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Category 2 Transaction and Withdrawal of Cautionary Announcement
Transaction Capital Limited
(Incorporated in the Republic of South Africa)
Registration number: 2002/031730/06
JSE share code: TCP
ISIN: ZAE000167391
(“Transaction Capital”)
CATEGORY 2 TRANSACTION: ACQUISITION OF RECOVERIES CORPORATION GROUP LIMITED IN AUSTRALIA AND
WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
1. INTRODUCTION
Transaction Capital is pleased to advise that a newly established wholly-owned subsidiary (the “Purchaser”),
has, together with Transaction Capital, entered into a Sale of Shares Agreement (the “Agreement”) in terms
of which it will acquire the entire issued share capital of DLJ Holding Co Pty Ltd (“DLJ Holdco”), which owns
100% of Recoveries Corporation Group Limited in Australia (collectively, together with their subsidiaries,
“Recoveries Corporation Group”) and will capitalise Recoveries Corporation Group by way of a subscription
for shares (the “Transaction”). The shares will be acquired from Denat Custodians Pty Ltd ATF Denat
Custodians Superannuation Fund, The Incentive Place Pty Ltd ATF Denat Trust, MIG Pty Ltd ATF D&B Family
Trust, Plaza Assets Pty Ltd ATF MIG Superannuation Fund and John Andrew Wauchope & Julie-Anne
Wauchope AJTF Wauchope Superannuation Fund (collectively “the Vendors”), the direct and indirect
beneficiaries of which are the founders and current executives of Recoveries Corporation Group, namely Mr
David Mond and Mr Leon Sholl, as well as Recoveries Corporation Group’s chairman, Mr John Wauchope
(collectively “the Sellers”).
Founded in 1991 in Melbourne Australia, Recoveries Corporation Group provides consumer customer
management solutions to a well-diversified blue-chip client base within the government, insurance, banking
and finance, utilities and telecommunications market sectors within Australia. Services include debt recovery
solutions (including early stage rehabilitation, late stage collections and legal recoveries), insurance claims
recoveries (including claims recoveries and claim file audits), customer services (including reminder calls for
pre-collection, courtesy calls, payment arrangement reminders and demand calls), and litigation
management via its legal firm, Mason Black Lawyers.
Recoveries Corporation Group employs approximately 600 staff members in its Australian operations in
Melbourne and Sydney, and its near shore call centre and corporate services centre in Suva, Fiji.
2. RATIONALE FOR THE ACQUISITION
Transaction Capital’s strategy is to drive organic and acquisitive growth within its divisions, by enhancing and
developing their distinctive competencies to achieve deep vertical integration within current market
segments, and then leveraging these competencies to create new positions within adjacent markets.
The Transaction aligns with Transaction Capital’s acquisitions strategy to selectively target quality assets
operating within its existing or adjacent market segments that will enhance Transaction Capital’s capabilities,
and whose competitiveness and value can be maximised through Transaction Capital’s involvement.
Furthermore, whilst local opportunities have been evaluated, Transaction Capital has also considered
opportunities in developed international economies generating hard currency returns, which would diversify
Transaction Capital’s risk. Transaction Capital has conservatively applied these investment criteria when
evaluating this acquisition, more specifically as:
2.1. on a standalone basis, Recoveries Corporation Group conducts a high quality business generating
predictable earnings with high cash conversion rates and strong organic growth prospects from a
blue-chip client base. Recoveries Corporation Group is a leading Australian debt collector, serving a
broad client base diversified across the Australian government, insurance, banking, utilities and
telecommunications market sectors. The trend to outsource debt recovery in Australia is expected
to continue with Recoveries Corporation Group being well positioned to continue providing such
services, having more than 25 years of experience;
2.2. Recoveries Corporation Group is a leading market participant with proven technology, strong data
analytics skills, and deep industry knowledge operating within the credit risk services market
segment. Recoveries Corporation Group thus possesses intellectual property and expertise that can
enhance Transaction Capital’s specialist capabilities thereby assisting Transaction Capital to grow its
share in existing market segments and/or facilitate access to new verticals. Recoveries Corporation
Group’s vast expertise in the insurance recoveries industry will augment Transaction Capital’s
competencies and facilitate the growth of its fledgling insurance recoveries offering in South Africa;
2.3. Recoveries Corporation Group is an efficient platform that Transaction Capital intends to develop
and scale. The Australian debt collection industry is highly fragmented (with approximately 20
companies accounting for 85% of the market), which provides Transaction Capital with an
opportunity to expand acquisitively in Australia. In addition, Recoveries Corporation Group is
exclusively a contingent debt collection agency, receiving fees-for-services. Transaction Capital will
apply its analytics, pricing expertise and capital management capabilities to the purchase of non-
performing loan portfolios in Australia to facilitate Recoveries Corporation Group’s expansion into
this adjacent market. The purchasing of non-performing loan portfolios comprises the majority of
debt recovery activity in the Australian industry and accordingly presents an attractive growth
prospect;
2.4. the Transaction provides Transaction Capital with a strong entry point into the Australian market
and the opportunity to expand geographically into a developed, English-speaking economy.
