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Disposal of Jasco's Property Technology Management Division
JASCO ELECTRONICS HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration Number: 1987/003293/06)
Share Code: JSC ISIN: ZAE000003794
("Jasco" or “the Group”)
DISPOSAL OF JASCO’S PROPERTY TECHNOLOGY MANAGEMENT DIVISION
1 INTRODUCTION
Shareholders are advised that Jasco, through its wholly owned subsidiary Jasco Networks
Proprietary Limited (the “Seller”), have entered into a Sale of Business Agreement (“Disposal
Agreement”) with Reach Group Proprietary Limited (the “Purchaser” or the “Reach Group”) through
which the Purchaser will acquire, the business of professional ICT infrastructure management
services, in the Property Technology Management division (“PTM”) from the Seller, for a total
transaction consideration of R7 500 000 (the “Disposal Consideration”).
2 BACKGROUND TO PTM
PTM was a start-up business in 2013 when Mark Swemmer (“Swemmer”) together with his
consultancy company Wi-Cloud Proprietary Limited (“Wi-Cloud”) had started consulting to Jasco,
who had the adequate know-how and access to property owners and managers nationally.
Combining Swemmer’s property management experience with Jasco’s design, planning, installation
and managing of ICT infrastructure and converged solutions, which allowed landlords access to a
turnkey solution. The PTM start-up venture formed part of the Seller and Jasco saw the potential to
gain access to buildings and landlords in order to upsell other Jasco Group products and services.
To date very little and few opportunities however came about for other Jasco Group lines of
business.
Today the PTM business is a professional services business that enables property owners to
leverage their existing rooftops, enhance their alternate revenue streams and offer a complete
turnkey ICT Infrastructure management solution to landlords and property managers typically
focused on rooftops and outdoor areas of buildings.
The PTM service includes lease management, infrastructure database and site audit, energy
consumption, labelling schemes, installation authorisation procedures, quality control, aesthetics,
health and safety, regulatory compliance, rooftop container management, cellular operator towers
and masts, as well as cabling. Furthermore, PTM also evaluates each new installation proposal in
accordance with that site specific ICT infrastructure roll out plan.
The PTM business currently manages more than 650 properties across South Africa and is a very
administratively intensive business. The PTM business headcount is currently six, with three
employees employed by Jasco and the rest through Wi-Cloud.
3 BACKGROUND TO THE PURCHASER
The Reach Group was established by Mark Swemmer with his vast experience in property
development, ownership and management, coupled with his telecommunications legal background
and along with his dynamic team of specialists. Swemmer approached Jasco to initiate a
management buy-out of the PTM business as a going concern together with his group owned
companies, namely Wi-Cloud Proprietary Limited, Blue Nightingale Properties Proprietary Limited
and Twoline Trading 529 Proprietary Limited (the “Parties”), which subsequently led to the Sale of
Business Agreement that has been entered into between Jasco, the Purchaser and the Parties.
The Reach Group is a specialist company that provides communications infrastructure management
solutions throughout South Africa to landlords, property managers and telecoms providers that
enable landlords to optimise their alternative leasing areas and telecoms service providers to extend
their coverage to drive business success.
4 BACKGROUND AND RATIONALE FOR THE DISPOSAL
The PTM business model has become stale to Jasco and a non-core business unit, leading to threats
of insourcing and continuous price reduction pressures from clients and increased administrative
burden of the business.
The PTM business is increasingly under pricing pressures from the major property companies in the
current environment where their traditional gross lettable area (GLA) rental income is under severe
pressures.
The business model differs from the Group’s Hi Sites and Property Solutions business in that PTM
does not lease the rooftops for its own purposes of securing multiple customers on each site. PTM
is a professional lease management business which charges management and service fees
whereas Jasco’s Hi Sites and Property Solutions is an infrastructure owning business generating its
own rental streams. Jasco will retain access to the PTM rooftop sites through the Property Solutions
business in order to take advantage of the expected 5G rollout as more spectrum is released to the
mobile network operators.
Jasco, as the technology partner, will enter into strategic agreements with the Reach Group and Wi-
Cloud who in turn will provide marketing and lease administration services to Jasco.
The administrative demand of the lease order book has grown substantially in recent years (2017 to
2019) which has increased the cost of the overhead resources in recent financial years, therefore
the PTM business is more susceptible to a lack of profitability when revenue reduces sharply as was
the case in the 2020 financial year.
The PTM business is highly dependent on one individual, namely Mark Swemmer, and the proposed
disposal and strategic agreement will ensure the sustainability of the PTM business in the future.
5 KEY TERMS OF THE DISPOSAL
5.1 Disposal Agreement
The key terms, Disposal Consideration, conditions precedent and effective date of the Disposal
Agreement are detailed below:
5.1.1 Key terms
The PTM business is to be acquired by the Purchaser, which is a professional ICT
infrastructure management services business, focused on rooftops, towers and outdoor
areas, which includes lease management, infrastructure database and site audit, energy
consumption, labelling schemes, installation authorisation procedures, quality control,
aesthetics, health and safety, regulatory compliance, rooftop container management,
cellular operator towers and masts, as well as cabling, which currently has approximately
650 properties under management; and which is conducted as a going concern (the
“Business”).
