JASCO ELECTRONICS HOLDINGS LIMITED - Acquisition of Cross Fire Management Proprietary Limited

Acquisition of Cross Fire Management Proprietary Limited

JASCO ELECTRONICS HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration Number: 1987/003293/06)
Share Code: JSC            ISIN: ZAE000003794
("Jasco" or “the Group”)


ACQUISITION OF CROSS FIRE MANAGEMENT PROPRIETARY LIMITED

1 INTRODUCTION

Shareholders are advised that Jasco has entered into a sale of shares agreement (“Transaction
Agreement”) with John Henry Cross (“the Vendor”) and Cross Fire Management Proprietary Limited
(“Cross Fire”). In terms of the Transaction Agreement, Jasco will acquire 65.4% of Cross Fire for a
maximum aggregate purchase price of R52.3 million (“the Transaction”).

2 BACKGROUND AND RATIONALE FOR THE ACQUISITION

As Jasco has restructured the group, reduced gearing to within the group’s internal range of less than
50% and is improving operating performance, the management team is executing its strategic plan of
measured acquisitions that either bulk up existing business units or fill gaps in its portfolio to supplement
organic growth. Additionally, Jasco continues to align its portfolio of businesses and related products
and services offerings that serve its blue-chip customer base in niche markets.


The Cross Fire acquisition will ensure the Jasco Fire Solutions offering in the blue-chip corporate market
becomes one of the top three suppliers of fire detection, suppression and protection solutions in various
industries, including construction, retail, logistics and financial services. Jasco’s differentiation in the
market will be further enhanced with the addition of Cross Fire’s specialised system design and
consulting capabilities to Jasco’s existing fabrication and deployment abilities. The acquisition fulfils
Jasco’s strategic intent of moving up the value chain towards a higher-margin professional service and
consulting offering.


The acquisition of Cross Fire will provide the following benefits:
             –   Adding fire system design and consulting capabilities, which will complement the
                 existing Jasco Fire Solutions portfolio;
             –   Bulking up Jasco Fire Solutions’ offering from the current R30 million per annum
                 revenue to in excess of R200 million, which meets Jasco’s minimum R150 million
                 strategic revenue threshold for each business unit;
             –   Unlock synergies by having both design and fabrication in-house capabilities, which is
                 anticipated to improve margins in the Fire business;
             –   Further opportunity to cross-sell the rest of the Jasco portfolio to the existing blue-chip
                 customer base;
             –   Access to an experienced and capable management team within the fire detection,
                 suppression and protection solutions market; and
             –   Access to West Africa, specifically Ghana, through Cross Fire’s four years’ regional
                 presence.

3 BACKGROUND TO CROSS FIRE

Cross Fire was established in 1990 by Mr John Cross in Johannesburg and specialises in the design,
supply, fabrication, installation, servicing and maintenance of a range of fire protection systems for
various industries and protected risk specifications. These systems include:
-       Automatic sprinkler installations;
-       Medium and high velocity deluge water spray systems;
-       Dedicated fire water supply pump and tank installations;
-       Fire / smoke detection and evacuation systems; and
-       Fire suppression gas installations.


Cross Fire’s operations cover Johannesburg, Cape Town, Durban and Accra (Ghana). Its blue-chip
customer base spans the construction, retail, logistics and financial services industries. It has a solid
track record of double-digit revenue growth since 2013, with consistent operating margins above 9%.



4 KEY TERMS OF THE TRANSACTION

    4.1 Sale of shares and shareholding

        Jasco, or its nominee within the group (a subsidiary or business unit), will acquire 65.4% of the
        total issued share capital in Cross Fire from the Vendor. The remaining shares, held by the
        current management team, will remain unchanged. The management team and founder will
        stay in place, with retention agreements for a minimum of two years.



    4.2 The Purchase Consideration

        The purchase price of the Vendor’s 65.4% shareholding in Cross Fire is calculated at a
        maximum aggregate amount of R52,320,000 (“the Purchase Consideration”).
        The Purchase Consideration will be settled in cash in the following tranches:
        -       an initial payment of R20,000,000;
        -       a first maximum deferred payment of R16,160,000, subject to the financial performance
                of Cross Fire for the audited 15-month period ending 31 May 2017; and
        -       a second maximum deferred payment of R16,160,000, subject to the financial
                performance of Cross Fire for the audited 13-month period ended 30 June 2018.

   4.3 Suspensive Conditions

          The conclusion of the Transaction is subject to the fulfilment or waiver of certain suspensive
          conditions, which include, but are not limited to:

          -       the Transaction being approved in terms of the Competition Act, Act 89 of 1998;
          -       the delivery of a written waiver from the existing shareholders of Cross Fire of any and
                  all pre-emptive rights in respect to the Vendor’s ordinary shares; and
          -       any other suspensive conditions, as may be necessary in relation to the Transaction.


          The Transaction Agreement contains legal warranties and indemnities which are considered
          normal in respect of a transaction of this nature.

5 EFFECTIVE DATE

The Transaction Agreement is effective as of 17 March 2017. All the suspensive conditions must be
met by no later than 31 May 2017. Failing this, the Transaction Agreement will be of no force and
effect.



6 PROFIT AND NET ASSET VALUE ATTRIBUTABLE TO CROSS FIRE

The net assets of Cross Fire, as per the audited financial statements for the 12 months ended 28
February 2016, was R31,4 million. The audited revenue and profit attributable to the net assets of Cross
Fire for the 12 months ended 28 February 2016 was R229,5 million and R15,1 million respectively.



7 CATEGORISATION OF THE TRANSACTION

The Transaction constitutes a category 2 acquisition in terms of the Listings Requirements of the JSE
Limited. The Transaction is therefore not subject to Jasco shareholder approval.



Midrand
22 March 2017


Sponsor
Grindrod Bank Limited


Legal Advisor to Jasco
Etambo Equity (Proprietary) Limited


Corporate Advisor to Jasco
SamuelKennedy Investments (Proprietary) Limited

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