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Acquisition of Aquilon Companies
ADAPT IT HOLDINGS LIMITED
Incorporated in the Republic of South Africa
(Registration number: 1998/017276/06)
Share code: ADI ISIN: ZAE000113163
(“ADAPT IT” or “the Group”)
ACQUISITION OF AQUILON COMPANIES
1. INTRODUCTION
The board of directors of ADAPT IT (“the Board”) is pleased to advise shareholders that agreement has
been reached between ADAPT IT Proprietary Limited, a wholly owned subsidiary (“the Subsidiary“) of
ADAPT IT, and Barend Hendrik Dijzel, Russell James Boltman, Francois van Heerden, the trustees of
the Bluebird Family Trust, the trustees of the Two Kings Trust, Jason Derrick Hamilton and ISB
Consulting Proprietary Limited (“the Vendors”) of Aquilon Proprietary Limited, Aquilon Evolution Holdings
Proprietary Limited and Aquilon Evolution Consulting Proprietary Limited (“the Aquilon Companies”), and
Fuel-Loc Proprietary Limited (“Fuel-Loc“) , pursuant to which ADAPT IT will directly or indirectly acquire
100% of the issued shares in the Aquilon Companies together with 40% of the issued shares in Fuel-Loc
(collectively the “Sale Shares”) , and certain claims (“Sale Claims”) against the Aquilon Companies and
Fuel-Loc, as one indivisible transaction (“the Acquisition”) from the Vendors.
2. THE ACQUISITION
2.1 Nature of the Aquilon business
The trading Aquilon Companies are specialist SAP® consultancies, founded in 2006, which design,
implement and support SAP® IS-Oil implementations throughout South Africa. They provide SAP
services to six of the major oil companies trading in South Africa and globally. The trading Aquilon
Companies have a highly qualified staff complement of over 70, with offices located in Cape Town
and Johannesburg.
2.2 The rationale for the Acquisition
The Board believes that the Acquisition provides ADAPT IT with an entry into specialised areas
within the Oil and Gas sector. This strategic acquisition assists ADAPT IT to expand into the growing
Energy sector in Africa, as well as extend its local reach into the Western Cape, and bolsters its SAP
solutions expertise.
2.3 Purchase consideration
The purchase consideration payable in terms of the Acquisition shall be comprised of a portion
(“Base Portion”) which is contingent only upon the delivery of the Sale Shares and cession of the
Sale Claims (“Closing”) and a portion which is contingent only upon the achievement of specified
profit warranties (“Profit Warranties”) over a 33 month period (“Earn-Out Portion”).
The maximum purchase consideration shall be limited to R98 million and shall comprise a cash
component of R38 million and a share component of R60 million (“Consideration Shares”).
Consideration Shares shall be issued at R3.52 being the price equivalent to the Weighted Average
Traded Price of ADAPT IT shares for a period of 30 days prior to the date of signature of the share
purchase agreement, less 10%.
The purchase consideration shall not be less than the Base Portion.
2.3.1 The Base Portion
The Base Portion of R46 million will be settled by way of a cash consideration of R38 million funded
from existing cash resources and a facility still to be procured and the issue of Consideration Shares
to the value of R8 million. The Base Portion shall be paid upon Closing.
2.3.2 The Earn-Out Portion
The Earn-Out Portion of a maximum of R52 million shall be settled via the issue of Consideration
Shares upon attainment of the Profit Warranties.
The Profit Warranties are as follows:
* R18.3 million profit after tax for the period 1 October 2013 to 30 June 2014 (“2014 Performance
Warranty Period”). Should such profit after tax be achieved, Consideration Shares to the value
of R16 million shall be issued;
* R32 million profit after tax for the period 1 July 2014 to 30 June 2015 (“2015 Performance
Warranty Period”). Should such profit after tax be achieved, Consideration Shares to the value
of R18 million shall be issued; and
* R38.4 million for the period 1 July 2015 to 30 June 2016 (“2016 Performance Warranty Period”).
Should such profit after tax be achieved, Consideration Shares to the value of R18 million shall
be issued.
The Consideration Shares to be issued to settle the Earn-Out Portion shall be issued within 60 days
after the end of the 2014 Performance Warranty Period, 2015 Performance Warranty Period and
2016 Performance Warranty Period respectively and shall be reduced pro-rata to the extent that
such Profit Warranties are not attained.
