| Wed 27 Oct 2010, 12:04 | | ADI - Adaptit Holdings Limited - Acquisition by Adaptit of 49% of its |
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ADI
ADI
ADI - Adaptit Holdings Limited - Acquisition by Adaptit of 49% of its
Holdings (Proprietary) limited and withdrawal of cautionary announcement
ADAPTIT HOLDINGS LIMITED
Incorporated in the Republic of South Africa
(Registration number: 1998/017276/06)
Share code: ADI ISIN: ZAE000113163
("AdaptIT" or "the company")
ACQUISITION BY ADAPTIT OF 49% OF ITS HOLDINGS (PROPRIETARY) LIMITED AND
WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
1. NTRODUCTION AND BACKGROUND TO ADAPTIT
Further to the cautionary announcement released on SENS on 15 September
2010, shareholders are advised that AdaptIT has entered into agreement
to acquire the remaining 49% of the issued share capital that it does
not already own ("ITS shares") in, and all of the claims, including loan
accounts ("EDITS claims"), against ITS Holdings (Proprietary) Limited
("ITS"), a 51% owned subsidiary of AdaptIT, from EDITS Holdings
(Proprietary) Limited ("EDITS" or "the vendor"), for a total acquisition
consideration of R19 859 886 plus a contingent portion, if any,
described in paragraph 2.3(b) below ("the acquisition").
AdaptIT, a black empowered group of South African IT companies, provides
IT services and solutions including consulting and application design,
delivery and support, predominantly to the public sector and the sugar
producing industry in Southern Africa.
2. THE ACQUISITION
2.1 Nature of the ITS business
ITS has benefited from 24 years` experience in the IT industry and
has a proven track record in the higher and further education
market with a client base in excess of 40 Universities,
Polytechnics and Colleges worldwide. ITS has a strong management
team with a proven track record in its market.
ITS, which operates from its head office in Pretoria (and also has
offices in Cape Town, Durban, Ireland and New Zealand), focuses on
the provision of administrative software and support services to
tertiary and higher education institutions in 12 countries.
Approximately 50% of the revenue generated by ITS is annuity
income. The annuity income from product sales is comprised solely
of software licence renewals while recurring revenue from support
services is comprised solely of renewal of support contracts.
AdaptIT acquired a 51% shareholding in ITS on 30 June 2009, the
details of which are set out in the circular to shareholders dated
11 June 2009. Subsequent to the acquisition by AdaptIT of 51% of
ITS, Sibusiso Shabalala and Siboniso Shabalala, both executive
directors of AdaptIT, were appointed to the board of directors of
ITS.
2.2 Rationale
The acquisition by AdaptIT of a 51% shareholding in ITS on 30 June
2009 has proven to be successful. The company`s investment is
performing in line with expectations and a sound working
relationship has been established with ITS` management. The
acquisition from EDITS of the remaining 49% in ITS will provide
AdaptIT with significant additional sector diversification with
minimal added risk, thereby ensuring that the company`s risk is
adequately managed. The acquisition will also allow ITS to become
fully aligned with AdaptIT`s strategy to leverage further organic
growth, enhance ITS` Broad-Based Black Economic Empowerment status,
facilitate sustainability and position it for further growth in the
South African market.
AdaptIT and ITS` respective product and service offerings are
mutually complementary and can be "cross sold" into their
respective markets. There are also strong technology synergies
between the two groups, predominantly in the world class Oracle
technologies as well as in domain expertise relating to financial
and enterprise resource planning systems. Furthermore, the
acquisition will further strengthen AdaptIT`s presence in the
Gauteng market.
2.3 Acquisition consideration
The total acquisition consideration payable by AdaptIT to the
vendor is:
(a) R19 859 886, comprised as follows:
- R19 126 691.38 in cash ("cash portion"); and
- such number of AdaptIT ordinary shares calculated by dividing
R733 194.62 with the 30 day volume weighted average price as
at the close of trade on the day preceding the closing date,
being the day immediately preceding the date upon which the
ITS shares are transferred, the EDITS claims ceded and the
cash portion duly settled ("shares portion"); and
(b) subject to the fulfilment or waiver, as the case may be, of
the last of the conditions precedent to the acquisition set
out in paragraph 2.4 below, and only in the event that a
binding contract is concluded by 31 March 2012 following the
award of a tender to ITS, which tender ITS intends to submit
to the Department of Higher and Further Education and Training
of South Africa ("DHET") for the licensing and supply of
software, software upgrades, support and maintenance in
relation to such software, a further contingent portion
("contingent portion") over and above the cash portion and the
shares portion, being 49% of the net after tax profit of the
initial upfront lump sum licence fee payable by the DHET to
ITS, shall become payable.
