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Acquisition of a Viable Asset
Capital Appreciation Limited
Incorporated in the Republic of South Africa
(Registration number 2014/253277/06)
Share code: CTA
ISIN: ZAE000208245
(‘CAPPREC”,"CTA" or "the Company")
ACQUISITION OF A VIABLE ASSET
1. INTRODUCTION
CAPPREC is a Special Purpose Acquisition Company (“SPAC”) that was listed on the Main Board of
the Securities Exchange operated by the JSE Limited (“JSE”) on 16 October 2015. CAPPREC was
established with the purpose of raising capital in order to pursue an acquisition of a Viable Asset, in
accordance with and as defined in the Listings Requirements (the "Listings Requirements") of the JSE.
The CAPPREC pre-listing statement contained an intention to acquire a Viable Asset that would
provide a platform for future growth and expansion in South Africa, Africa and beyond, the preferent
commercial nature of such acquisition being a company in the services sector. Since the listing,
CAPPREC has evaluated and considered numerous acquisition opportunities, the following
information on the proposed acquisitions being a direct result of such processes.
The Board is pleased to announce that agreements have been concluded, subject to certain conditions
precedent, to acquire three separate financial technology companies (i) African Resonance Business
Solutions (Proprietary) Limited (“African Resonance”), (ii) Rinwell (Proprietary) Limited (“Rinwell”), the
sole shareholder of Dashpay (Proprietary) Limited (“Dashpay”), and (iii) Synthesis Software
Technologies Proprietary Limited (“Synthesis”). These enterprises provide a variety of technology
solutions, services and related technical support services to financial institutions and others in the
financial services sector.
Companies that cater to the technology needs of established institutions and new entrants in the
financial services sector or support the technology infrastructures used by these institutions to deliver
services to their clients, are commonly known as “FinTech” companies. CAPPREC has concluded
that FinTech is an exciting industry sector that satisfies its investment interests and objectives.
CAPPREC believes that the sector offers good growth potential as well as further investment and
acquisition opportunities to broaden its portfolio of services offered to clients and create shareholder
value.
CAPPREC further recognises the transformational power of financial technology and its potential to
effect economic and social change among the economically disadvantaged of the world, particularly
on the African continent. In this regard, Black Economic Empowerment (BBBEE), and transformation
in general, was a deliberate cornerstone imperative in the constitution of CAPPREC and will continue
to feature prominently in the future growth and development plans for CAPPREC. Apart from the present
“inclusive” BEE share ownership in CAPPREC (at approximately 48%), models for further BEE
ownership and participation will continue to be prioritised.
2. THE PROPOSED AFRICAN RESONANCE AND RINWELL TRANSACTIONS
CAPPREC has entered into an agreement to acquire 100% of the issued shares of African Resonance
for an aggregate purchase consideration of R525 million (the "African Resonance Acquisition") to be
settled by (i) an aggregate cash payment of R295 million; and (ii) the issue of an aggregate of
230 million CAPPREC shares at R1.00 per share (the "AR Consideration Shares"). CAPPREC will
acquire the African Resonance shares from Professor Hanoch Neishlos, Mr Wayne Brett Fagan, Mr
Edmund Pieterse and Safika Holdings (Proprietary) Limited.
CAPPREC has simultaneously entered into an agreement to acquire 100% of the issued shares of Rinwell
for an aggregate purchase consideration of R225 million, payable in cash (the "Rinwell Acquisition",
and together with the African Resonance Acquisition, are referred to herein as the “AR-DP Acquisitions”).
CAPPREC will acquire the Rinwell shares from Castledash Investment Holdings Limited.
Concurrent with the AR-DP Acquisitions, CAPPREC has agreed to invest in Resonance Australia Pty
Ltd (“Resonance Australia”) and will subscribe for 17.45% of the issued shares of Resonance
Australia. Resonance Australia is a new entrant in the Australian payment technology market, the
enterprise intending to provide services and solutions to institutions and clients similar to those
solutions and support services provided by African Resonance and Dashpay in South Africa. The
investment for the subscription of shares (and the proportional loan capital to be advanced) will amount
to approximately R 36 million.
