Wrap Text
Acquisition of 100% of Kathea Communication and 60% of Kathea Energy
AYO TECHNOLOGY SOLUTIONS LIMITED
(Incorporated in the Republic of South Africa)
Registration number 1996/014461/06
Share code: AYO
ISIN: ZAE000252441
("AYO" or “the Company”)
ACQUISITION OF 100% OF THE ISSUED SHARE CAPITAL AND OUTSTANDING SHAREHOLDER CLAIMS IN KATHEA
COMMUNICATION AND 60% OF THE ISSUED SHARE CAPITAL AND OUTSTANDING SHAREHOLDER CLAIMS IN KATHEA
ENERGY
1. Introduction
AYO Shareholders (“Shareholders”) are advised that AYO has entered into two separate binding term sheets in terms
of which AYO shall acquire:
• 100% of the issued share capital and respective outstanding shareholder claims (if any) (“Kathea
Communication Equity”) in Kathea Communication Solutions Proprietary Limited (“Kathea Communication”)
from Kathea Holdings Proprietary Limited (25%) and Kathea Empowerment Proprietary Limited (75%) (“KC
Sellers”) (“the Kathea Communication Transaction”); and
• 60% of the issued share capital and outstanding shareholder claims (if any) (“Kathea Energy Equity”) in
Disruptive Vision Proprietary Limited (trading as Kathea Energy) (“Kathea Energy”) from 1Tec Investment
Proprietary Limited (“KE Seller”) (“the Kathea Energy Transaction”).
The Kathea Communication Transaction and the Kathea Energy Transaction are collectively referred to hereinafter
as the “Kathea Transactions”.
2. Nature of business
2.1. Kathea Communication
Kathea Communication is a value-added distributor of voice, audio visual, video conferencing and workspace
management products solutions and services and represents some of the top brands in the communication,
collaboration, audio visual and workspace technology arenas. Kathea Communication’s brand offering includes
Jabra, Polycom, Plantronics, CTouch, Logitech and Yealink, amongst others.
2.2. Kathea Energy
Kathea Energy is a value-added distributor of alternative energy solutions and represents some of the top brands in
the alternative energy sector. Kathea Energy’s brand offering includes Tesla, LG Chem, Huawei, Byd and Schletter,
amongst others.
3. Rationale for the Kathea Transactions
3.1. Kathea Communication
The rationale for entering into the Kathea Communication Transaction is that potential synergies exist which would
be beneficial to both companies, and ultimately create a larger market share in the unified communications sector.
3.2. Kathea Energy
The rationale for entering into the Kathea Energy Transaction is that it allows AYO to enter into the renewable
energy sector as well as to realise synergies in terms of back office processes. In addition, the numerous skills within
AYO will contribute to the continued future growth of Kathea Energy.
4. Acquisition Structure and Purchase Consideration
4.1. Kathea Communication Transaction
AYO shall acquire the Kathea Communication Equity for a total purchase consideration of R89 791 000 payable as
follows:
• an upfront amount of R59 791 000 which shall be paid by AYO in cash within 14 days from the KC Effective
Date (as set out in paragraph 5 below); and
• an earn-out amount ("KC Earn-Out Amount") which shall be capped at R30 000 000 (“KC Maximum Sum”)
which shall be paid by AYO in cash subject to the achievement of the warranted earnings before interest tax
depreciation and amortisation (“KC Warranted EBITDA”) and adjustment thereto as set out below.
• The purchase consideration will be paid out of existing cash resources
4.1.1. Adjustment of KC Earn-Out Amount
• The KC Earn-Out Amount shall be paid within 14 days of the audited (or reviewed) results being finalised
for Kathea Communication for the 12-month period from 1 September 2020 to 31 August 2021 (“KC Earn-
Out Period”), for which the KC Warranted EBITDA shall be R20 000 000.
• The formula for determining the KC Earn-Out Amount payment for the KC Earn-Out Period will be as
follows:
The KC Maximum Sum x (Kathea Communication Actual EBITDA / Kathea Communication Warranted
EBITDA) subject to the KC Earn-Out Amount being capped at the KC Maximum Sum.
