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TELEMASTERS HOLDINGS LIMITED - Related Party Acquisitions of Contineo Virtual Communications and Perfectworx Consulting

Release Date: 29/06/2020 17:44
Code(s): TLM     PDF:  
 
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Related Party Acquisitions of Contineo Virtual Communications and Perfectworx Consulting

TELEMASTERS HOLDINGS LIMITED
(Registration Number: 2006/015734/06)
JSE Code: TLM ISIN: ZAE 000093324
(“TeleMasters” or “the Company”)


RELATED PARTY ACQUISITIONS OF CONTINEO VIRTUAL COMMUNICATIONS (PTY) LTD
(“CONTINEO”) AND PERFECTWORX CONSULTING (PTY) LTD (“PERFECTWORX”)


Introduction
The Board is pleased to announce that the Company has entered into two separate, but
indivisible agreements in terms of which it will acquire, with effect from 1 July 2020, the entire
shareholding in and claims against Contineo from Messrs Jaco Voigt (“Voigt”) and Laurent
Pieton (“Pieton”) (“Contineo Acquisition”) for a maximum purchase consideration of
R15 150 000 (fifteen million one hundred and fifty thousand Rand) and the entire shareholding in
and claims against Perfectworx from Voigt (“Perfectworx Acquisition”) for a maximum purchase
consideration of R1 350 000 (one million three and fifty thousand Rand) (together,
the “Acquisitions”).

Overview of the Acquisitions
Contineo
Contineo is a leading provider of world-class wholesale Cloud Communications solutions in
South Africa. The company provides a virtual Unified Communications platform that enables
businesses to quickly manage and share information of all types between mobile employees,
virtual teams and dispersed customers.

Perfectworx
Perfectworx is a networking systems integrator specialising in next generation IP voice
technologies. Through its technology, the company is able to provide a complete technical
solution to its clients in order to maximise the value, efficiency and performance of their voice
network operations.

Rationale for the Acquisitions
During 2019, TeleMasters diversified its busines model adding connectivity, cloud services and
security to its traditional communications services in order to provide a complete digital
transformation solution to its customers thereby enabling them to unlock busines value and
drive efficiency and productivity. Contineo and Perfectworx have been key suppliers to
TeleMasters since 2010, providing the Company with, inter alia, platform services, professional
and technical support services and network related equipment. During the past two years,
Contineo and Perfectworx have played a key role in assisting TeleMasters to roll out its
complete digital solutions offering to its customers. The TeleMasters Board is of the opinion that
the acquisition of these key suppliers will secure the Company’s ability to continue to provide a
unified and competitive product offering to its customers.
Contineo Purchase Consideration and Payment
The initial purchase consideration for the Contineo Acquisition is R7 650 000 (seven million six
hundred and fifty thousand Rand) and will be settled through the issue of 3 825 000 (three
million eight hundred twenty five thousand) new shares to Voigt and 3 825 000 (three million
eight hundred twenty five thousand) new shares to Pieton at a price of R1.00 per share within 3
(three) business days of the fulfilment of the suspensive conditions.

In addition to the above, TeleMasters shall make the following additional payments (“Contineo
Profit Warranty Payments”) to each of Voigt and Pieton:

-     Within 90 (ninety) days of the completion of the annual financial statements of Contineo
      for the 2021 financial year, a payment calculated as follows:

      (Earnings before interest, tax, depreciation and amortization (“EBITDA”) generated for the
      2021 Financial year, less R 1 800 000) x 5 x 50%. The amount will be paid by the issue of
      new shares in TeleMasters at the 30-day volume weighted average price (“VWAP”) less
      10% (ten percent).

-    Within 90 (ninety) days of the completion of the annual financial statements of Contineo for
     the 2022 financial year a payment calculated as follows:

      (EBITDA generated for the 2022 Financial year, less R 2 200 000) x 5 x 50%. The amount will
      be paid by the issue of new shares in TeleMasters at the 30-day VWAP less 10% (ten
      percent).

The amounts payable in respect of the Contineo Profit Warranty Payments will be limited to a
maximum of R3 750 000 (three million seven hundred and fifty thousand) or 3 750 000 (three
million seven hundred and fifty thousand) shares to each of Voigt and Pieton.

Perfectworx Purchase Consideration and Payment
The initial purchase consideration for Perfectworx Acquisition is R850 000 (eight hundred and
fifty thousand Rand) and will be settled through the issue of 850 000 (eight hundred and fifty
thousand) new shares to Voigt at price of R1.00 per share within 3 (three) business days of the
fulfilment of the suspensive conditions.

In addition to the above, TeleMasters shall make the following additional payment (“Perfectworx
Profit Warranty Payment”) to Voigt:

-     Within 90 (ninety) days of the completion of the annual financial statements of
      Perfectworx for the 2021 financial year, a payment calculated as follows:

      (EBITDA generated for the 2021 Financial year, less R 180 000) x 5. The amount will be paid
      by the issue of new shares in TeleMasters at the 30-day VWAP less 10% (ten percent).

-    Within 90 (ninety) days of the completion of the annual financial statements of Perfectworx
     for the 2022 financial year a payment calculated as follows:

      (EBITDA generated for the 2022 Financial year, less R 220 000) x 5. The amount will be paid
      by the issue of new shares in TeleMasters at the 30-day VWAP less 10% (ten percent).
The amount payable in respect of the the Perfectworx Profit Warranty Payment will be limited to
a maximum of R500 000 (five hundred thousand) or 500 000 (five hundred thousand) shares.

Financial Information
The value of the net assets comprising the Acquisitions as at 31 December 2019, being the date
of the independently reviewed management statements, was R5.89 million.

The independently reviewed profit after tax of the Acquisitions for the period ended
31 December 2019 based on the independently reviewed management statements of
Contineo for the 10-month period ended 31 December 2019 and Perfectworx for the 7-month
period ended 31 December 2019 was R1.86 million. The management statements were
compiled in accordance with IFRS for SME’s.

Classification of the transaction and related party considerations
The aggregated purchase consideration payable for the Acquisitions is greater than 10% but
less than 50% of the market capitalisation of TeleMasters and the combined Transaction is
accordingly categorised as a category 2 transaction.

Voigt, the CEO of TeleMasters, is a director of and 50% shareholder in Contineo and a director
in and the sole shareholder of Perfectworx and, in terms of section 10.b(ii) of the Listings
Requirements, is considered to be a related party to TeleMasters.

In terms of section 10.7 read with section 21.12 of the Listings Requirements, the Board is
required to provide the JSE with written confirmation from an independent professional expert
(“IPE”) confirming that the Acquisitions are fair insofar as shareholders are concerned.

AcaciaCap Advisors (Pty) Ltd t/a Arbor Capital Sponsors (“Arbor Capital”) has been appointed
as the IPE by the Board in order to provide the Board with a fairness opinion with regard to the
Acquisitions (“Fairness Opinion”) and a further announcement will be published on SENS on
finalisation of the Fairness Opinion.

Shareholders’ attention is, however, drawn to the fact that the controlling shareholder, which
holds more than 50% of the issued shares of the Company has advised that in the event that
the IPE concludes that the Acquisitions are not fair, it will vote in favour of the ordinary
resolutions required to be approved by shareholders in order to give effect to the Acquisitions.

29 June 2020
Midrand

Designated Advisor
Arbor Capital Sponsors

Date: 29-06-2020 05:44:00
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