Defenx plc Strategic Partnership, Acquisition & Subscription (1280C)

TIDMDFX

RNS Number : 1280C

Defenx plc

11 April 2017

11 April 2017

Defenx PLC

("Defenx", the "Company" or the "Group")

Long-term strategic partnership with BV-Tech SpA

Software Acquisition Agreement and Cash Subscription

Defenx PLC (AIM:DFX), the mobile security software company, is pleased to announce a long-term strategic partnership with BV-Tech SpA ("BV-Tech"), a leading independent Italian corporate IT and cyber security solutions provider, comprising, in part, a software acquisition by Defenx and cash subscription by BV-Tech. The directors of the Company ("Directors") believe the software acquisition will significantly enhance Defenx's product portfolio and, together with the proposed strategic partnership, enable the Company to penetrate the European corporate market to generate high-quality, recurring revenues in the medium term.

Highlights

-- Conditional acquisition of a bespoke version of BV-Tech's encrypted voice and messaging software (the "Software") for EUR2.65 million (GBP2.26 million) to be settled through the issue of 1,982,222 new ordinary shares of 1.8 pence ("Ordinary Shares") at 114 pence per share (the "Consideration Shares") upon the acceptance by Defenx of the Software, expected to be within two months of this announcement.

-- Cash subscription by BV-Tech for 861,666 new Ordinary Shares at 114 pence per share (the "Subscription Shares"), representing a 6.5 per cent. premium to the Company's closing mid-market price on 10 April 2017, to raise EUR1.15 million (GBP0.98 million) before expenses.

-- Following the issue of the Consideration Shares and Subscription Shares, BV-Tech will become Defenx's largest shareholder, with approximately 24.8 per cent. of the Company's then enlarged share capital. BV-Tech is subject to a 12 month lock-in and further 12 month orderly marketing undertaking.

-- BV-Tech has also entered into a relationship agreement with the Company to regulate the relationship between them on an arm's length and normal commercial basis and providing BV-Tech with the right to nominate two Directors to the board of the Company, for as long as its holds in excess of 20 per cent. of the Ordinary Shares.

-- BV-Tech and the Company propose to enter into a collaboration agreement to formalise each party's commitments to the long-term strategic partnership, which will include assisting Defenx in accessing the Italian corporate market (the "Collaboration Agreement").

Andrea Stecconi, Chief Executive Officer of Defenx, commented:

"We are delighted to have reached the agreement with BV-Tech, which represents a truly transformational deal for Defenx. The acquisition enhances our product portfolio and together with the proposed Collaboration Agreement, will provide the potential to access a large number of major corporate customers, which, together with the BV-Tech sales force and expertise, is expected to accelerate our move into the corporate market.

"We believe the cash investment by BV-Tech, at a substantial premium to the current share price, is a strong endorsement of our strategy. As well as welcoming BV-Tech as a substantial shareholder, we look forward to working with the entire BV-Tech team and their nominated board directors, in developing a close and productive mutual relationship."

Enquiries

 
 Defenx PLC 
  Andrea Stecconi - Chief Executive Officer 
  Philipp Prince - Chief Financial Officer     020 3769 0687 
 Strand Hanson Limited (Nominated and 
  Financial Adviser) 
  Richard Tulloch / Ritchie Balmer / 
  James Bellman                                020 7409 3494 
 WH Ireland (Joint-Broker) 
  Adrian Hadden / Nick Prowting                020 7220 1666 
 Beaufort Securities (Joint-Broker) 
  Jon Belliss                                  020 7382 8300 
 IFC Advisory (Financial PR and IR) 
  Tim Metcalfe / Graham Herring / Heather 
  Armstrong                                    020 3053 8671 
 

About Defenx

Founded in 2009, Defenx is a fast-growing and profitable security software company that offers a range of products for the mobile, PC and network security markets. Defenx security software is priced competitively, fully featured and efficient (reduced use of memory, processing capacity and therefore power).

A flexible marketing strategy, focused on white-label and profit-share arrangements with distributors, telecoms companies and hardware manufacturers, enables Defenx to compete with established industry incumbents. Since inception, Defenx has sold over 5.7 million security software licences, primarily in Europe, the Middle East and Africa.

Defenx's global distribution partners currently include 3Italia, Seagate Technology, Türk Telecom and Western Digital, amongst others including telecoms operators, systems integrators and original equipment manufacturers. Defenx was admitted to trading on AIM on 3 December 2015 and acquired Memopal Srl in August 2016, which has allowed the Company to diversify its product portfolio and grow its customer base by adding proprietary cloud backup and synchronisation technology as well as new channel partners.

investors.defenx.com

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 ("MAR").