• Should the KC Warranted EBITDA not be achieved during the KC Earn-Out Period, with the result that the
KC Earn-Out Amount is less than the KC Maximum Sum, then the KC Sellers shall be entitled to claw back
some or all of the shortfall in the KC Earn-Out Amount during the further 12-month period from
1 September 2021 to 31 August 2022 ("Extended Earn-Out Period"); provided that the KC Warranted
EBITDA for the Extended Earn-Out Period shall be R22 000 000.
4.2. Kathea Energy
AYO shall acquire the Kathea Energy Equity for a total purchase consideration of R36 000 000 payable as follows:
• an upfront amount of R25 200 000 which shall be paid by AYO in cash within 14 days from the KE Effective
Date (as set out in paragraph 5 below); and
• an earn-out amount ("KE Earn-Out Amount") which shall be capped at R10 800 000 (“KE Maximum Sum”)
which shall be paid by AYO in cash subject to the achievement of the warranted earnings before interest tax
depreciation and amortisation (“KE Warranted EBITDA”) and adjustment thereto as set out below.
• The purchase consideration will be paid out of existing cash resources.
4.2.1. Adjustment of KE Earn-Out Amount
• The KE Earn-Out Amount shall be paid within 14 days of the audited (or reviewed) results being finalised
for Kathea Energy for the following periods:
- 1 September 2020 to 31 August 2021 (“KE First Earn-Out Period”), for which the KE Warranted EBITDA
shall be R13 460 000;
- 1 September 2021 to 31 August 2022 (“KE Second Earn-Out Period”), for which the KE Warranted
EBITDA shall be 14 806 000; and
- 1 September 2022 to 31 August 2023 (“KE Third Earn-Out Period”), for which the KE Warranted
EBITDA shall be R16 286 600,
(collectively referred to as the “KE Earn-Out Periods”).
• The formula for determining the KE Earn-Out Amount payment for each of the KE Earn-Out Periods will be
as follows:
(The KE Maximum Sum / 3) multiplied by (Kathea Energy’s actual EBITDA / Kathea Energy’s Warranted
EBITDA) subject to the KE Earn-Out Amount for the KE First Earn-Out Period being capped at one third of
the KE Maximum Sum (“KE Annual Cap”) and the total aggregate KE Earn-Out Amount for all three KE Earn-
Out Periods being capped at the KE Maximum Sum.
• The KE Seller is entitled to claw-back KE Earn-Out Amounts not earned in subsequent periods provided that
the total aggregate KE Earn-Out Amount for all three KE Earn-Out Periods is capped at the KE Maximum
Sum.
5. Conditions Precedent and effective dates
5.1. Kathea Communication Transaction Conditions Precedent
The Kathea Communication Transaction is subject to and conditional upon, the fulfilment or waiver of the
following conditions precedent and AYO may, as a result of its due diligence investigation, include further
conditions in the sale of shares and claims agreement to be entered into (“KC Definitive Agreement”) following
the successful conclusion thereof:
5.1.1. the completion of detailed financial, tax, legal, technical, operational and human resources due diligence
to the satisfaction of AYO;
5.1.2. the settlement of all debit and credit loans in respect of Kathea Communication;
5.1.3. key management entering into an amendment to their existing contracts of employment or new contracts
of employment, on materially the same or better terms, with Kathea Communication with effect from
the KC Effective Date until 31 August 2022, on terms and conditions acceptable to AYO;
5.1.4. the approval of the Kathea Communication Transaction by the investment committee and board of
directors of AYO;
5.1.5. if required, the approval of the Kathea Communication Transaction by the shareholders of AYO;
5.1.6. to the extent required, the consent of third parties to material contracts to which Kathea Communication
is a party in respect of the change of control Kathea Communication;
5.1.7. the review of key projects, accreditations and intellectual property and intangible assets of Kathea
Communication to the satisfaction of AYO;
5.1.8. the KC Seller fulfilling all notification requirements and/or obtaining all consents in respect of the Kathea
Communication Transaction as required under regulatory licences, if any, required to continue to operate
Kathea Communication after the KC Effective Date;
5.1.9. the approval of the Kathea Communication Transaction by the shareholder/s of Kathea Communication;
5.1.10. the KC Definitive Agreement being concluded by AYO and the KC Seller, and such agreement becoming
unconditional in all respects;
5.1.11. the absence of any material adverse change in the business of Kathea Communication from the date
signature of the binding term sheet to the KC Effective Date; and
5.1.12. all such other statutory and other regulatory approvals and requirements as may be necessary in order
to implement the Kathea Communication Transaction (including JSE Limited, Competition Commission
and Takeover Regulation Panel approvals, as the case may be) being obtained.
