, Connecticut, USA. Pyramid also has other US offices in Florida, Pennsylvania, California and Michigan.
Pyramid has developed three generations of claims handling software. The first generation of software was DOS based software for claims administration. In 1994, the second generation, a Microsoft Windows based program was introduced. In 1998, Pyramid began development of their third generation version of its software. The Internet-enabled software was successfully installed at Kemper, a leading US based insurer during 1999 and 2000. Kemper will also be contracting to license subsequent releases of the claims solution once they are enhanced with the Leading Practice methods and solutions from the Group during 2001.
Pyramid has also engineered an Application Service Provider (ASP) for those clients that prefer to have an off-the-shelf solution as opposed to establishing and operating their own data centres, which the Directors believe are more attractive and affordable to smaller companies.
To target large US insurance companies, Pyramid has a strategic partnership, in the form of a reseller agreement, with IBM to deliver its products to the commercial insurance industry. The partnership has to date signed a number of significant contracts with major US insurers.
Pyramid’s revenues come from three main categories; systems integration, license sales and ongoing support services which typically represent 20 per cent. of the licence fee.
For the period ended 31 December 1999, Pyramid’s operating profit was US$1.7 million (approximately £1.1 million) on turnover of US$15.7 million (approximately £10.4 million). As at the 31 December 1999, Pyramid’s net assets amounted to US$4.8 million (approximately £3.2 million).
Benefits of and reasons for the acquisition
The Directors believe that the acquisition represents an excellent opportunity to advance the Group’s strategy and that Pyramid is highly complementary to its existing activities. In particular, the Directors believe that the Group will benefit from:
– Over 190 active US clients significantly increasing the size and mix of the Group’s existing and future viable target market;
– Pyramid’s products which the Directors believe to be the market leader in terms of functionality in the Workers’ Compensation claims administration market;
– The provision of a complete solution for the US insurance market incorporating a Workers’ Compensation module – achieving a key milestone for the Group;
– The removal of current resource constraints within the US market further cementing the Group’s global strategic alliance with IBM; and
– Fast tracking the establishment of a US infrastructure which the Directors believe is necessary to meet the continually increasing demand for a complete solution within the North American insurance market.
Commenting on Pyramid, Rob Terry, Chairman and Chief Executive of the Group, stated: The Group has seen a continual increase in demand due to the significant savings that can be generated from the implementation of its Evolving Leading Practice solutions. Our previous acquisitions have already started to yield major benefits to the Group including a significant transactional revenue line. We believe that, subject to a major knowledge transfer programme, Pyramid will remove the resource constraint which has to date restricted the Group from fulfilling its existing client demand. With our order book and prospect lists at record levels we would expect even greater revenue growth within the US market.