AdaptIT will fund the acquisition consideration by way of a loan
facility to the amount of R15 million obtained from Investec
Private Bank, a division of Investec Bank Limited ("Investec")
("Investec loan agreement") and the balance from an existing loan
facility.
The Investec loan will be secured against the cession and pledge of
100% of the issued share capital of ITS held by AdaptIT, the
cession of book debts by AdaptIT and its subsidiaries, mortgage
bonds over fixed properties and the provision of joint and several
suretyships by AdaptIT, certain of its subsidiaries and directors.
2.4 Conditions precedent and effective date
The acquisition is conditional upon fulfilment, or waiver, as the
case may be, of the following conditions precedent:
- approval by the board of directors of ITS and by the members
of ITS of the securities to be provided by ITS for the
Investec loan by way of registered special resolution in terms
of section 38 of the Companies Act, 1973 (Act 61 of 1973), as
amended ("Companies Act");
- AdaptIT obtaining the necessary regulatory approval from the
JSE Limited ("JSE");
- AdaptIT obtaining a certified copy of an ITS board resolution
in terms of which the transfer of the shares to AdaptIT is
approved;
- AdaptIT obtaining proof from the shareholders of EDITS and of
any holding company of the vendor that they have approved of
the agreement and the disposal of the shares by way of
registered special resolutions in terms of section 228 of the
Companies Act; and
- approval of the acquisition by a majority of AdaptIT`s
shareholders present and voting in person or by proxy at the
general meeting.
The effective date of the acquisition is the later of 31 December
2010 or the last business day of the month in which the fulfilment
or waiver, as the case may be, of the last of the conditions
precedent to the acquisition occurs, or such other date agreed by
AdaptIT and EDITS in writing.
2.5 Related parties
Messrs C J Christowitz, J F Jordaan and L C Lotter, are common
directors of ITS and EDITS, and as trustees of the Christowitz
Familie Trust (14.58%), the Silani Trust (2.23%) and the Louis
Lotter Familie Trust (20.41%) respectively, together own a
controlling (37.22%) stake in EDITS. EDITS is the registered owner
of the ITS shares and the EDITS claims. Consequently, in terms of
paragraph 10.1(b) of the JSE Listings Requirements, they are deemed
to be related parties. Accordingly, the aforementioned Messrs C J
Chrisowitz, J F Jordaan and L C Lotter are precluded from voting on
the acquisition at the general meeting, if they hold any shares in
AdaptIT. However, they may be taken into account in determining a
quorum for the purposes of the general meeting, if they hold any
shares in AdaptIT.
3. PRO FORMA FINANCIAL EFFECTS OF THE ACQUISITION
The table below sets out the unaudited pro forma financial effects of
the proposed acquisition on AdaptIT`s earnings per share, headline
earnings per share, net asset value per share and tangible net asset
value per share.
The unaudited pro forma financial effects have been prepared to
illustrate the impact of the proposed acquisition on the reported
financial information of AdaptIT for the 16 month period ended 30 June
2010, had the proposed acquisition and the initial purchase of the 51%
in ITS occurred simultaneously on 1 March 2009 for income statement
purposes and had the proposed acquisition occurred on 30 June 2010 for
statement of financial position purposes.
The unaudited pro forma financial effects have been prepared using
accounting policies that comply with International Financial Reporting
Standards and that are consistent with those applied in the audited
results of AdaptIT for the 16 month period ended 30 June 2010.
The unaudited pro forma financial effects which are the responsibility
of the directors are provided for illustrative purposes only and,
because of their pro forma nature may not fairly present AdaptIT`s
financial position, changes in equity, results of operations or cash
flow.