5.2. Kathea Communication effective date
The effective date of the Kathea Communication Transaction (“KC Effective Date”) shall be the first business day
upon which all of the conditions precedent as set out in the KC Definitive Agreement are fulfilled or waived.
5.3. Kathea Energy Transaction Conditions Precedent
The Kathea Energy Transaction is subject to the fulfilment or waiver of the following conditions precedent and
AYO may, as a result of its due diligence investigation, include further conditions in the sale of shares and claims
agreement to be entered into (“KE Definitive Agreement”) following the successful conclusion thereof:
5.3.1. the completion of detailed financial, tax, legal, technical, operational and human resources due diligence
to the satisfaction of AYO;
5.3.2. the approval of the Kathea Energy Transaction by the investment committee and board of directors of
AYO;
5.3.3. if required, the approval of the Kathea Energy Transaction by the shareholders of AYO;
5.3.4. to the extent required, the consent of third parties to material contracts to which Kathea Energy is a party
in respect of the change of control of Kathea Energy;
5.3.5. the conclusion of the necessary employment agreements and restraints of trade to the satisfaction of
AYO;
5.3.6. AYO, the KE Seller and Kathea Energy concluding a shareholders’ agreement and such shareholders’
agreement becoming unconditional in all respects;
5.3.7. the adoption of a new memorandum of incorporation in respect of Kathea Energy and such new
memorandum of incorporation being accepted by the Companies and Intellectual Property Commission,
to the satisfaction of AYO;
5.3.8. the KE Seller fulfilling all notification requirements and/or obtaining all consents in respect of the Kathea
Energy Transaction as required under regulatory licences, if any, required to continue to operate Kathea
Energy after the KE Effective Date;
5.3.9. the approval of the Kathea Energy Transaction by the shareholder/s of Kathea Energy;
5.3.10. the KE Definitive Agreement being concluded by AYO and the KE Seller, and such agreement becoming
unconditional in all respects;
5.3.11. the absence of any material adverse change in the business of Kathea Energy from the date of signature
of the binding term sheet to the KE Effective Date; and
5.3.12. all such other statutory and regulatory approvals and requirements as may be necessary in order to
implement the Kathea Energy Transaction.
5.4. Kathea Energy effective date
The effective date of the Kathea Energy Transaction (“KE Effective Date”) shall be the first business day upon
which all of the conditions precedent as set out in the KE Definitive Agreement are fulfilled or waived.
6. Kathea Transactions Structuring
Each of the Parties anticipate taking advice on the structure of the Kathea Transactions and agree to negotiate in
good faith to accommodate the reasonable recommendations (if any) of their respective advisers.
7. Break fee
AYO shall pay a break fee of R1 250 000 (one million two hundred and fifty thousand rand) in respect of Kathea
Communication and R250 000 (two hundred and fifty thousand rand) in respect of Kathea Energy ("Break Fees"),
representing the anticipated costs to be incurred, into the trust account of Webber Wentzel within 10 days of
signature of the binding term sheet by the Sellers. The following terms and conditions have been agreed between
the parties as regards to the Break Fees:
7.1. In the event that the relevant KC Definitive Agreement and KE Definitive Agreement is entered into by the
parties and becomes unconditional in all respects, the relevant Break Fee, together with any interest
accrued thereon, shall be paid and deducted from the relevant Purchase Consideration paid to the Sellers.
