Tern Plc : Acquisition

21 April 2016

Tern Plc

("Tern" or the "Company")
Acquisition by Cryptosoft Limited of Device Authority Inc;
debt conversion and new investment

The Company is pleased to announce that its investee company, Cryptosoft Limited ("Cryptosoft"), a leader in policy driven authentication and encryption services for connected Internet of Things ("IoT") and machine-to-machine ("M2M") devices, has acquired the entire share capital of Device Authority Inc ("Device Authority"), a leading authentication software specialist based in Fremont, California. 

The acquisition is by way of a share for share exchange, and will be financed by the issue of new "A" shares in Cryptosoft.  In addition, an existing shareholder of Device Authority, Alsop Louie Partners ("ALP"), a San Francisco based venture capitalist specialising in security software, is investing $500,000 alongside a £1 million investment by Tern to fund business development valuing the combined entity at £13.6 million post-new money. The new investment will be in "A" Preference shares issued at par in Cryptosoft which are convertible into "A" Ordinary shares. Pending conversion, the "A" Preference Shares enjoy certain preferential rights on the payment of dividends and a return of capital on liquidation or winding up.

Key elements of the acquisition include:

• Device Authority's technology is patented and ideal for IoT and M2M applications and complementary to Cryptosoft technology;
• The companies already work together via a strategic partnership and have developed joint products;
• Multiple commercial benefits:
  • Increasing the sales pipeline by number and value;
  • Access to new clients;
  • Established US base and increased geographic sales coverage;
  • Technical team strengthened; and
  • Resource synergies.
• The deal values each of Cryptosoft and Device Authority at  £6.1 million on acquisition  based on new third party investment and after conversion of aggregate debt of £670,000 owed by Cryptosoft to Tern;
• Value of Tern's Cryptosoft holding at acquisition £6.1 million (31 Dec 2015 £961,439) prior to new investment; and,
• Injection of cash for business development

                         
Data security requires devices to be identified, authorised and authenticated to establish trust between endpoints, gateways and applications, which is the function of the Device Authority software.  The Cryptosoft software platform enables device authentication and encryption of data as it is moved and stored.  The two companies have worked together since October 2015 when they announced a strategic partnership; they have developed joint products incorporating both technologies and have pitched to customers together.

Authentication of devices is an essential element of IoT and M2M transactions. Traditional methods of authentication require endpoint certificates and keys but these do not identify devices and more importantly do not scale.  In comparison Device Authority technology is readily scalable.  The IoT is forecast to grow from 4.9 billion in 2015 to 20.8 billion+ devices by 2020 (source: Gartner), effectively making traditional authentication technology redundant.

Device Authority software is covered by 9 US patents with more patent applications in progress. Device Authority was established in April 2013 and is not required to publish statutory accounts. Based on its management accounts for the last 12 months ended December 2015, Device Authority earned revenue of $254,000 on which it made a loss of approximately $1.5m, having fully amortised research and development. At 31 December 2015, Device Authority had total assets of $189,000 and a short term loan (which will be converted into equity on completion) of $1.2m.

Following completion of the acquisition and investment and assuming conversion of the A Preference Shares, the shareholding in Cryptosoft will be as follows:

	% Holding
Tern Plc	52.4
ALP	15.8
Other DA Inc shareholders	31.8

The executive of Cryptosoft  hold non-voting B shares which are entitled to 25% of any sale proceeds, in the event that Cryptosoft is sold, net of all new investment and costs.

Post acquisition, Cryptosoft will be renamed Device Authority Limited and the Board will be chaired by Tern director, Al Sisto, the CEO will be Darron Antill of Cryptosoft and the Chief Technical Officer will be Talbot Harty of Device Authority Inc.  

Enquiries:

Tern plc	Tel: [phone]
Angus Forrest
WH Ireland NOMAD and Broker	Tel: [phone]
John Wakefield / Ed Allsopp
Peterhouse Corporate Finance (Joint broker)	Tel: [phone]
Lucy Williams / Duncan Vasey

About Cryptosoft
Cryptosoft's data security platform solves the data security and authentication challenges for the Internet of Things (IoT). Its software platform significantly reduces the end-to-end attack surface, protecting critical company and customer data assets. The Cryptosoft platform provides transparent protection of data at rest and in transit across any platform, device and service, delivering end-to-end protection of critical data. With offices in San Francisco, California, Boston, Massachusetts and Thames Valley, UK, Cryptosoft partners with the leading IoT ecosystem providers, including ThingWorx, providing highly scalable data protection security solutions for the Internet of Things. (www.cryptosoft.com)

About DeviceAuthority, Inc.
As an industry recognised leader in cyber security, Device Authority delivers device-based trust for the Internet of Things.  IoT devices are quickly becoming the next wave of "users" to the authentication and access paradigm. Leveraging patented M2M authentication technology, Device Authority's D-FACTOR(TM) authentication engine definitively identifies devices to establish trust between endpoints, gateways and applications.  For IoT, D-FACTOR(TM) eliminates the vulnerabilities and inefficiencies of static keys and certificates by transforming devices into dynamic keys for authentication and device-derived crypto applications. (www.deviceauthority.com)

About Tern
Tern Plc acquires and invests in privately owned companies with self-owned IP, established products and customer bases. Its investment strategy is focused on taking an active role in its investee companies in order to improve the business model, accelerate growth, expand the business globally, and identify exit opportunities.  (www.ternplc.com)

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Source: Tern Plc via Globenewswire

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