Proposed acquisition of Connect IB Limited

RNS Number : 2179S

Coms PLC

16 March 2016

 

16 March 2016

COMS PLC ("Coms" or the "Company")

Proposed acquisition of Connect IB Limited for £1.328 million

and

£3.125 million placing

Coms (AIM: COMS), a leading provider of infrastructure, managed services and smart building solutions is pleased to announce that it has conditionally agreed to acquire the entire issued share capital of Connect IB Limited ("Connect IB") for a total consideration of £1.328 million (the "Acquisition"). The consideration comprises cash of £1.028 million, with the remaining £0.3 million being satisfied through the issue of new equity shares in Coms to certain of the vendor shareholders. Connect IB is a software applications business that has developed and deployed a number of applications from a proprietary suite of products, and in particular, applications that address the mapping and wayfinding of smart buildings. 

In addition, the Company is also pleased to announce a placing of 223,214,286 new ordinary shares of 0.1 pence each in the Company ("Ordinary Shares") ("Placing Shares") at a price of 1.4 pence per Placing Share (the "Issue Price") raising £3.125 million, before expenses (the "Placing").  The Placing will finance the cash element of the Acquisition consideration, as well as providing working capital to support the integration of Connect IB into Coms and for the continued strategic development of the enlarged group.

The Acquisition is in line with Coms' stated strategy of driving its core Redstone business through both organic and acquisitive growth. In addition, Connect IB creates significant synergies for the enlarged group in terms of potential new clients for Coms and additional products that can be sold across Redstone's existing customer base.

Transaction highlights

·     Coms to acquire Connect IB for a consideration of £1.328 million, including £1.028 million of cash and the issue of up to 18,507,094 shares in Coms to the Managing Director of Connect IB at 1.62 pence (being the average share price over the five business days to 11 March 2016);

·     Cash consideration will be funded through a Placing of 223,214,286 ordinary shares at a price per share of 1.4 pence, raising £3.125 million before expenses;

·     Mark Braund and Spencer Dredge, Chief Executive Officer and Finance Director of Coms, have beneficially subscribed for 3,571,428 shares and 1,392,857 shares respectively, pursuant to the Placing; and

·     Keith Jump, Managing Director of Connect IB will join the management team of Coms as Chief Technology Officer. Mr. Jump has been issued with ordinary shares in Coms in consideration for the majority of his equity in Connect IB, which incentivise him to contribute to the Company's continued progress

Rationale and benefits of the Acquisition

Coms has previously announced, including in its trading update of 15 February, that strategic acquisitions are a core part of the Board's ongoing strategy, complementing ongoing organic growth initiatives.  In particular, the Board is working to identify acquisitions that will deliver valuable Intellectual Property and which increase the Company's recurring revenues including those derived from the provision of managed services. In Connect IB, the Directors believe they have acquired a business that meets these key strategic criteria.

Connect IB is a software applications development business that has developed and deployed solutions in the mapping and wayfinding of smart buildings. 

The Acquisition brings significant strategic benefits to Coms, namely:

·     Connect IB's products are highly complementary to those currently offered by the Company. These include products and services that have been identified by the management of Coms as capable of meeting existing client requirements;

·     The acquisition will allow Coms to own and control high quality intellectual property within one software business unit within the enlarged group;

·     By acquiring Connect IB, Coms will have a technology business which will include Redstone's OneSpace product and over time these products will be integrated into one framework;

·     Connect IB brings a number of long-term blue chip customer relationships including GlaxoSmithKline plc, Meyer Bergman Limited and Westfield Corporation, further demonstrating the demand for the development of smart buildings and business applications across high quality companies in a number of sectors;

·     The transaction will enable Coms to upsell Connect IB products to its existing customers and brings leading edge application development capability to enhance the OneSpace brand; and

·     The transaction will enable Coms to develop further its annuity based recurring revenue model, to sell more higher margin software-based solutions and to enhance the development of its own intellectual property assets.

Connect IB achieved revenue of £1.4 million in the 12 months to February 2016, of which £1.0 million was attributable to development projects and £0.4 million to recurring revenue. It reported a loss before tax of £0.1 million in the same period. (Source: unaudited management accounts.)