7.2. In the event that the relevant Definitive Agreement is either –
7.2.1. not entered into by the parties within six months (or such later date as may be agreed in writing
between the parties) ("Failure Date"); or
7.2.2. entered into by the parties but fails to become unconditional in all respects by the relevant dates for
fulfilment set out in such agreement (or such later date or dates as may be agreed in writing between
the parties before the aforesaid date or dates) ("Failure Date"), for any reason whatsoever except as
a result of AYO not negotiating in good faith the terms of the relevant Definitive Agreement and/or
AYO breaching any of its obligations under this letter or the relevant Definitive Agreement, the Break
Fees together with any interest accrued thereon shall be repaid to AYO within 6 (six) days of the Failure
Date. Unless the parties agree otherwise in writing, Webber Wentzel shall not release the Break Fees
until the 6th (sixth) business day after the Failure Date and then only if neither party has issued a
Referral Notice (as defined below). In the event of any dispute between the parties as to whether or
not the Break Fees should be released by Webber Wentzel and/or to which party the Break Fees
should be paid, either party shall be entitled to submit the dispute to arbitration contained in the
binding term sheet by giving written notice thereof ("Referral Notice") to the other Party within 5
(five) business days after the Failure Date, in which case Webber Wentzel shall not release the Break
Fees until the dispute has been finally determined in accordance with the dispute resolution
paragraph contained in the binding term sheet.
8. Exclusivity Period
KC Sellers and KE Seller (“Sellers”) hereby grant AYO a six-months exclusivity period (the "Exclusivity Period"). The
Sellers will not, during the Exclusivity Period, directly or indirectly enter into negotiations or conclude any
agreement with any third party (whether in its own name or for and on behalf of a third party) which is similar to
the Kathea Transactions or which would in any other way conflict with or detract from the objectives set out in
the binding term sheets. During the Exclusivity Period, AYO and the Sellers will use their best endeavours to agree
all the key terms and conditions of the relevant Definitive Agreement.
9. Call Option specific to Kathea Communication
Prior to the KC Effective Date, Kathea Investments Proprietary Limited and Kathea Holdings Proprietary Limited shall
exercise their call options that are in place with the Boston Education Trust and the Support Teachers Empowerment
Trust and that the parties shall ensure effective transfer to the call option holders of the shares that are the subject
of these call options.
10. Call Option specific to Kathea Energy
The KE Seller shall grant to AYO (or its nominee) a call option to purchase the remaining 40% of the issued share
capital in Kathea Energy ("Call Option").
The Call Option is exercisable 3 years immediately following the KE Effective Date, or such earlier or later date/s as
may be agreed in writing between AYO and the KE Seller, at a purchase price based on a multiple of Kathea Energy’s
sustainable EBITDA x 5 ("Option Purchase Price").
The Option Purchase Price is payable within 30 days after exercise of the Call Option.
11. Financial Information
11.1. Kathea Communication
The value of the net assets of Kathea Communications as at 29 February 2020, extracted from the latest audited
annual financial statements, was R23 706 428. Kathea Communication owns 100% of the issued ordinary shares
of Jabster Technologies Proprietary Limited (“Jabster”), the value of the net assets was R10 335 237 as at
29 February 2020, extracted from the latest audited annual financial statements. These financials have not been
consolidated as Kathea Communication is consolidated by its holding company. The audited financial statements
were prepared in terms of IFRS and management is satisfied with the accuracy and completeness of the financial
statements.
The audited net profit after tax for the 12 months ended 29 February 2020, extracted from the latest audited
financial statements of Kathea Communications was R8 546 225 and for Jabster was R736 178The audited financial
statements were prepared in terms of IFRS and management is satisfied with the accuracy and completeness of
the financial statements.
11.2. Kathea Energy
The value of the net assets of Kathea Energy as at 29 February 2020, extracted from the latest draft audited annual
financial statements, was negative R1 537 313. Management is satisfied with the accuracy and completeness of
the financial statements.
The audited net profit after tax for the 12 months ended 29 February 2020, extracted from the latest draft audited
financial statements was R4 185 806. Management is satisfied with the accuracy and completeness of the financial
statements.
12. CLASSIFICATION OF THE KATHEA TRANSACTIONS
The Kathea Energy Transaction and Kathea Communication Transaction have been aggregated for categorisation
purposes.
The Kathea Transactions are therefore classified as a Category 2 transaction in terms of the JSE Listings Requirements
when determined on an aggregated basis and, accordingly, are not subject to the approval of AYO shareholders.
Cape Town
21 August 2020
Joint Sponsor
Vunani Sponsors
Joint Sponsor
Merchantec Capital
Date: 21-08-2020 07:30:00
Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
Sharenet Sites 
