Acquisition

RNS Number : 4310J

Synchronica PLC

30 June 2011

 



30 June 2011

Synchronica plc

Synchronica Acquires Nokia's Operator Branded Messaging Business

Significant Increases to Revenue and Customer Base, Synergistic IP Portfolio and Highly Skilled Staff

Acquisition will be a reverse takeover transaction in accordance with AIM Rules and trading in Synchronica Shares will be suspended pending the release of an Admission Document

Benefits of the Acquisition for Synchronica

•              Entry into the lucrative North American market with 10 live deployments including leading mobile network operators AT&T, T-Mobile, Verizon, Sprint, Rogers and Telus;

•              Accelerating Synchronica's transition to a recurring revenue-based business model with a revenue profile of more than 80% recurring, based on monthly payments per active user;

•              Large user base with more than 6 million active end users and strong up-side  potential;

•              Assignment of 12 US patents and patent applications and a license for 8 further patent applications owned by Nokia, expanding Synchronica's IPR portfolio in mobile Email and Instant Messaging;

•              Synergies from the combination of OBM technology with Synchronica's Mobile Gateway product, targeting a super-set of both products with enhanced functionality and increased efficiency;

•              Partnership with Nokia including a long-term contract for development and support of the Nokia Messaging Service for Nokia's Series 40 and Symbian handsets, with an expected revenue of approximately US$ 18.2 million over the next 18 months;

•              Large and highly skilled technical resources complementing Synchronica's expertise in development of next-generation messaging technology.

Synchronica plc, the international provider of next-generation mobile messaging services ("the Company"), has conditionally agreed to acquire Nokia's Operator Branded Messaging ("OBM") business ("the Acquisition") for a total consideration of US$25 million, with US$4 million payable in cash on completion of the Acquisition and the balance being payable on a deferred basis. In addition, Nokia will be issued 18.3 million warrants in respect of ordinary common shares in Synchronica.

In order to fund the Acquisition and to provide additional working capital for the enlarged group, Synchronica has signed agreements to raise US$15 million (gross) through a Placing, which will represent approximately 37.6 percent of the Company's enlarged issued ordinary share capital ("Enlarged Share Capital"). The Acquisition and the Placing are conditional upon approval at a general meeting.

Acquisition of Nokia's Operator Branded Messaging Business

Nokia's Operator Branded Messaging ("OBM") business, which came to Nokia as a part of the acquisition of a Canadian messaging vendor in 2008, provides white-label mobile Email and Instant Messaging services across a wide range of devices to operators in North America. While running OBM, Nokia used the acquired assets for the development of Nokia Messaging Services ("NMS"), bundled with Nokia's Series 40 and Symbian handsets.

Synchronica has had access to information from Nokia confirming the OBM business to be profitable, however it is not considered to be significant to Nokia, and as a means of aligning with recent changes to its corporate strategy, Nokia elected to review its mobile messaging strategy. As a result of a bid process, Nokia selected Synchronica as the preferred partner for transitioning the OBM business. Under the agreement, approximately 150 Nokia employees, externals and contractors will transfer to the Company, enabling Synchronica to assume development, maintenance and support for Nokia's mobile operator customers. Nokia plans to continue providing the NMS offering for Nokia handsets, with support and development being provided by Synchronica under a professional services contract including the transfer of approximately 100 further Nokia employees, externals and contractors.

Acquired Customer Base

The OBM customer base includes 10 operator contracts, including Tier-1 mobile operators across the United States of America and Canada. As part of the transaction, Nokia is to assign operator contracts with AT&T, Sprint, Verizon, T-Mobile, Bell Mobility, Rogers Wireless and others to Synchronica. With more than 6 million active users, the OBM operator contracts generate more than 80% recurring revenues based on monthly payments per active user.