3. THE PROPOSED SYNTHESIS TRANSACTION
CAPPREC has entered into an agreement to acquire 100% of the issued shares of Synthesis for an
aggregate purchase consideration of R142.3 million (the "Synthesis Acquisition") to be settled by (i)
an aggregate cash payment of R82.3 million; and (ii) the issue of an aggregate of 60 million CAPPREC
shares at R1.00 per share (the "Synthesis Consideration Shares"). CAPPREC will acquire the
Synthesis shares ("Synthesis Shares") from Michael Shapiro, Jake Shepherd, Thomas Wells and
Steyn Basson (collectively the "Synthesis Vendors"). Synthesis has also provided CAPPREC with a
profit warranty that, if achieved prior to the end of fiscal 2020, may result in CAPPREC paying the
Synthesis Vendors an additional R10 million in cash and issuing the Synthesis Vendors an additional
30 million CAPPREC shares (at R1.00 per share) (subject to adjustment for dilutionary events as
defined in the agreement).
4. INFORMATION ON AFRICAN RESONANCE AND RINWELL’S SUBSIDIARY, DASHPAY
Within the FinTech sector there are several sub-sectors, which include inter alia, “Payments and
Payment Infrastructure”. Payments and Payment Infrastructure is a large and growing part of global
economies. This is equally relevant in South Africa and increasingly so across the African continent.
Factors driving this growth are being stimulated by mobile communications, growing consumer interest
in and exposure to the benefits of digital currency, and a growing choice of applications, including:
- Increasing Adoption of and Comfort with Card Based and Digital Currency - There is an
increasing consumer comfort with digital currency and the seamless experience in new forms of
payment delivery (including card based payments). In Emerging Markets there is increasing
focus on financial inclusion and the promise of more cost effective services brought about
through technology. With increasing consumer acceptance, Governments recognize that
electronic payments reduce corruption, increase accountability, boost financial inclusion, reduce
fraud and enhance security. The secular shift away from the use of cash has grown and
continues to accelerate.
- Changes in Consumer Behaviour - Increasing “mobile-first” habits, the willingness of
consumers to share personal experiences and data, and the desire for highly curated information
characterize an increasingly larger portion of consumers. This is driving consumers to demand
more from the institutions with whom they interact and on whom they rely for financial
transactions. Consumers have increased expectations of immediate and more bespoke
experiences.
- Changes in Retailer Requirements - Retailers and other market participants are seeking more
direct and individualized relationships with their customers / patrons. Big data and multi-channel
retailing are driving retailers to seek more tailored, cost effective solutions to enhance their
customer experiences.
- Regulation and Security Concerns - Regulation and threats to security continue to drive
payment infrastructure participants to refresh their systems with more security and more
protective technology platforms.
African Resonance and Dashpay, on behalf of and in association with their institutional clients, are well
positioned to (i) respond to changing market and institutional clients’ end-market customer needs, (ii)
help clients to expand the applicability and versatility of electronic and card payments, (iii) innovate, and
(iv) deliver cost effective solutions to institutional clients and others in South Africa and across the rest of
Africa.
African Resonance is a leading provider of payment infrastructure and related services to established
financial institutions, emerging payment service providers, the hospitality industry and retail operators.
African Resonance designs, develops and implements end-to-end solutions, including full service device
fleet management, to its institutional clients and corporate customers. African Resonance supplies
electronic point-of-sale and like devices, and provides merchants with a single device capable of
providing both banking and non-banking products and services. Over a period of 14 years African
Resonance has evolved into a well-established, reputable and growing company with a range of
customer and supplier relationships, a skilled and motivated team of employees and established
operating processes. This is supported by access to a sophisticated and strategically valuable
technology platform utilised to offer their institutional clients secure, cost effective, market-leading
customer service levels and innovative products and solutions in the South African payments market.
- Established Blue Chip and Emerging Customer Base – Since its formation, African
Resonance has concluded supply and service arrangements with most of the leading retail
banks in South Africa, for the supply of payment related equipment and services. Collectively
these institutions account for the vast majority of payments processed in retail environments
in South Africa. African Resonance has also concluded relationships with other smaller
financial institutions, the hospitality industry and other participants in the payments value
chain.