5.1.1.1 Sale Assets
The sale assets consists of the following:
- all contracts in respect of or relating to the Business in existence as at the
Effective Date and which shall include without limitation all material contracts,
customer contracts, lease agreements, credit agreements, unexecuted or
partially executed orders and tenders (whether they are awaiting adjudication or
in respect of which contracts have been awarded) as specifically detailed in the
Disposal Agreement and including the existing order book (“Contracts”);
- those fixed assets owned and used by the Seller in connection with the Business
as at the effective date as reflected in the Disposal Agreement (“Fixed Assets”);
- all goodwill in and relating to the Business as at the effective date (“Goodwill”);
and
- all right, title and interest in and to any copyright, provisional or complete patents,
registered or pending designs, licences, registered or unregistered trademarks
and trading names, registered domain names, all services, marketing, design
and report templates, process & operational designs, commercial models,
emails & digital files, storage, current databases of all audits, tenants and
building information, all agreement templates (including but not limited to service
and lease agreements), and any information or technical know-how owned or
used in connection with the Business and its operation as at the Effective Date,
at all times subject to the “Jasco” name being excluded (“Intellectual Property”);
(Together the “Sale Assets”)
5.1.1.2 Retained Assets
The Disposal Agreement, specifically excludes:
- Debtors to the value of R1 038 769:
- Loans receivables of R386 165;
- Cash in the bank of R182 569; and
- Other assets of R134 459.
5.1.1.3 Liabilities
The liabilities transferred consist of the following:
- Leave pay due to the employees transferred to the Purchaser of R68 620.
The Disposal Agreement contains legal warranties and indemnities which are
considered normal in respect of a transaction of this nature.
5.1.2 Services Agreement
Jasco Property Solutions Proprietary Limited (“JPS”) and Wi-Cloud will enter into a new
written services agreement in terms which Wi-Cloud will continue to provide property
management and support services to JPS on terms which are acceptable to Wi-Cloud,
JPS, the Purchaser and the Seller (“Services Agreement”).
5.1.3 The Disposal Consideration
The disposal consideration payable by the Purchaser to the Seller in respect of the
Business is a maximum of R7 500 000 (“Disposal Consideration”).
Payment of the Disposal Consideration is subject to the Seller performing all its
obligations under the Disposal Agreement required to be performed by it, by 5 business
days after the fulfilment or waiver of the Conditions precedent detailed in paragraph 5.1.4
below (the “Closing Date”) and will be discharged as follows:
- R3 000 000.00 by no later than Monday, 7 June 2021 (“Execution Payment”),
provided that should this Agreement not become unconditional, the Execution
Payment will be refunded to the Purchaser within 30 days of written demand from
the Purchaser together with any pro-rata interest earned, charged at the prime
lending rate of South Africa plus 2% (two percent) calculated from the Execution
Payment date until repayment date;
- R3 000 000.00 by no later than seven days after the Closing Date (Closing Date
Payment);
- R500 000.00 by no later than 30 days after receipt by the Seller of the April 2022
audited Financial Statements (First Tranche Payment);
- R500 000.00 by no later than 30 days after receipt by the Seller of the April 2023
audited Financial Statements (Second Tranche Payment); and
- R500 000.00 by no later than 30 days after receipt by the Seller of the April 2024
audited Financial Statements (Third Tranche Payment).
The First Tranche Payment will only be payable, if the Purchaser achieves a targeted
annual revenue, for the period commencing on 1 May 2021 and ending on 30 April 2022,
of R7 million or more.
The Second Tranche Payment will only be payable, if the Purchaser achieves a targeted
annual revenue, for the period commencing on 1 May 2022 and ending on 30 April 2023,
of R7 million or more.
The Third Tranche Payment will only be payable, if the Purchaser achieves a targeted
annual revenue, for the period commencing on 1 May 2023 and ending on 30 April 2024,
of R7 million or more.
The Disposal Consideration will be paid by the Purchaser to the Seller in cash.
The sale proceeds will be utilised by Jasco to fund working capital requirements related
to new project rollouts in the Communications and Intelligent Solutions businesses.
5.1.4 Conditions Precedent
The Disposal Agreement, is subject to the fulfilment of the following conditions
precedent by no later than the dates and times set out below or such later date as is
agreed in writing by the parties:
- by no later than 30 July 2021, a cession and delegation of the Material Contracts
to the Purchaser with effect from the effective date or in the alternative the
Purchaser concluding a new contract with the other party/ies to each of the Material
Contracts upon terms acceptable to the Purchaser in substitution for the relevant
existing Material Contract;
- by no later than 30 July 2021, the execution of the Services Agreement between
the parties thereto, which Services Agreement will be conditional in all respects
upon the fulfilment or waiver, as the case may be, of the conditions precedent in
this Agreement, and will take effect on the date upon which this Agreement takes
effect; and
- by no later than the 30 July 2021, the execution of written agreements in terms of
section 197(6) of the Labour Relations Act, 1995, between the parties and each of
the relevant employees, in terms of which the employees contracts of employment
will be transferred to Wi-Cloud in accordance with the provisions of the Disposal
Agreement.
5.1.5 Effective date
The effective date, subject to the fulfilment or waiver of the conditions precedent, is 1
May 2021.
6 PROFIT AND NET ASSET VALUE ATTRIBUTABLE TO PTM
Shareholders are advised that net assets of the PTM division included in the audited annual financial
statements of Jasco for the 12 months ended 30 June 2020, was -R75 000. The net operating profit
after tax attributable to the net assets of PTM for the same period was R256 000. The audited annual
financial statements for the 12 months ended 30 June 2020 were prepared in accordance with IFRS.
7 CATEGORISATION OF THE DISPOSAL
The Disposal constitutes a category 2 disposal in terms of the Listings Requirements of the JSE
Limited, and is therefore not subject to Jasco shareholder approval.
Midrand
3 June 2021
JSE Sponsor
Grindrod Bank Limited
Date: 03-06-2021 08:30:00
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