ACCENTUATE LIMITED - Acquisition of the shares in and claims against, Pentafloor Proprietary Limited

Acquisition of the shares in and claims against, Pentafloor Proprietary Limited

Accentuate Limited
Incorporated in the Republic of South Africa
(Registration number 2004/029691/06)
JSE Share code: ACE
ISIN Code: ZAE000115986
(“Accentuate” or “the Company” or “the Group”)

ACQUISITION OF THE SHARES IN AND CLAIMS AGAINST, PENTAFLOOR PROPRIETARY LIMITED

1. Introduction

1.1.    Accentuate is pleased to announce the conclusion of a binding Heads of Agreement (“the
        Agreement”) on 11 May 2017 with Bianca Shakinovsky and Larry Shakinovsky (“the
        Sellers”), in terms of which Accentuate will, through a subsidiary acquire the entire issued
        share capital of Pentafloor Proprietary Limited (“Pentafloor”) for an amount of R20 million
        and a deferred amount of up to R20 million (“the Acquisition”).

2. Background of Pentafloor

2.1.    Pentafloor is a leading competitor in the access flooring market in South Africa. Pentafloor
        was established by the sellers in 2005 and has grown significantly over the years. Pentafloor
        owns several key brands in the South African flooring market namely Lafarge Access
        Flooring, Solidfeel and Pentafloor Access Flooring. Pentafloor is also the sole South African
        agent for Shaw Contracting, a leading global commercial carpet company.

2.2.    Access flooring is used in most commercial developments to meet the requirement of
        underfloor infrastructure and cabling.

2.3.    Pentafloor imports access flooring systems from China and manufacturers its own access
        flooring systems at a manufacturing facility in Wynberg, Johannesburg (leased from and
        owned separately by Green Fingers Property Trust of which the sole beneficiaries are the
        Sellers).

2.4.    Pentafloor has provided access flooring to several blue chip corporate developments,
        namely:

           -   Discovery head office development (Sandton, Johannesburg);
           -   Sasol head office development (Sandton, Johannesburg);
           -   First National Bank, data centre (Ferndale, Randburg); and
           -   Old Mutual (Sandton, Johannesburg).

2.5.    Pentafloor has supplied over 350 000 sqm of access flooring into the South African market
        over the past five years. Pentafloor exports approximately 15% of its flooring systems into
        the African market.

2.6.    Pentafloor has approximately 80 000 sqm of access flooring under contract to be delivered
        during their financial year ending February 2018.

3. Rationale for the Acquisition

3.1.    The Acquisition is part of a long-term strategy of targeted acquisitions formulated by
        Accentuate. Accentuate occupies a market leading position in the manufacturing of vinyl
        flooring in South Africa and has extensive experience in the flooring market through its
        Floorworx division. Pentafloor’s business is complementary to Accentuate’s Floorworx
        division and will enhance Accentuate’s product diversification and offering.
3.2.    The Acquisition will be earnings enhancing for Accentuate and will offer the following
        additional benefits:

           -     additional management talent in the flooring market;
           -     exposure to the growing access flooring market;
           -     synergy benefits from the rationalisation of duplicate operating costs;
           -     larger operational and manufacturing scale and synergies; and
           -     enhanced product offering across the Group.

4. Effective date

4.1.     The closing date of the Acquisition shall be the date upon which the last of the conditions
         precedent are fulfilled or waived (“Closing Date”) and the implementation date shall be the
         first calendar day of the month following the closing date (“Implementation Date”).

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

5. Purchase consideration

5.1.     The purchase consideration for the Acquisition (“Purchase Consideration”) will be settled
         as follows:

5.2.     Accentuate will pay R20 000 000 (“Initial Payment”) on the Implementation Date to the
         Sellers.

5.3.     The Initial Payment will be settled by way of R16 000 000 in cash and the balance by way of
         an issue of 5 063 292 Accentuate new ordinary shares at an issue price of 79 cents per
         share or the closing price per Accentuate share as at close of business on the day prior to
         the signature date of the final agreements, whichever is the greater (“Initial Payment
         Shares”). The Sellers shall be restricted from selling the Initial Payment Shares for a period
         of 15 months and thereafter shall only be entitled to sell fifty percent in any one calendar
         year. The Sellers shall first offer any Initial Payment Shares intended to be sold to
         Accentuate at the applicable 30 day volume weighted average price (“VWAP”).