- Established Relationship with Leading, World Class Suppliers – African Resonance has
an established and long-standing relationship with the leading manufacturer and supplier of
payment devices. Ingenico Group, based in France, is the world’s leading manufacturer of
payment terminals and a provider of seamless payment solutions. African Resonance is
regarded and recognised as a centre of excellence for Ingenico, both as distributor and
through its skilled customer service and maintenance capacity.
- Exclusive Access to Proprietary Technology – African Resonance has invested heavily in
its technology platforms and has the exclusive right to use a suite of infrastructure and terminal
fleet enterprise management solutions in South Africa. Forming part of the African Resonance Acquisition,
these exclusive rights have been expanded to cover the provision of services
throughout Africa. These technologies allow African Resonance to manage, within a single
workflow management platform, a terminal estate business covering remote merchant
management, contract management, workflow management, asset management, call centre
logging, problem resolution management, SLA management, terminal despatch and activation
of banking and non-banking products.
Dashpay was initially conceived as a traditional merchant acquirer when first established in 2013.
Since that time a significant amount has been invested in the development of Dashpay’s systems and
technology, with further resources being allocated to complete its multi-product transacting platform,
essentially for the facilitation of Business-to-Business payment related products in conjunction with its
insitutional client base. Dashpay presently operates within the South African national payments
infrastructure, continually broadening its market reach, while concurrently establishing and securing
the transaction capacity of its technology platforms. Dashpay services are ideally suited to serving the
rapidly changing needs for secure payment systems, and financial management across Africa.
CAPPREC recognises the high demand and potential growth in those destinations.
Traditional financial institutions and financial services companies, often constrained by legacy systems
and platforms, have for various reasons struggled to respond to changing customer needs or provide
innovative payment related services to non-traditional merchants, be they retailers, wholesalers, other
independent vendors, and more particularly SMMEs. Dashpay’s technology platforms are
adaptable and compatible with electronic point of sales devices and state of the art switching and
processing capabilities. These can be offered directly to SMME retailers and suppliers to SMME
retailers to expand this presently underserviced market in which electronic payments, secure recovery
and other financial service products, disciplines and controls could become helpful and applicable.
5. INFORMATION ON SYNTHESIS
Synthesis, founded in 1997, offers highly specialised software development, consulting and integration
services and technology based product solutions to banking and other financial institutions in South
Africa and other emerging markets. Synthesis’ products and services enable clients to perform
business processing functions, meet regulatory requirements, integrate with trading platforms and
exchanges and secure sensitive information.
Synthesis’ development and consulting initiatives are responsive to the commercial and technology
imperatives of the institutional financial services clients that it serves. Executed in close collaboration
with their clients, the Synthesis Digital Channel Initiatives deliver an exceptional end-user customer
experience while maintaining information security and transaction integrity.
Synthesis is an accredited AWS Consulting Partner and Synthesis’ “cloud transformation” initiatives
assist their clients in becoming “cloud ready”, to execute mass migrations, to harness the benefits of
big data analytics and to extract the cost savings and regulatory benefits of compliance. This is an
increasing priority for financial services institutions across Africa.
Synthesis’ product solutions for banks and financial services institutions include online banking
solutions and regulatory reporting solutions for both SARS (tax) and SARB (balance of payments).
There is an increasing regulatory and reporting burden being imposed on financial institutions in the
banking, insurance and securities industries. Banks and other providers of consumer facing financial
services are increasingly investing in systems and service offerings to respond to ever more
demanding customer needs. This presents a compelling growth opportunity for Synthesis. These
products also have global application and have led to international expansion opportunities for
Synthesis.
6. RATIONALE FOR THE ACQUISITIONS
CAPPREC was established for the purpose of pursuing acquisitions of, and investments in,
commercial enterprises with good growth potential. African Resonance and Dashpay (in association)
are uniquely positioned to capitalise on their technologically innovative products and competencies
within the South African payment sector. Both African Resonance and Dashpay are also uniquely
placed for expansion into the rest of Africa. Synthesis is equally well positioned to capitalise on the
need for financial institutions to invest in innovation, to increase customer reach, to reduce operating
costs and to enhance regulatory compliance.