Mark Braund, CEO of Coms plc, commented:

"I am delighted to be announcing the acquisition of Connect IB today.  This represents a significant strategic step and one that is highly complementary to our existing business. Connect IB is the first acquisition to be made by our new management team at Coms and one which has enabled us to enhance our core offering. I am also delighted to announce the Placing which strengthens our balance sheet and brings new institutional shareholders to our register. 

"We are also pleased to be welcoming Keith and his team to Coms.  Through the quality of our brands and our people, Coms is putting in place the foundations for a very exciting strategy of organic growth, complemented by targeted acquisitions, with a view to becoming a market leader in the hugely exciting Smart Building sector."

For further information, please contact:

Coms plc Mark Braund (CEO)	[phone]
Panmure Gordon (UK) Limited (Financial Adviser, Nominated Adviser and Joint Broker) Karri Vuori / Adam James / James Greenwood	[phone]
Whitman Howard Limited (Joint Broker) Nick Lovering	[phone]
Vigo Communications Jeremy Garcia / Ben Simons / Fiona Henson www.vigocomms.com	[phone]

Terms of the Acquisition 

Coms will acquire the entire issued share capital of Connect IB for an aggregate consideration of £1.328 million consisting of:

o          repayment of loan notes in cash to Cable Capital Partners Limited amounting to £618,000 and cash consideration of £160,000;

o          £250,000 in cash to the Managing Director and Founder of Connect IB;

o          up to £300,000 in Coms shares at 1.62 pence (being the average share price over the five business days to 11 March 2016) (being 18,507,094 shares) to the Managing Director and Founder of Connect IB (the "Consideration Shares); with

o          £50,000 of the Consideration Shares (being 3,084,515 shares) conditional on achieving certain annuity sales targets (the "Conditional Consideration Shares").

The Acquisition Agreement contains a suite of warranties given by the vendors of Connect IB typical of deals of this size and type including, but not limited to, the ownership of the intellectual property.

Keith Jump has entered into a lock-in agreement governing all the Consideration Shares for a total period of 36 months.

Details of the Placing and Total Voting Rights

The Placing is conditional, inter alia, upon the placing agreement not having been terminated, the Acquisition Agreement having been entered into and Admission of the Placing Shares having occurred by no later than 31 March 2016. The Placing is not being underwritten.

The Company's largest shareholder, Helium Special Situations Fund ("Helium"), has agreed to subscribe for 35,714,286 Placing Shares as part of the Placing, conditional on Admission. Following the completion of the Placing, Helium will be interested in 259,824,283 Ordinary Shares in aggregate representing 15.9 per cent. of the enlarged issued share capital of the Company. Helium is a related party of the Company as defined by the AIM Rules for Companies by virtue of its status as a significant shareholder. Accordingly its participation in the Placing is deemed a related party transaction. The Directors who are independent of the Placing consider, having consulted with the Company's nominated adviser, that the terms of the Placing are fair and reasonable in so far as the Company's shareholders are concerned.

Mark Braund and Spencer Dredge, respectively Chief Executive Officer and Finance Director of Coms, have subscribed for 3,571,428 Placing Shares and 1,392,857 Placing Shares, pursuant to the Placing. Mark and Spencer's resultant holdings will be respectively, 14,210,316 and 3,212,652 ordinary shares, representing 0.9% and 0.2% of the enlarged issued share capital of the company upon Admission.

Pursuant to the Placing and to the Acquisition Agreement, application has been made to the London Stock Exchange for the Placing Shares and Consideration Shares (excluding the Conditional Consideration Shares), being 238,636,865 ordinary shares in aggregate, to be admitted to trading on AIM and Admission is expected to occur on 17 March 2016. Both the Placing Shares and the Consideration Shares will rank pari passu in all respects with the existing Ordinary Shares.

Following Admission, the Company's enlarged issued share capital will comprise 1,628,169,663 Ordinary Shares (excluding the Conditional Consideration Shares). This figure may be used by shareholders in the Company as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change in their interest in, the share capital of the Company under the FCA's Disclosure and Transparency Rules.

 

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