Transaction Capital will thus diversify concentration risk as it earns hard currency based returns; and
2.5. Recoveries Corporation Group and Transaction Capital have a strong cultural fit and share a common
set of entrepreneurial values. Recoveries Corporation Group’s management is extremely
entrepreneurial. Post this acquisition, Recoveries Corporation Group’s founders will retain their
executive director positions and remain closely involved in the organic growth and day-to-day
operations of the business.
Based on the above, Transaction Capital’s rationale for this acquisition is justified on a standalone basis.
However, Recoveries Corporation Group has a scalable business model and proven track record, whose
competitiveness and value can be enhanced through Transaction Capital’s involvement and ownership.
3. PURCHASE CONSIDERATION
3.1. The Transaction offer consideration is limited to a maximum value of A$43 million, on a debt-free,
cash-free basis (“Enterprise Value”), and will be payable as follows (collectively, the “Offer
Consideration”):
3.1.1. an upfront payment of A$33 million (approximately R356 million) on the Effective Date (as
defined in 5 below) which will be applied towards both the purchase price for the
acquisition and subscription for shares in Recoveries Corporation Group, which payment
is secured in favour of the Vendors by way of a guarantee by Transaction Capital
(“Upfront Payment”);
3.1.2. two earn-out payments (which are to be secured in favour of the Vendors by a bank
guarantee issued by a South African bank) as follows –
3.1.2.1. a maximum first earn-out payment of A$3 million payable at or about the end
of October 2017 (“First Earn-out Payment”), subject to achieving certain profit
warranties;
3.1.2.2. a maximum second earn-out payment of A$10 million less the First Earn-out
Payment (if any) payable at or about the end of October 2018 (“Second Earn-
out Payment”), subject to achieving certain profit warranties.
3.2. Transaction Capital will finance the payment of the Offer Consideration from cash resources.
4. CONDITIONS PRECEDENT
The Transaction is subject to fulfilment or waiver (where appropriate) of, inter alia, the following conditions
precedent by 28 February 2017:
4.1. the Sellers obtain the written consent of/or waiver by counterparties to certain key identified
customer contracts and lease agreements in respect of the change of control provisions triggered by
the Transaction;
4.2. the Sellers implement a long-term incentive plan for key employee executives who will also be
required to execute a service agreement in a form reasonably satisfactory to the Purchaser;
4.3. approval is obtained from the South African Reserve Bank for all matters required in the context of
the Transaction;
4.4. there are no matters, events or circumstances which have had or, in the reasonable opinion of the
Purchaser, are likely to have, either individually or when aggregated with other matters, events or
circumstances, a Material Adverse Effect, as defined in the Agreement; and
4.5. Recoveries Corporation Group completes a restructuring exercise to the satisfaction of both the
Sellers and the Purchaser which includes, inter alia, (i) the transfer of equity in operating companies
forming part of Recoveries Corporation Group (which are not wholly-owned subsidiaries) from the
existing shareholders to Recoveries Corporation Group (so as to constitute them as wholly-owned
subsidiaries of Recoveries Corporation Group); (ii) the sale of equity in non-operating entities in
which Recoveries Corporation Group has an equity interest so that they no longer form part of
Recoveries Corporation Group; and (iii) the adoption of an amended constitution by Recoveries
Corporation Group.
5. EFFECTIVE DATE
The effective date of the Transaction shall be the seventh business day after fulfilment or waiver (where
appropriate) of certain conditions precedent (the “Effective Date”).
6. FURTHER TERMS
Service, restraint and confidentiality agreements will be concluded with David Mond, Leon Sholl and key
members of Recoveries Corporation Group’s leadership team. In this regard, David Mond and Leon Sholl will
serve as CEO and Executive Director of Recoveries Corporation Group respectively for a minimum period
from the Effective Date until 30 June 2018.
7. GENERAL
7.1. The value of the net assets of Recoveries Corporation Group as at 31 August 2016 was A$12.2
million prior to taking into account any internal restructuring that will occur prior to the Effective
Date or any settlement of outstanding Recoveries Corporation Group debt that will occur after the
Upfront Payment.
7.2. Recoveries Corporation Group’s profit after tax for their financial year ending on 30 June 2017
attributable to its net assets is expected to be A$4.5 million.
8. CATEGORISATION
The Transaction is a Category 2 transaction as contemplated in the Listings Requirements of the JSE Limited.
9. WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
Shareholders are referred to the cautionary announcement dated 11 November 2016 and are advised that
caution is no longer required to be exercised when dealing in their securities.
10. FURTHER ANNOUNCEMENT
Shareholders will be notified once the last of the conditions precedent has been fulfilled or waived.
Dunkeld West
14 November 2016
Enquiries:
Phillipe Welthagen - Investor Relations
Telephone: +27 (0) 11 049 6700
Sponsor:
Deutsche Securities (SA) Proprietary Limited
Date: 14/11/2016 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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