Background to the transaction with BV-Tech

Defenx's strategy is to own and develop digital security solutions marketed across a broad range of customers and end-users. Currently, these include security solutions to individuals, families and SMEs. It has always been part of our strategy to expand further into the SME and corporate markets where the demand for cyber security is a major driver for IT investment. The Directors believe that today's announcement represents a significant step in pursuit of this strategy.

Encryption platform acquisition

Defenx has agreed, under a conditional software purchase agreement ("Software Purchase Agreement"), to acquire a bespoke version of BV-Tech's encrypted voice and messaging software with full control and rights over the source code and standard support undertakings (the "Acquisition").

Under the Software Purchase Agreement, the consideration for the Acquisition of EUR2.65 million (GBP2.26 million), will be settled through the issue of 1,982,222 Consideration Shares at 114 pence per share ("Issue Price") to BV-Tech upon the delivery and acceptance of the Software by the Company, which is expected to occur within two months and following which, the Company will become the owner of the Software and will have the right to develop and commercially exploit it. The Software Purchase Agreement contains customary warranties given by each of the parties, and customary indemnities given by BV-Tech in favour of the Company.

The Software is an advanced, market-tested platform offering both end-to-end and server-based encryption for Android, Blackberry and Apple mobile device and fixed phone networks.

The Directors believe that the Acquisition will significantly enhance Defenx's product portfolio by bringing together its existing end-point protection and cloud backup + sync solutions with advanced encryption capabilities.

Aside from selling the stand-alone solution to its existing customers, Defenx plans to use this platform to develop:

-- A unified collaboration platform comprising: end point security (already owned); file storage and sharing (acquired with Memopal in 2016); voice and messaging (consumer solution owned already); and group messaging. The Acquisition allows us to add high-grade encryption and group messaging.

This follows an established industry trend: consumers have rapidly adopted WhatsApp and similar messaging applications and now expect similar, simple to use functionality in the work context. High quality encryption is expected, but must be implemented and capable of management at the corporate level. There is a significant and growing level of industry activity in this space, as consumer and corporate interest in encryption increases.

-- An encrypted cloud storage platform comprising: Defenx's proprietary cloud storage 'MGFS' technology (acquired with Memopal in 2016) with 'zero knowledge' authentication, advanced permissions and encryption. The Directors believe the market is ready for storage solutions that assure end-users that nobody else is able to access their data.

Corporate demand for long-term data storage at low cost and with rapid 24/7 access is increasing inexorably. The Directors believe that combining its MGFS technology with BV-Tech's integration skills will allow Defenx to meet such needs. Typically, this will be on premise storage for big customers (local and central government, banks, etc) where the Directors believe the storage efficiency of MGFS and encryption expertise of BV-Tech will provide a competitive advantage.

Strategic partnership with BV-Tech

Founded in 2005, BV-Tech is a leading independent corporate IT solutions provider in Italy and the parent of a group of companies operating in the management consulting and information & communication technology sectors. BV-Tech operates across multiple industry verticals including finance, telecoms, media, healthcare, defence and homeland security and has gained significant experience in design, implementation and transformation projects of complex ICT infrastructures (10,000 servers and more) with particular focus on information security management, fraud prevention and cyber security.

BV-Tech has grown rapidly with revenues of EUR56 million in 2016, employing over 600 engineers and IT experts, and expects to invest over EUR30 million in R&D over the next 3 to 4 years, including its collaboration with MIT. Significant customers of BV-Tech include the Lombardy and Veneto Regional governments, Ministry of Justice, TIM (Telecom Italia Mobile), American Express, Alcatel-Lucent, NATO, Bulgari, Eni and Saipem.

BV-Tech has a sophisticated and integrated sales and distribution structure and close support relationships with its large corporate customers, many of whom have customers of their own that are or could be users of the kind of digital security products and solutions that Defenx offers. This provides the opportunity for BV-Tech to enhance and deepen its relationships by offering Defenx products to its existing and new customers.

BV-Tech's sales, support and technical staff, with the experience to design, sell and integrate corporate technology solutions, will be available to assist Defenx in the development and delivery of an ever-wider range of cyber security solutions and accelerate Defenx's expansion into the larger corporate market

Accordingly, BV-Tech and the Company propose to enter into a Collaboration Agreement to formalise each party's commitments to the long-term strategic partnership, which will include assisting Defenx to access the Italian corporate market, the services to be provided by each party and the financial and other consideration due in respect of such services. The Collaboration Agreement will constitute a related party transaction under the AIM Rules once it is entered into and further announcements will be made in this regard as appropriate.

