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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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