2.4 Conditions precedent and effective date
The significant conditions precedent to Closing which must be met are as follows:
* Board approvals by the Subsidiary, the Aquilon Companies and Fuel-Loc;
* Conclusion of an acceptable statutory records’due diligence in respect of the Aquilon
Companies and Fuel-Loc;
* Receipt of an acceptable legal validity and enforceability opinion in regard to the Bluebird Family
Trust and the Two Kings Trust;
* Approval by the Subsidiary of the disclosure letter which details matters which qualify the
standard warranties provided by the Vendors;
* No material adverse changes in financial position or trading prospects of the Aquilon
Companies;
* Procurement of a working capital loan facility by the Subsidiary;
* Approval or exemption of the Acquisition by the Takeover Regulation Panel;
* Shareholder approval by ISB Consulting;
* Conclusion of a shareholders' agreement and memorandum of incorporation with Fuel-Loc and
its majority shareholder;
* Conclusion of executive employment contracts with specified key executives; and
* Conclusion of a service level agreement with a key supplier.
Upon Closing, the Acquisition will take retrospective effect from 1 October 2013 (“the Effective
Date”). The Acquisition may be cancelled by either the Subsidiary or the Vendors should closing not
occur on or prior to 31 January 2014.
2.5 Memorandum of Incorporation
As the Aquilon Companies will become subsidiaries of ADAPT IT, the memoranda of incorporation of
the Aquilon Companies will be amended to comply with Schedule 10 to the JSE Listings
Requirements as well as the Companies Act, 2008.
2. PRO FORMA FINANCIAL EFFECTS OF THE ACQUISITION
The table below sets out the unaudited pro forma financial effects of the Acquisition, on ADAPT IT’s
earnings per share, headline earnings per share, net asset value per share and tangible net asset value
per share.
The unaudited pro forma financial effects have been prepared to illustrate the impact of the Acquisition
on the reported financial information of ADAPT IT for the year ended 30 June 2013, had the Acquisition
occurred on 1 July 2012 for statement of comprehensive income purposes and as at 30 June 2013 for
statement of financial position purposes. The unaudited pro forma financial effects have been prepared
using accounting policies that comply with International Financial Reporting Standards and that are
consistent with those applied in the annual financial statements of ADAPT IT for the year ended 30 June
2013.
The unaudited pro forma financial effects, which are the responsibility of the directors, are provided for
illustrative purposes only and, because of their pro forma nature may not fairly present ADAPT IT’s
financial position, changes in equity, results of operations or cash flow.
Before the After the Percentage
Acquisition Acquisition change (%)
Basic earnings per share (cents) 22.25 22.92 3.04%
Headline earnings per share (cents) 22.27 22.94 3.02%
Net asset value per share (cents) 85.18 119.87 40.72%
Tangible net asset value per share (cents) 36.64 3.75 -89.76%
Weighted average number of shares in issue (000’s) 108 287 128 070
Total number of shares in issue (000’s) 108 226 125 356
Notes:
1. The amounts in the “Before the Acquisition” column relate to the annual financial statements of
ADAPT IT for the year ended 30 June 2013.
2. The amounts in the “After the Acquisition” column reflect the financial effects of the Acquisition on
ADAPT IT as if it had occurred on 1 July 2012 for statement of comprehensive income purposes
and on 30 June 2013 for statement of financial position purposes, and are based on the following
assumptions:
* the Base Portion of R38 million will be funded from existing cash resources and a loan facility
still to be procured;
* a reduction in interest income of R1.89 million per annum;
* an increase in interest expense of R1.15 million per annum;
* transaction costs of R1.80 million;
* the issue of 17,069,139 new ordinary shares in ADAPT IT which will be issued in settlement of
the Sale Shares and Sale Claims, being the maximum share component of the consideration;
and
* a tax rate of 28% has been taken into account.
All financial effects are ongoing with the exception of transaction costs which are once-off.
3. The most recent audited Financial Statements of the Aquilon Companies for the year ended 28
February 2013 have been used. ADAPT IT is satisfied that these are reliable and consistent with
the IFRS accounting policies of ADAPT IT.
4. The effects on basic earnings per share and headline earnings per share are calculated based on
the assumption that the Acquisition was effected on 1 July 2012.
5. The effects on net asset value per share and tangible net asset value per share are calculated
based on the assumption that the Acquisition was effected as at 30 June 2013.
3. CLASSIFICATION OF THE ACQUISITION
The Acquisition is classified as a Category 2 transaction in terms of the Listings Requirements of JSE
Limited.
11 November 2013
Sponsor and Corporate Advisor
Merchantec Capital
Transactional Attorneys for ADAPT IT
Shepstone and Wylie
Date: 11/11/2013 05:45:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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