The Directors believe that, with the support of BV-Tech as a significant shareholder, together with the proposed Collaboration Agreement, Defenx will be able to target larger corporate customers more rapidly, more cost effectively and with lower risk, with a view to adding high quality, recurring revenues in the medium term.

Cash subscription

In addition to the Acquisition, the Company has entered into a subscription agreement with BV-Tech (the "Subscription Agreement") under which the Company will issue and allot 861,666 Subscription Shares to BV-Tech at the Issue Price of 114 pence per share raising GBP982,299 for the Company (the "Subscription"). The Issue Price represents a 6.5 per cent. premium to the closing mid-market price of the Company's shares on 10 April 2017.

The net proceeds of the Subscription will be used by the Company to further the development of its product portfolio, notably integrated solutions to target the corporate market, and for general working capital purposes.

Lock-in, appointment of additional Directors and relationship agreement

Under the Subscription Agreement, BV-Tech has agreed to customary lock-in provisions, will have the right to nominate two Directors to the board of the Company and will be subject to a relationship agreement for so long as it holds in excess of 20 per cent. of the issued share capital of the Company.

Under the lock-in arrangements, BV-Tech will be restricted, other than in certain limited circumstances, from transferring its Ordinary Shares for a period of 12 months from the date of the relevant admission of such Ordinary Shares to AIM, and for a further 12 month period any such transfers will need to be effected through the Company's broker.

For so long as it holds in excess of 20 per cent. of the issued share capital of the Company, BV-Tech will have the right to nominate two Directors to the Company's board. Such appointments are subject to approval by the Company's independent non-executive directors and the satisfactory completion of the requisite due diligence procedures.

The Company and BV-Tech have also entered into a relationship agreement to ensure the ongoing relationship between them is regulated in order to provide for a level of independence of the Company from BV-Tech, notwithstanding BV-Tech's substantial shareholding (the "Relationship Agreement"). The Relationship Agreement requires that BV-Tech operates in such a way so to ensure that the Company is capable at all times of carrying on its business independently of BV-Tech and its associates and for the benefit of the shareholders as a whole.

Admission to trading

Application has been made to the London Stock Exchange for the admission of the Subscription Shares to trading on AIM and admission is expected to commence at 8.00 a.m. on 12 April 2017 ("Subscription Share Admission").

Once all conditions precedent to the issue of the Consideration Shares have been satisfied, application will be made to the London Stock Exchange for the admission of the Consideration Shares to trading on AIM.

The Subscription Shares and the Consideration Shares will, when issued, rank pari passu in all respects with the existing Ordinary Shares.

BV-Tech's Shareholding

Following the issue of the Subscription Shares, BV-Tech will hold 861,666 Ordinary Shares representing approximately 9.1 per cent. of the Company's issued share capital as enlarged by the issue of the Subscription Shares.

Following the issue of the Consideration Shares, BV-Tech will hold 2,843,888 Ordinary Shares representing approximately 24.8 per cent. of the Company's then issued share capital as enlarged by the issue of the Consideration Shares and the Subscription Shares.

In addition, as a result of the issue of the Subscription Shares, Andrea Stecconi's existing holding of 1,826,836 Ordinary Shares will represent approximately 19.3 per cent. of the Company's issued share capital as enlarged by the issue of the Subscription Shares. Consequently, the relationship agreement entered into at the time of the Company's admission to AIM in December 2015 between Andrea Stecconi, the Company's nominated adviser, Strand Hanson, and broker, WH Ireland, will terminate as a result of his interest in the issued share capital of the Company falling below 20 per cent.

Total Voting Rights

Following the Subscription Share Admission, Defenx will have 9,479,472 Ordinary Shares in issue and admitted to trading on AIM. The figure, therefore, of 9,479,472 may be used by Shareholders as the denominator for the calculations by which they will determine whether they are required to notify their interest in, or a change to their interest in, the share capital of Defenx under the Financial Conduct Authority's Disclosure Guidance and Transparency Rules. Defenx holds no Ordinary Shares in treasury.

Further announcements will be made upon the allotment, issue and admission to trading on AIM of the Consideration Shares.

Glossary

"End-to-end" - A system of communication where only the communicating users can read the messages. For example, companies like WhatsApp that use end-to-end encryption are unable to view their customers' messages.

"Server-based" - Data is routed through a server, which controls access - useful in corporate and regulated environments. For example, secure websites using https employ server based encryption to transmit data between the browser and server.

This information is provided by RNS

The company news service from the London Stock Exchange

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April 11, 2017 02:01 ET (06:01 GMT)