| Tue 5 Oct 2004, 15:27 | | Acquisition of the business of Beyond IT |
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Connection Group Holdings Limited - Acquisition of the business of Beyond IT, a
specialist retailer of photographic products and photofinishing services
CONNECTION GROUP HOLDINGS LIMITED
(Incorporated in the Republic of South Africa) (Registration number
1997/005390/06)
Share code: CCT
ISIN: ZAE000042529
(`the Connection Group`)
Acquisition of the business of Beyond IT, a specialist retailer of photographic
products and photofinishing services
Rand Merchant Bank, a division of FirstRand Bank Limited, is authorised to
announce that the Connection Group has concluded an agreement with Beyond IT
(Proprietary) Limited (`Beyond IT`) to acquire the entire business of Beyond IT
on a going concern basis (`the acquisition`).
Rationale for the acquisition
Incredible Connection, a division of the Connection Group, is Southern Africa`s
leading retailer of information and communications technology, with high brand
recognition and excellent supplier relationships. The digital revolution has
changed the way information and images are handled. The photographic industry
has rapidly evolved into an industry driven by the adoption of computers. This
has resulted in many more pictures being captured and processed than at any
other time in photographic history. Connection Group with its new digital
imaging brand `Photo Connection` is ideally positioned to take advantage of this
opportunity.
Beyond IT is considered one of the premier resellers of photographic products as
well as developing and printing services in Johannesburg. Beyond IT operates 12
stores in popular high gathering malls located in the greater Johannesburg area.
This acquisition gives the Connection Group further entry into the retail
photographic and film processing market through a chain of stores operated on a
similar business model, with similar customer profiles and complementary store
locations. It increases the number of photographic outlets owned by the
Connection Group to 29.
The owners of Beyond IT, Alan Reeves, Mark Reeves and Anthony Delport, who
between them have over 40 years` experience in the photographic and technology
retail industry, have agreed to join the Connection Group. They will assume
operational responsibility for all 29 `Photo Connection` outlets and have signed
three-year employment contracts and restraint of trade agreements.
Purchase consideration
The purchase consideration is a maximum of R30.2 million plus the value of stock
on the effective date, which is expected to be in the order of R4.0 million. The
purchase consideration is payable as follows:
- R15.25 million as well as the value of the stock is payable in cash on the
closing date;
- R4.75 million is payable in cash into an escrow account on the closing
date, against certain profit warranties provided; and
- The Connection Group will also assume liabilities in terms of finance lease
agreements amounting to a maximum of R10.2 million.
The purchase consideration will be paid from existing cash resources.
Subject of the acquisition
The Connection Group will acquire all the fixed assets, take over the employees
and assume the property leases of Beyond IT. Connection Group will also assume
Beyond IT`s liabilities in terms of the finance lease agreements to a maximum of
R10.2 million.
Effective date
The effective date of the acquisition is 1 September 2004. Control of the
business will transfer to the Connection Group on the closing date, which will
be the third business day after the date on which all the conditions precedent
have been met.
Condition precedent
The transaction is subject to final unconditional approval by the competition
authorities, in terms of the Competition Act, No 89 of 1998, by 30 November
2004.
Financial effects
The pro forma financial effects of the transaction, as set out below, have been
prepared for illustrative purposes only and are based on the following
assumptions:
- the headline earnings, earnings, net asset value and tangible net asset
value per share reflected in the `before` column were extracted from the
Connection Group`s reviewed results for the six months ended 29 February 2004;
- the net asset value and tangible net asset value per share reflected in the
`after` column assume that the acquisition was effective on 29 February 2004;
- the headline earnings and earnings per share reflected in the `after`
column assume that the acquisition was effected on 31 August 2003;
- the reduction in interest received by Connection Group as a result of the
reduction in cash balances to reflect the purchase consideration, calculated at
a before tax interest rate of 6% per annum for the period of six months;
- no fair value adjustments have been made in the calculation of the
financial effects, as the amount of any such adjustments has yet to be
determined;
- goodwill amortisation of R0.26 million has been written-off in arriving at
earnings per share reflected in the `after` column. This is based on a goodwill
of R10.4 million which is still subject to fair value adjustments yet to be
determined; and
- transaction costs have been ignored in determining the financial effects.
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For the six months ended 29 Before After Percentage
February 2004 (cents) (cents) change
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Headline earnings per share 34.8 40.1 15.2
Earnings per share 34.9 39.4 12.9
Net asset value per share 102.9 102.9 -
Net tangible asset value per 102.9 71.6 (30.4)
share
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The total net book value of the fixed assets acquired by the Connection Group is
R19.8 million. Beyond IT produced net income before taxation of R3.5 million for
the six months ended 29 February 2004.
Johannesburg
5 October 2004
Merchant bank and sponsor to the Legal adviser to the
Connection Group Connection Group
RAND MERCHANT BANK Paul Botha Inc.
(A division of FirstRand Bank Limited)
CORPORATE FINANCE
