COGNITION HOLDINGS LIMITED - Acquisition of remaining 60.30% of BMi Research Proprietary Limited

Acquisition of remaining 60.30% of BMi Research Proprietary Limited

COGNITION HOLDINGS LIMITED
Incorporated in the Republic of South Africa
(Registration number 1997/010640/06)
Share code: CGN ISIN: ZAE000197042
(“Cognition” or “the Company”)


ACQUISITION OF REMAINING 60.30% OF BMi RESEARCH PROPRIETARY LIMITED


1.   Introduction
     
     Cognition has concluded an agreement for the acquisition of the remaining 60.30% of the shares in
     BMi Research Proprietary Limited (“BMi Research”) that it does not already own (“the Sale Shares”)
     from the three shareholders namely The Tandem Trust, Gareth Pearson and Dana Braithwaite (“the
     Sellers”).

2.   Overview of BMi Research
     
     BMi Research is a research house specialising in consumer and industrial research in various
     sectors, including the retail sector/market. BMi Research has experience across a wide range of
     methodologies and markets and provides research into a number of sectors and industries including
     Apparel, Automotive, Consumer Packaged Goods (CPG), Financial, Foodservices, Information
     Technology & Communication, Manufacturing, Packaging, Raw Materials, Retail and Wholesale.

3.   Terms and effective date of the acquisition
     
     The effective date of the acquisition is 1 July 2015.
     
     The consideration comprises an initial purchase consideration and an additional purchase
     consideration.
     
     The initial purchase consideration is an amount of R11 000 000 payable partly in cash and partly by
     way of Cognition shares on the 7th business day after the fulfilment or waiver of all the conditions
     precedent (“Completion date”).
     
     The cash portion of the initial purchase consideration amounts to R3 683 263.38. The remainder of
     the initial purchase consideration of R7 316 915.42 is payable by way of the issue of Cognition
     shares. The Cognition shares will be issued at the higher of R2.00 per share or the 30 day VWAP
     less 10% as at the Completion date.
     
     The additional purchase consideration is dependent on BMi Research achieving or exceeding a
     combined audited profit after tax for the three years commencing on 1 March 2015 and ending on
     28 February 2018 (“combined PAT”) of R8 million. The additional purchase consideration is payable
     in cash on a sliding scale to the Sellers in the Sellers' proportions as follows:
     
     a. If the three year combined PAT equals or exceeds R8 million, an additional amount of
        R4 million is payable;
     b. If the three year combined PAT equals or exceeds R7.2 million but is less than R8 million, the
        additional amount payable is R2 million; or
     c. If the three year combined PAT exceeds R6.5 million but is less than R7.2 million, the additional
        amount payable is R1 million.
     
     The Sellers will, in terms of the agreement, be required to repay in their respective Sellers’
     proportions, a portion of the cash component of the initial purchase consideration in the event that
     BMi Research does not achieve an audited profit after tax of at least R6 million for the three year
     period. The amount repayable is based on a sliding scale to the Sellers in the Sellers' proportions as
     follows:
     
     a. R1 million of the initial purchase consideration becomes repayable if the three year combined
        PAT is less than R6 million but more than R5 million.
     b. R2 million of the initial purchase consideration becomes repayable if the three year combined
        PAT is equal to or less than R5 million.

4.   Conditions precedent
     The agreement is subject to the fulfilment or waiver of the following conditions precedent by
     30 November 2015:
 
     4.1. The board of directors of BMi Research approving the transfer of the Sale Shares in terms of
          the agreement;
     
     4.2. Dana Braithwaite and BMi Research concluding a written agreement in terms of which Dana
          Braithwaite will continue to provide her services to the Company for a minimum period of
          24 months.
     
     4.3. Gareth Pearson and BMi Research concluding a contract of employment in terms of which
          Gareth Pearson will remain employed by the Company for a minimum period of 36 months.
     
     4.4. Cognition not giving written notice to the Sellers indicating that Cognition does not wish to
          proceed with the acquisition contemplated in this agreement as a result of one or more facts or
          circumstances discovered during the due diligence investigation contemplated in terms of the
          agreement.

5.   Financial information
     The audited tangible net asset value and profits attributable to the tangible net assets of BMi
     Research for the last year end being 28 February 2015 was R5 609 781 and R2 846 649
     respectively.

6.   Rationale for the acquisition of BMi Research
     
     Cognition currently holds 39.70% of the issued shares in BMi Research. These shares were
     acquired in two separate transactions. In July 2014, Cognition acquired 35% of the issued shares in
     BMi Research and in August 2015 Cognition acquired a further 4.70% of the issued shares in BMi
     Research from an exiting minority shareholder.
     The acquisition of the remaining BMi Research shares will further complement and enhance the
     strategic objectives that Cognition has embarked on. BMi Research will contribute tremendous value
     to the Company’s Knowledge 350 degrees consultancy by assisting clients in better understanding
     customer needs, perceptions and realities.
     
     Knowledge 350 degrees, which incorporates both Organisations and Individuals methodologies of
     collecting, storing and using information, forms an important strategic direction for the Company
     particularly in light of the Protection of Personal Information Act, 2013 (Act 4 of 2013). This strategy
     will be driven using a 15 step roadmap incorporating strategic consulting and the implementation of
     technical solutions to execute the chosen business process outcomes. BMI Research will leverage
     an important element of Knowledge 350 degrees which assists companies to “self-create” intangible
     assets, through its roadmap of tracking data through to knowledge.

7.   Classification of the acquisition
     
     The acquisition constitutes a category two transaction in terms of the JSE Listings Requirements
     and accordingly does not require approval by Cognition shareholders. Subsequent to the acquisition,
     the Memorandum of Incorporation of BMi Research will be reviewed to ensure that it does not
     prevent Cognition from complying with its obligations in terms of the JSE Listings Requirements.


Johannesburg
22 October 2015

Sponsor
Merchantec Capital

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