The African Resonance Acquisition, the Rinwell Acquisition and the Synthesis Acquisition provide
CAPPREC with a real prospect of achieving its stated purpose on listing, the delivery of long-term
value for CAPPREC shareholders.
7. SIGNIFICANT TERMS OF THE TRANSACTIONS
The African Resonance Acquisition and the Rinwell Acquisition are inter-conditional and will, on
successful implementation, constitute the acquisition by CAPPREC of a Viable Asset. The effective
date of the African Resonance Acquisition and the Rinwell Acquisition respectively, shall be the 5th
business day following the date on which all of the conditions precedent in each of the African
Resonance Acquisition sale of shares agreement ("African Resonance Acquisition Agreement") and
the Rinwell Acquisition sale of shares agreement ("Rinwell Acquisition Agreement") have been fulfilled
or waived, as the case may be, or such other business day as agreed between the relevant parties.
The Synthesis Acquisition, on successful implementation, could similarly constitute the acquisition by
CAPPREC of a Viable Asset. The effective date of the Synthesis Acquisition shall be the 5th business
day following the date on which all of the conditions precedent in the Synthesis Acquisition sale of
shares agreement ("Synthesis Acquisition Agreement") have been fulfilled or waived, as the case may
be, or such other business day as agreed between the relevant parties.
The vendors in respect of each of the African Resonance Acquisition, the Rinwell Acquisition, and the
Synthesis Acquisition have provided warranties and indemnities to CAPPREC, consistent with those
customarily provided in transactions of this nature.
8. CONDITIONS PRECEDENT
The African Resonance Acquisition Agreement is subject to, inter alia, the following conditions
precedent:
- the Rinwell Acquisition Agreement becoming unconditional in accordance with its terms;
- written approval for the African Resonance Acquisition being obtained from the relevant
Competition authorities;
- no material adverse change having arisen or occurred between the signature date of the African
Resonance Acquisition Agreement and the date upon which all conditions precedent are fulfilled;
- approvals for the African Resonance Acquisition being obtained in writing (where necessary) from
counterparties to all of the material contracts of African Resonance;
- approval by CAPPREC shareholders of the terms of the African Resonance Acquisition,
including, inter alia, approval for the issue and allotment of the AR Consideration Shares; and
- approval from the JSE for the African Resonance Acquisition, including approval for the listing of
the AR Consideration Shares on the main board of the Securities Exchange operated by the JSE.
The Rinwell Acquisition Agreement is subject to, inter alia, the following conditions precedent:
- the African Resonance Acquisition Agreement becoming unconditional in accordance with its
terms;
- written approval for the Rinwell Acquisition being obtained from the relevant Competition
authorities;
- no material adverse change having arisen or occurred between the signature date of the Rinwell
Acquisition Agreement and the date upon which all conditions precedent are fulfilled;
- the approval by CAPPREC shareholders of the Rinwell Acquisition; and
- approval from the JSE for the Rinwell Acquisition.
The Synthesis Acquisition Agreement is subject to, inter alia, the following conditions precedent:
- no material adverse change having arisen or occurred between the signature date of the
Synthesis Acquisition Agreement and the date upon which all conditions precedent are fulfilled;
- approvals for the Synthesis Acquisition being obtained in writing (where necessary) from
counterparties to all of the material contracts of Synthesis;
- satisfactory completion of the due diligence exercise currently underway;
- approval by CAPPREC shareholders of the terms of the Synthesis Acquisition, including, inter
alia, approval for the issue and allotment of the Synthesis Consideration Shares; and
- approval from the JSE for the Synthesis Acquisition, including approval for the listing of the
Synthesis Consideration Shares on the main board of the Securities Exchange operated by the
JSE.
Conditions precedent to the African Resonance Acquisition Agreement, the Rinwell Acquisition
Agreement and the Synthesis Acquisition Agreement respectively, which encompass Regulatory
requirements for approval are not capable of waiver.