Synchronica will assume all responsibilities under the contracts acquired and will continue to provide full support for the OBM product in use by these customers. The OBM customer base is highly complementary to Synchronica's strong presence in emerging markets and presents Synchronica with a unique opportunity to transform its geographic scope by entering the lucrative North American market. Once completed, Synchronica's total addressable market across all operator customers worldwide will extend to approximately 1.8 billion potential end-users.

Synchronica has also secured a significant contract with revenue of approximately US$18.2 million to support  Nokia's Messaging Service over the next 18 months alone. This is a long-term relationship between Synchronica and Nokia for the continued development, maintenance and support of the gateway and Nokia Series 40 client software, which is pre-installed on millions of Nokia phones.

Acquired Products, Patents and Talent

With the Acquisition of Nokia's OBM business, Synchronica will acquire the source code for Nokia's messaging infrastructure and device client software for Email, Instant Messaging and Social Networking, as well as related patents and patent applications.

Synchronica will acquire the Nokia Operator Branded Messaging business, which enables mobile operators to deliver operator branded Email, Instant Messaging and Social Networking experience on mobile devices via an easy-to-use interface. MSN Hotmail, Yahoo! Mail, AOL, Gmail and multiple other portal/ISP Email services and multiple IM accounts, such as GTalk, ICQ, Yahoo!, MSN, AOL and others are accessible via the unified OBM clients. The clients are memory efficient, Over-the-Air installable, upgradable and support a wide range of mobile phones from various device manufacturers.

Synchronica will assume responsibility for continued development and support of the Nokia Messaging Service (NMS), which is based on OBM and is available to users of Nokia Series 40 and Symbian handsets via a client which is pre-installed by Nokia during the manufacturing process. NMS provides access to popular Email and IM services and also includes the connectivity to popular social networks such as Facebook and Twitter as well as various regional services.

In addition to ownership of the source code for Nokia OBM client and server software, Nokia is to assign 12 US patents and patent applications to Synchronica and will grant a royalty-free licence for a further 8 Nokia patent applications. Approximately 250 technical and commercial employees, externals and contractors will transfer from Nokia to Synchronica, ensuring continuing development of the acquired products and support for transferred contracts.

Commenting on the acquisition, Synchronica's CEO, Carsten Brinkschulte said: "Commercially, and strategically this is the most significant step forward for Synchronica, transforming the Company and positioning it to build greater value for our shareholders. The strong market presence of Nokia's Operator Branded Messaging Business is an ideal combination with Synchronica's emerging market leadership, and we are now determined to build a global leader in mobile messaging. I share the Board's view that we are acquiring a highly complementary business, including key technology, substantial financing, and strong know-how which will at a stroke transform Synchronica's scale, profitability and geographic scope."

Consideration

The total consideration payable to Nokia is US$ 25 million. Of this, US$ 4 million will be paid on completion of the Acquisition, which is expected in late July 2011. The balance of US$ 21 million will be deferred and paid quarterly in arrears at a rate of 22% of the revenue earned by Synchronica from the assets acquired. It is anticipated that the deferred consideration will be paid in full by end 2014. Should the revenue from the acquired assets not reach the expected level, the remainder of deferred consideration will be paid no later than end 2015. Synchronica will pay no interest on the deferred consideration. The balance outstanding will be secured on the assets of Synchronica.

Placing and Fundraising

Synchronica has secured commitments for funding from both existing and new institutional investors through private placement financings in the UK and in North America. In total US$ 15 million before expenses will be raised from the issue of up to 59,054,031 new ordinary shares at 16 pence per share (C$0.25 per share) and the issue of 29,527,015 warrants to acquire new ordinary common shares in the Company.

New ordinary shares will be placed on behalf of the Company with institutional and other investors by Northland Capital Partners Limited, the Company's Nominated Adviser and lead broker for the UK ("the Placing") and a North American syndicate led by Paradigm Capital Inc. and including Stonecap Securities Inc. and Cormark Securities Inc. ("the North American Placing"). The funds raised will be used to part-fund the Acquisition (US$ 4 million) and to provide additional working capital for the enlarged group.