5.4.     Accentuate will make two additional payments to the Sellers based on the following
         conditions and subject to a maximum Purchase Consideration of R40 000 000:

           5.4.1.     A payment of up to R10 000 000 (“First Additional Payment”) will be based on
                      Pentafloor achieving a minimum profit after tax of R6 600 000 for the 12 months
                      ending February 2018 (“2018 Earnings Target”).

           5.4.2.     Should the actual profit after tax achieved be less than the 2018 Earnings Target
                      for the 12 months ending February 2018, no First Additional Payment will be
                      payable.

           5.4.3.     The First Additional Payment will be settled by no later than the 10th business
                      day following the audit of Pentafloor’s financial statements for the 12 months
                      ending February 2018.

           5.4.4.     A second additional payment of up to R10 000 000 (“Second Additional
                      Payment”) will be based on Pentafloor achieving a profit after tax of R7 350 000
                      for the 12 months ending February 2019 (“2019 Earnings Target”).

           5.4.5.     Should the actual profit after tax achieved be less than the 2019 Earnings Target
                      for the 12 months ending February 2019, no Second Additional Payment will be
                      payable.
           5.4.6.     The Second Additional Payment will be settled by no later than the 10th business
                      day following the audit of Pentafloor’s financial statements for the 12 months
                      ending February 2019.

5.5.     The second additional payment will be settled in cash or a combination of cash and shares,
         in Accentuate’s discretion, and settled on the applicable date. Any Accentuate shares issued
         in settlement of the additional payments will be issued at the 30 day VWAP prior to the
         applicable date.

5.6.     The Sellers shall first offer any shares intended to be sold by them subject to the time
         restrictions referred to herein, to Accentuate at the applicable 30 day VWAP, with such offer
         being open for acceptance by Accentuate within 30 days.

5.7.     Accentuate intends to finance the Purchase Consideration by way of cash, bank debt and
         the issue of new shares as indicated above.

6. Conditions precedent

6.1.     The Acquisition is subject to the fulfilment or, where applicable, waiver, of the following
         conditions precedent by no later than 16 June 2017:

6.2.     approval of the Acquisition by Accentuate’s board of directors;

6.3.     conclusion of the final legal agreements, which will contain standard warranties and
         indemnities for a transaction of this nature;

6.4.     Accentuate notifies the Sellers that it is satisfied with the results of its due diligence
         investigation into Pentafloor;

6.5.     that, to the extent required, all regulatory and statutory approvals and/or waivers be
         obtained;

6.6.     that the Sellers entered into new employment contracts with Pentafloor to the satisfaction of
         Accentuate;

6.7.     the Sellers signing restrained of trade agreements for a period of three years following their
         termination or cancellation of their employment with Pentafloor;

6.8.     that the main suppliers to Pentafloor consent to the change in shareholding of Pentafloor;

6.9.     to the extent necessary, the written consent of third parties to material contracts of
         Pentafloor, agreeing to the change in ownership of Pentafloor;

6.10.    Accentuate is entitled to waive fulfilment, wholly or in part, any of the conditions precedent
         referred to in paragraphs 6.1 to 6.8 above.

7. Warranties and indemnities

7.1.     The Sellers and Pentafloor are providing detailed warranties and indemnities to Accentuate
         that are standard for a transaction of this nature.

7.2.     The Sellers warrant that Pentafloor will have a net asset value of R6,5 million on the
         Effective Date and a minimum cash balance of R6,2 million.

8. Net assets and profits of Pentafloor

8.1.     The value of the net assets of Pentafloor was R6.5 million and the profit after tax for
         Pentafloor’s most recent financial year ended 28 February 2017 was R6.1 million.
8.2.     The financial information contained in this announcement has not been reviewed or reported
         on by Accentuate’s auditors.

9. Categorisation of the acquisition

9.1.     The acquisition is categorised, in terms of the JSE Listings Requirements, as a Category 2
         transaction and does not require shareholders’ approval.

Johannesburg
15 May 2017

Designated Advisor: Bridge Capital Advisors Proprietary Limited
Legal Advisor: Fullard Mayer Morrison Attorneys

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