9. FINANCIAL EFFECTS OF THE ACQUISITIONS
African Resonance and Synthesis each have a fiscal year ending 28 February while the Rinwell fiscal
year end is 30 June. Accordingly, the following historical information has been extracted from the
companies’ unaudited management accounts as of the dates specified, in each case reviewed by the
respective company’s auditors. The value of net assets of African Resonance and Synthesis as of 31
August 2016 was approximately R58.9 million and R17.0 million respectively and the value of net
assets for Rinwell as of 30 June 2016 was R7,8 million. With respect to African Resonance and
Synthesis, the profit after tax for the 6 months ending 31 August 2016 was approximately R25,4 million
and R9,6 million, respectively, and, with respect to Rinwell’s wholly owned and only subsidiary,
Dashpay, for the 6 months ending 30 June 2016, the loss before and after tax was approximately R5,3
million. After tax profits for African Resonance has more than doubled in each of the fiscal years 2015
and 2016 and the growth in after tax profits for Synthesis was more than 25% in each of the fiscal
years 2015 and 2016.
The audited financial statements at the date of the last three reporting periods for each of African
Resonance, Rinwell and Synthesis will be included in the CAPPREC Circular and Notice of General
Meeting to Shareholders for purposes of approving resolutions relating to the subject transactions.
The financial year ends for each of African Resonance, Rinwell, Dashpay and Synthesis are to be
changed to 31 March and, as such, the audited results for the year ending 31 March 2018 will be the
first audited consolidated financial results that reflect the integrated operations of the companies as a
group.
After the subject transactions have been concluded, assuming shareholders approve CAPPREC
retaining the residual capital, CAPPREC will have approximately R420 million in cash for further
investment and potential acquisitions.
10. CATEGORISATION
The AR-DP Acquisitions qualify as a Category 1 acquisition (as well as an acquisition of a Viable
Asset) for CAPPREC in terms of the JSE Listings Requirements. The Synthesis Acquisition similarly
qualifies as an acquisition of a Viable Asset for CAPPREC in terms of the JSE Listings Requirements.
Consequently, a Shareholders' Circular, setting out full details of the AR-DP Acquisitions and the
Synthesis Acquisition (including revised listing particulars for CAPPREC post completion of the AR-
DP Acquisitions and the Synthesis Acquisition) will be distributed to CAPPREC shareholders in due
course.
Following the successful conclusion of the AR-DP Acquisitions and/or the Synthesis Acquisition, the
JSE will no longer classify CAPPREC as a SPAC and, subject to the approval of the JSE, CAPPREC
will appear on the Main Board of the JSE Lists.
11. APPROVAL BY DISINTERESTED DIRECTORS
The Independent Non-Executive directors of CAPPREC have unanimously approved, separately and
collectively, the AR-DP Acquisitions and the Synthesis Acquisition.
12. SUBSIDIARY COMPANIES
Following the implementation of the African Resonance Acquisition, the Rinwell Acquisition and the
Synthesis Acquisition, respectively, each of African Resonance, Rinwell (indirectly Dashpay) and
Synthesis will become wholly-owned subsidiaries of CAPPREC. Accordingly, the memorandum of
incorporation of each will comply with paragraph 10.21 of Schedule 10 of the Listings Requirements
to the extent required.
16 February 2017
Johannesburg
DIRECTORS
M. Sacks* (Non-Executive Chairman), M. Pimstein (Joint Chief Executive), B. Sacks (Joint Chief
Executive), A. Salomon (Chief Financial Officer), Ms. B. Bulo*, J.M. Kahn*, Dr. D. Matjila*, R. Morar*, V.
Sekese*, C. Valkin*
* Non-Executive Directors
Sponsor: Investec Bank Limited
Legal advisors to Capital Appreciation: Webber Wentzel
Legal advisors to African Resonance and Rinwell: Hogan Lovells
Legal advisors to Synthesis: Werksmans Attorneys
Auditors to Capital Appreciation: Ernst and Young
Auditors to African Resonance and Rinwell: Grant Thornton
Auditors to Synthesis: BDO South Africa
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