Daily Internet (AIM: DAIP) is pleased to announce the acquisition by the Company of Q4Ex Ltd (“Q4Ex”), a Liverpool based cloud Software as a Service (“SaaS”) provider (the “Acquisition”). The initial consideration payable by the Company for Q4Ex will be £520,000, to be comprised of 30,588,235 ordinary shares of 0.5 pence each in the Company (“Ordinary Shares”), valued at 1.7 pence per Ordinary Share (“Initial Consideration Shares”).
The Initial Consideration Shares will be issued at a premium of over 21 per cent. to the Company’s closing share price on 8 December 2014, which the Directors believe shows both the faith of the vendors of Q4Ex in the Company , and the added value within the enlarged entity that the Company will become.
Background on Q4Ex
Founded in March 2014 and based in Liverpool, Q4Ex is a UK based cloud services provider focussed on bringing the highest levels of customer service to clients in the builders merchant and distribution sector. Services include infrastructure as a service (IaaS), platform as a service (PaaS) and SaaS along with associated advisory and support.
Q4Ex combines exceptional technical and operational skills along with a wealth of experience in ERP applications for vertical markets solutions, which offer true end-to-end service for its clients.
The key management team consists of individuals with over 60 years combined experience in providing IT solutions, from software development to ERP consultancy.
Q4Ex raised its first invoice in March of 2014, and built its first VMware Cloud Platform in June 2014. It brought on board its first “anchor” client in the sector which outsourced all of its on-premise IT into the Cloud. Its pipeline has grown rapidly and together with its anchor client validates its business model and market proposition in a sector that has a higher barrier to entry than simple “cloud”.
Extracts from the management accounts of Q4Ex for the nine months from 1 March 2014 to 30 November 2014 show revenues of £175k, gross profit of £143k and EBITDA of £92k. It is anticipated to have net cash balances on completion of approximately £40k.
Rationale for the Acquisition
Q4Ex is seeing increasing interest from larger potential clients and whilst in the past it has undertaken joint pitches with Netplan, it has now been agreed that the relationship with Netplan should be cemented through an amalgamation of the two businesses.
The Boards of Q4Ex and the Group acknowledged the strength in bringing these companies together, culminating in the announcement being made today.
The Group’s management team will be greatly strengthened through the acquisition. Arthur Duffy, Managing Director of Q4Ex, and Paul Jones, Services & Support Director of Q4Ex, will join the Netplan Board as Managing Director and Services and Support Director respectively. Arthur and Paul formerly held similar roles at a leading ERP provider.
Terms of the Acquisition
Further to the Initial Consideration Shares, there are certain further potential deferred consideration hurdle payments that may be made to the shareholders of Q4Ex, on the basis of the future EBITDA of the enlarged division formed by the Acquisition. The maximum further potential deferred consideration could total up to £1,456,000, to be comprised of Ordinary Shares in the Company valued at 1.7 pence per Ordinary Share (“Potential Deferred Consideration Shares”). The earn out period for the Potential Deferred Consideration Shares is 36 months and the future EBITDA is to be assessed on a rolling 12 month basis and is the EBITDA derived from the Q4Ex operations adjusted for a charge relating to shared central charges.
Abby Hardoon, CEO of the Company, is to become Non-Executive director on completion of the transaction. Christopher Evans will become CEO and as such will lead the strategic changes to the Group. Abby will continue to be involved as a highly engaged NED, for which the Board are greatly appreciative.
Related Party Transaction & Director Holding
Christopher Evans, Non-Executive Director and holder of 8,108,939 Ordinary Shares in the Company, is also a director and 32% shareholder in Q4Ex. Accordingly, he is due to be issued 9,803,821 Initial Consideration Shares as part of the Acquisition. As Mr Evans qualifies as a related party under the AIM Rules for Companies, under AIM Rule 13 the Acquisition is classified as a related party transaction. The independent directors of the Company (in this case being all the directors of the Company apart from Christopher Evans), having consulted with Sanlam Securities UK Limited, the Company’s nominated adviser, consider that the terms of the Acquisition are fair and reasonable insofar as the Company’s shareholders are concerned.
Following the Acquisition, Christopher Evans will be interested in 17,912,760 Ordinary Shares in the Company, equal to approximately 3.73 per cent. of the Company’s total issued share capital as enlarged by the Acquisition.
Application to AIM / Issued Share Capital
Application has been made to the London Stock Exchange for the Initial Consideration Shares to be admitted to trading on AIM. Admission is expected to take place on 12 December 2014. The shares will rank pari passu with the existing issued Ordinary Shares.
Following the issue of the Initial Consideration Shares, the Company’s total issued share capital will consist of 479,791,101 Ordinary Shares, with each share carrying the right to one vote. The Company has no Ordinary Shares held in treasury. The total of 479,791,101 Ordinary Shares may therefore 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.