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CSG HOLDINGS LIMITED - Acquisition Of The Armed Response And Monitoring Business Of Stallion Reaction

Release Date: 19/12/2016 12:00
Code(s): CSG     PDF:  
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Acquisition Of The Armed Response And Monitoring Business Of Stallion Reaction

CSG HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
Registration number: 2006/011359/06
Share code: CSG
ISIN code: ZAE000184438
(“CSG” or “the Company”)

ACQUISITION OF THE ARMED RESPONSE      AND MONITORING   BUSINESS OF
STALLION REACTION

1.     ACQUISITION

       Shareholders are hereby  advised that Invictus Risk
       Proprietary Limited, a wholly owned subsidiary of CSG has
       entered into an agreement of sale with Stallion Reaction
       Proprietary Limited (“Seller”), dated 16 December 2016
       (“Agreement”), in terms of which CSG will purchase from the
       Seller the armed response and monitoring division of the
       Seller, as a going concern, which includes both individual
       client and commercial contracts, as well as specific assets
       and employees (“the Business”), but specifically excluding
       the domestic guarding and CCTV monitoring divisions of the
       Seller (“the Acquisition”). The Business includes the armed
       response and monitoring services provided by the Seller on an
       outsourced basis on behalf of two other security companies
       (“Outsourcing Arrangement”).

2.     RATIONALE FOR THE ACQUISITION

       The Acquisition aligns with CSG’s strategy to expand the
       basket of services in its Facility Management division and
       complements the group’s recent acquisitions in the security
       industry.

       The Business and specifically the client book will be added
       to the current business of 7 Arrows, made earlier this year.

       This Acquisition will result in CSG becoming a prominent mid-
       sized armed response service provider in South Africa.

       Given its existing operating platform in the security
       industry, it is expected that the Acquisition will be
       accretive to CSG’s operating margin at a relatively low level
       of risk.

3.     PURCHASE CONSIDERATION

3.1.     In terms of the Agreement, the purchase consideration
         payable by CSG to the Seller in respect of the Business
         (excluding the Outsourcing Arrangement) is R55 000 000
         (“Business Purchase Consideration”).
3.2.     The Business Purchase Consideration will be paid by CSG on
         28 January 2017(“Closing Date”), by means of an electronic
         transfer into the trust banking account of the Seller’s
         Attorneys.

3.3.     The purchase consideration payable by CSG to the Seller in
         respect of the Outsourcing Arrangement amounts to
         R2 062 500 (“Outsourcing Purchase Consideration”).

3.4.     The Outsourcing Purchase Consideration will be discharged
         by CSG by way of 15 monthly instalments of R137 500 each
         (“Instalments”), the first of which shall be made by not
         later than 45 days from the Closing Date and all subsequent
         Instalments to be made by not later than the 15th day of
         each month. Should the Outsourcing Agreement be terminated
         by either party, then the monthly Instalments and
         Outsourcing Purchase Consideration will be adjusted
         accordingly.

4.     EFFECTIVE DATE

       The effective date of the Acquisition will be 1 February 2017
       (“Effective Date”).

5.     CONDITIONS PRECEDENT

5.1.     The Acquisition is subject to the fulfilment or waiver of
         the    following   conditions    precedent   (“Conditions
         Precedent”):

5.1.1.       by no later than 20 January 2017, CSG completes a due
             diligence investigation to its satisfaction and
             delivers written notice to the Seller to that effect;

5.1.2.       by no later than the Effective Date, all resolutions
             of the Seller authorising the Acquisition are passed,
             including, without limitation, all resolutions required
             to be passed by the Seller in terms of Chapter 5 of the
             Companies Act;

5.1.3.       to the extent required, by no later than the Effective
             Date, all regulatory approvals required to implement
             the Acquisition are obtained;

5.1.4.       by no later than 17 January 2017, the board of directors
             of CSG formally accepts and approves the terms of the
             Agreement; and

5.1.5.       by no later than the Effective Date, the parties
             conclude a sub-contractor’s agreement relating to the
             use by CSG of the Seller’s firearms until CSG have
             obtained its own firearms and the associated regulatory
             authorisations therefore, such agreement to be in
             effect for a period of no longer than 8 months from the
             Effective Date.

5.2.     The Conditions Precedent in clauses 5.1.1, 5.1.4 and 5.1.5
         above are expressed for the benefit of CSG, who shall be
         entitled to waive the requirement for fulfilment thereof
         upon written notice to the Seller. The remaining Conditions
         Precedent are expressed for the benefit of the parties who
         shall be entitled to waive the requirement for fulfilment
         thereof by written agreement between them.

6.     WARRANTIES AND OTHER TERMS

6.1.     The Agreement contains representations and warranties by
         the Seller in favour of the Purchaser which are standard
         for a transaction of this nature.

6.2.     In terms of the Agreement, CSG is granted the option, to
         be exercised by no later than the Effective Date, to
         purchase from the Seller the Seller’s right, title and
         interest in and to the software application system known
         as the Guardian System used by the Business to provide a
         full sales model and incorporating, inter alia, the logging
         of client complaints and scheduling service calls and
         installations   for   an   amount   of   R180 000   payable
         simultaneously and in accordance with the Business Purchase
         Consideration.

6.3.     In terms of the Agreement, should CSG sell all or part of
         the Business or the assets acquired pursuant to the
         Acquisition within a period of 36 months from the Closing
         Date (“Sale Assets”), CSG shall notify the Seller in
         writing granting the Seller a right of first refusal to
         purchase the Sale Assets at a price stipulated in such
         notice.

7.     FINANCIAL INFORMATION

       Based on the number of contracts being acquired as at October
       2016 and extrapolated for a 12-month period, the revenue
       attributable to the Business was approximately R39.8 million
       for the 12-month period ending October 2016. Considering the
       estimated operating costs, based on management assumptions to
       service the number of contracts acquired, the operating
       profit attributable to the Business was approximately
       R7.3 million for the 12-month period ending October 2016
       (shareholders should note that the actual operating costs
       have not been made available to management and the
       aforementioned operating profit is based on management’s
       assumptions of the operating costs for the period).
       The net asset value of the Business is negligible and will
       not exceed R2 million on the Closing Date.

8.   CATEGORISATION

     The Acquisition constitutes a category 2 acquisition for CSG
     in terms of the JSE Listings Requirements.

Pretoria
19 December 2016

Sponsor
PSG Capital

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