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Acquisition of USC Metering Proprietary Limited
MICROmega HOLDINGS LIMITED
Incorporated in the Republic of South Africa
(Registration number: 1998/003821/06)
Share code: MMG ISIN: ZAE000034435
(“MICROmega” or “the Group”)
ACQUISITION OF USC METERING PROPRIETARY LIMITED
1. INTRODUCTION AND CLASSIFICATION OF THE ACQUISITION
On 13 January 2014, MICROmega acquired 56.67% of USC Metering Proprietary Limited (“USC
Metering”) for a cash consideration of R39 669 000.
Agreement has now been reached between MICROmega and Rene Daubinet and Graeme Patrick Tuck
(“the Vendors”) to acquire an additional 26.67% of the issued shares in USC Metering, thereby
increasing MICROmega’s shareholding to 83.33% of USC Metering’s issued share capital (“the
Acquisition”). In terms of paragraphs 9.11 and 9.13(b) of the JSE Listings Requirements, the acquisitions
are required to be aggregated for the purpose of determining the categorisation. Accordingly, the
Acquisition is classified as a Category 2 transaction in terms of the JSE Listings Requirements.
2. THE ACQUISITION
2.1 Nature of the USC Metering business
USC Metering is a South African based company with its head office in Durban, KwaZulu Natal.
Established in 2001, USC Metering is South Africa’s premier supplier of pre-payment meters and
electronic water control devices. USC Metering's manufacturing is undertaken in an ISO 9001 accredited
facility where the focus is placed on producing exceptionally high quality products. USC also has a
strong focus on technology innovation that is driven by a dedicated team of engineers.
USC Metering's primary product is a Water Management Device (WMD). The WMD, and its predecessor
the Flow Limiter, have been in use since 2003 and over 600 000 units have been sold locally and
internationally. The WMD is an intelligent metering device that provides water service providers with the
flexibility to introduce a range of metering options such as Conventional Metering, Automated Meter
Reading (AMR), Advanced Metering Infrastructure (AMI), Daily or Monthly Flow Limitation, Pre-paid
Metering, Bulk Metering and Leak Detection.
The USC Metering pre-paid offering, unlike existing prepaid systems, is STS accredited and able to
integrate seamlessly into existing back-end vending infrastructure.
2.2 The rationale for the Acquisition
MICROmega’s general acquisition strategy is to acquire businesses that have an immediate economic
scalability with our existing businesses and that are also self-sustainable as a result of a natural demand
driven environment for their products and services. Put simply, acquisitions must have an immediate
“plug and play” capability plus future natural growth potential. This is designed to result in an immediate
impact on growth by acquisition as well as the continued growth thereafter of the combined businesses.
USC Metering has these attributes and characteristics and the financial effects below are demonstrative
of the impact the business will have on MICROmega’s future performance.
Over the past 10 years MICROmega has developed and acquired a number of entities associated with
the provision of technology based financial management and revenue management services for Local
Government in South Africa. These services include advanced meter reading and data management
services to support government’s vital initiative to improve revenue collection and facilitate infrastructual
development programs. MICROmega presently has a client base of 102 Local Authorities utilising our
services on an ongoing basis and contributing to the Group’s earnings on an annuity basis. MICROmega
is well positioned to take advantage of the massive expenditure committed to by central and local
government over the next 10 years. The Johannesburg Municipality alone has recently announced a
commitment to invest R110 billion over the next 10 years to improve infrastructure.
The acquistion of USC Metering is an important extension and consolidation of our revenue
management activities and significantly improves our offering for the critical local and global initiative to
manage ever reducing water resources in a sustainable and cost effective manner. The state of the art
technology that has already been developed by MICROmega fully complements USC Metering’s devices
and will make us pioneers of bidirectional communication between municipalities and their consumers
and will eliminate the billing problems that have hitherto bedevilled the relationship between
municipalities and their residents.
Our expanded product range will allow for real time monitoring, on-off switching capability, automated
meter reading and, most importantly, the ability to provide an integrated demand management capability
for municipalities to assess and determine where they have unwanted and avoidable leakage in their
water schemes. The anticipated demand for pre-paid water meters and the need to facilitate vending is
an immediately available service that MICROmega will be able to deliver. Water, and the need to
manage and facilitate the effective distribution of potable water, is going to be the main priority on most
municipal agendas. This acquisition entrenches MICROmega’s position as a leader in the provision of
demand management tools to preserve and sustain the world’s priority resource.
2.3 Purchase consideration
The purchase consideration payable to the Vendors is R 18 666 900 and shall be settled through the
issue of 1 866 900 MICROmega ordinary shares at an issue price of R10.00 per share.
2.4 Conditions precedent and effective date
All conditions precedent to the Acquisition have been fulfilled and the effective date of the Acquisition
is 1 January 2014.
2.5 Memorandum of Incorporation
As USC Metering will become a subsidiary of MICROmega, the memorandum of incorporation of
USC Metering will be amended to comply with Schedule 10 to the JSE Listings Requirements as
well as the Companies Act, No 71 of 2008, as amended.
3. PRO FORMA FINANCIAL EFFECTS OF THE ACQUISITION
The table below sets out the unaudited pro forma financial effects of the acquisition of the accumulated
83.33% shareholding in USC Metering on MICROmega’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 using accounting policies that comply with
IFRS and that are consistent with those applied in the unaudited results of MICROmega for the six
months 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 MICROmega’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) 26.05 34.42 32.1%
Headline earnings per share (cents) 26.02 34.39 32.1%
Net asset value per share (cents) 340.75 353.47 3.7%
Tangible net asset value per share (cents) 283.25 250.59 (11.5)%
Weighted average number of shares in issue (000’s) 92 351 94 217 2.0%
Total number of shares in issue (000’s) 90 850 92 716 2.0%
Notes:
1. The amounts in the “Before the Acquisition” column have been extracted from the published
unaudited results of MICROmega for the six months ended 30 June 2013.
2. The amounts in the “After the Acquisition” column reflect the financial effects of the Acquisition on
MICROmega as if it had occurred on 1 January 2013 for statement of comprehensive income
purposes and on 30 June 2013 for statement of financial position purposes, and are based on the
assumption that:
- the attributable after tax profit of USC Metering was extracted from USC Metering’s December
2013 management accounts and prorated to represent a six month period. Reliance has been
placed by the directors on these management accounts. This will have a continuing effect on
the Group;
- there were no material costs incurred relating to the investment in USC Metering;
- interest at a rate of 4.75% was adjusted for on the cash movement;
- goodwill to the value of R27 511 000 has been recognised;
- there was no impairment of the goodwill arising from the Acquisition; and
- the purchase price of R58 337 000 was settled on 1 January 2013 in cash and through the
issue of 1 866 900 new shares in MICROmega.
3. 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 January 2013.
4. 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 on 30 June 2013.
7 February 2014
Sponsor
Merchantec Capital
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