Pro forma Pro forma %
before the after the change
acquisitio acquisiti
n on
Earnings per share (cents) 13.64 15.38 12.76
Headline earnings per share (cents) 12.15 13.92 14.56
Net asset value per share (cents) 52.77 41.68 (21.02)
Tangible net asset value per share 35.21 24.12 (31.50)
(cents)
Weighted average number of shares in 96 085 97 461
issue (000`s)
Total number of shares in issue 95 697 97 073
(000`s)
Notes:
1. The amounts in the "Pro forma before the acquisition" column have
been extracted from the audited results of AdaptIT for the 16 month
period ended 30 June 2010.
2. The amounts in the "Pro forma after the acquisition" column reflect
the financial effects of the acquisition on AdaptIT and include
estimated transaction costs of R1.234 million. The amounts also
include cost of the interest on the Investec loans raised and prior
Investec loan utilised and the interest foregone on the R1.234
million utilised in the transaction. The total interest cost on the
Investec facilities included is R2.478 million comprising the
interest of R1.900 million on the new Investec loans raised,
calculated at 9.5% on R15 million, being the latest prime lending
interest rate and R0.578 million on R4.126 million of the pre-
existing Investec facility (raised in June 2009) used to fund the
balance of the cash portion of the consideration, calculated at
10.5% being the prime lending interest rate plus 1% applicable to
that facility. The interest forgone on costs of the transaction of
R99 000 has been calculated using an interest rate of 6.0%, being
the current repo rate. The amounts also include the net after tax
interest of R550 000 on R16 million in respect of the four month
period had the acquisition of 51% in ITS also occurred on 1 March
2009. The amounts exclude the shareholders` loan of R10 315 036
between AdaptIT and ITS and includes R3 192 640, being the excess
of the cost of the 49% interest in ITS, net of the portion
applicable to the shareholders` loan acquired, over 49% of the net
identifiable assets, liabilities and contingent liabilities
recognised, which has been recognised directly in equity.
3. The purchase consideration used for the purposes of the pro forma
financial effects is R19 859 886 and the contingent portion of the
purchase price, if any, has been excluded as the amount of the
obligation cannot be measured with sufficient reliability.
4. The cash portion of the purchase consideration being R19 126 691.38
is assumed to be funded firstly from the new Investec facility
raised in the sum of R15 million and the balance from the existing
Investec facility in the sum of R4 126 691.38.
5. For the purposes of the pro forma information, the volume weighted
average price has been determined as 53 cents per share and the
number of shares issued in respect of the share portion of the
acquisition consideration is 1 376 323.
6. The financial effects of the acquisition have been extracted from
the audited results of ITS for the 12 month period ended 30 June
2010 and results in respect of the four months from 1 March 2009 to
30 June 2009 extracted from the management accounts.
7. The effects on earnings per share and headline earnings per share
are calculated based on the assumption that the acquisition and the
initial purchase of the 51% in ITS occurred simultaneously on 1
March 2009.
8. The effects on net asset value per share and tangible net asset
value per share are calculated based on the assumption that the
acquisition was effected on 30 June 2010.
9. All financial effects have an ongoing effect, with the exception of
the transaction costs as set out in note 2 above.
4. CLASSIFICATION OF THE ACQUISITION AND FURTHER DOCUMENTATION
In terms of the JSE Listings Requirements, the acquisition is classified
as a category 1 transaction and is also deemed to be a related party
transaction, and accordingly a fairness opinion is required. AdaptIT has
appointed Merchantec Capital as the Independent Professional Expert to
provide such opinion. Accordingly, a circular containing full details of
the acquisition, a copy of the fairness opinion and a notice to convene
a general meeting of AdaptIT shareholders will be sent to AdaptIT
shareholders on or about 22 November 2010. The general meeting will
provide shareholders with the opportunity to consider and, if deemed
fit, to pass, with or without modification, the resolutions necessary to
approve and implement the acquisition.
5. WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
Further to the above, shareholders are advised that caution is no longer
required by shareholders when dealing in the shares of AdaptIT.
Durban
27 October 2010
Sponsor and Corporate Adviser
Merchantec Capital
Reporting accountants
Ernst & Young Inc.
Legal Advisers to AdaptIT
Shepstone & Wylie Attorneys
Legal Advisers to EDITS
Read Hope Phillips Attorneys
Date: 27/10/2010 12:04:01 Produced by the JSE SENS Department.
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