The new ordinary shares, which are proposed to be issued pursuant to the Placing and the North American Placing together with warrants in the Company ("Warrants"), on the basis of one Warrant for every two new ordinary shares, will represent approximately 37.6% of the Enlarged Share Capital immediately following admission of the new and existing ordinary shares to trading on AIM (Admission) and TSX-V.

Shareholder Approval, Re-Admission to AIM and General Meeting

Under the AIM Rules for Companies ("AIM Rules"), the Acquisition, given its size, will be treated as a reverse takeover transaction. Accordingly, the Company is preparing an admission document ("Admission Document") as is required under the AIM Rules in the event of a reverse takeover. The existing ordinary shares of the Company will be suspended from trading on AIM from 7.30am today. Trading in the existing ordinary shares will recommence when the Company has finalised and published its Admission Document.

Following the publication of the Company's Admission Document, it is proposed that an application will be made to the London Stock Exchange and the TSX-V for the Enlarged Share Capital to be admitted to trading on AIM and the TSX-V.

A general meeting of the Company will be held in the last week of July 2011 for the purpose of asking the Company's shareholders to approve the Acquisition and related resolutions. Subject to shareholder approval, Admission of the Enlarged Share Capital on AIM and the TSX-V is expected to take place at the end of July 2011.

North American Placing

Synchronica has received commitments from North American investors for US$ 7.4 million via an underwritten private placement of 29,300,000 subscription receipts (the "Subscription Receipts") at a price of C$0.25 (US$0.26) per Subscription Receipt (the "North American Offering").

The gross proceeds from the North American Offering will be held in escrow pending all conditions precedent to closing of the Acquisition as defined in the asset purchase agreement having been satisfied. 

The Subscription Receipts have been offered by way of private placement in all of the provinces in Canada and in the United States on a private placement basis pursuant to an exemption from the registration requirements of the United States Securities Act of 1933, as amended.

Completion of the North American Offering is subject to receipt of all necessary regulatory and other approvals, including the approval of the TSX Venture Exchange. It is anticipated that closing of the North American Offering will occur on or about July 12, 2011.

Synchronica plc	Carsten Brinkschulte, CEO	[phone]
www.synchronica.com	Angus Dent, CFO	[phone]
Northland Capital Partners
(Nominated Adviser)	Shane Gallwey/Rod Venables	[phone]
(Corporate Broker)	Katie Shelton/ Alice Lane	[phone]
Walbrook PR Limited		[phone]
(media enquiries)	Paul McManus	[e-mail]
(investor enquiries)	Paul Cornelius	[e-mail]

About Synchronica

Synchronica plc is a leading developer of next-generation mobile messaging solutions based on open industry standards. The award-winning product portfolio includes the flagship product Mobile Gateway, providing push email, synchronisation, instant messaging, backup & restore and mobile connectivity to social networks. Synchronica's products are white-labelled and offered by mobile operators in emerging and developed markets to provide mass-market messaging services, increasing data revenues and reducing churn.

Synchronica's Mobile Gateway provides a unique multi-protocol gateway combining Push IMAP, SyncML, ActiveSync, Email-to-MMS and Email-to-SMS, delivering push email and synchronisation to literally any mobile phone currently in the market without requiring an additional client to be downloaded. Expanding Instant Messaging to mobile devices, Mobile Gateway establishes carrier-branded IM communities using the industry-standard XMPP and provides gateways to popular Internet IM communities connecting any IMPS enabled handset.

Headquartered in England, Synchronica also maintains development centres in Germany and the Philippines, in addition to a regional presence in Canada, the USA, Hong Kong, Spain, and Dubai. Synchronica plc is a public company which is traded on the AIM list of the London Stock Exchange (SYNC.L), and the Venture Exchange of the Toronto Stock Exchange (SYN.V). For further information, please visit www.synchronica.com

 

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