Adept4 Share Discussion Threads

[freddie01] 06/10/2019 17:23

Look. Let's call a truce as it's such a shame it's come down to this. Let the deal go through and see how they perform from there.

It's just a difference of opinion at the end of the day.

Good luck whichever way you're invested.

[moneymunch] 06/10/2019 14:15

LETTER FROM THE CHAIRMAN

ADEPT4 PLC
(a public limited company incorporated in England and Wales with registered number 05259846)

Directors: Registered Office:
Simon Duckworth, Non-Executive Chairman 5 Fleet Place
Jill Collighan, Chief Financial Officer London
Tom Black, Non-Executive Director EC4M 7RD

2 October 2019
To holders of Ordinary Shares and, for information only, to holders of Options and Warrants

Dear Shareholder,

Proposed acquisition of CloudCoCo Limited
Proposed issue of 218,160,586 new Ordinary Shares
Proposed change of Company name
Accelerated Rule 9 Waiver
Notice of General Meeting

1. INTRODUCTION
On 2 October 2019, the Board announced that the Company had conditionally agreed to acquire, through its wholly owned subsidiary Adept4 Holdings Limited, the entire share capital of CloudCoCo Limited, a cloud, IT hardware, and IT services company.

The consideration for the Acquisition, in accordance with the Acquisition Agreement, is to be satisfied through the issue to the Sellers of loan notes in Holdings, such loan notes to be exchangeable immediately upon Completion as detailed in paragraph 4 below for 218,160,586 Ordinary Shares in the Company which will represent, in aggregate, approximately 49.0 per cent. of the Enlarged Share Capital. At the mid-market closing price of 2.8 pence on 1 October 2019, the
latest practicable date prior to the publication of this document, the Acquisition Shares represent a total value of £6.1 million.

The Acquisition Shares will rank pari passu in all respects with the Ordinary Shares in issue prior to Completion, including the right to receive all dividends and other distributions declared following Admission.

The Code applies to the Company and as such the Shareholders are entitled to the protections afforded by the Code, as described in paragraph 9 below.

Subject to Completion, the Concert Party will hold 64.3 per cent. of the voting rights of the Company which, without a waiver of the obligations under Rule 9 of the Takeover Code, would require the Concert Party to make a general offer for the Company.

The Panel has agreed to approve an Accelerated Rule 9 Waiver, having received written confirmation from Independent Shareholders holding, in aggregate, in excess of 50 per cent. of the existing voting rights in the Company, capable of being voted at a general meeting, consenting to this waiver without the requirement for the waiver to be approved by Independent hareholders at a general meeting. Further details in relation to the Accelerated Rule 9 Waiver are set out in paragraph 9.2 below.

Notice of the General Meeting, at which the resolutions to approve the issue of the Acquisition Shares and a change of the name of the Company, conditional on Completion, is set out at the end of this document.

Should the approval of Independent Shareholders not be obtained at the General Meeting for the Allotment Resolutions, the Acquisition will not proceed.

The purpose of this letter is to explain the reasons for the Acquisition and why the Directors consider the Acquisition to be in the best interests of the Company and Shareholders as a whole and recommend that Shareholders vote in favour of the Resolutions to be proposed at the General Meeting.

2. BACKGROUND TO AND REASONS FOR THE ACQUISITION

Adept4 delivers IT as a service (“ITaaS”) to small and medium-sized businesses across the UK, providing customers with the technology and support needed in accordance with their business requirements, billed on a monthly basis, based on what is consumed. The Company has pursued a Microsoft-focused, asset light, ITaaS-led strategy and has developed and expanded its solutions portfolio to continue to be relevant to its customers.

The Company has been challenged by the general level of economic uncertainty in the market coupled with the investments made in a new sales team during the previous financial year not delivering the results the Board had expected.

Continued delays in new sales in the current financial year led to the Group experiencing monthly Trading Group EBITDA and cash losses. As a result, and in order to protect the cash reserves of the Group whilst the Board considered the strategic options available to the Company, the decision was taken to focus on the Group’s existing customer base with less emphasis on new business acquisition.

Whilst this has led to reduced revenue and gross profit, it requires a significantly lower operating cost base and therefore a cost reduction programme was implemented which completed in March 2019.

The performance of the Group was further affected by the loss, in April 2019, of a customer contract which generated £0.7 million of revenue in the year ended 30 September 2018. The combined effect of these changes mean that the Group has returned to modest levels of monthly Trading Group EBITDA profit generation and the monthly net cash outflows (after plc costs and debt service costs) have reduced.

The Company has, over recent months, explored several strategic options including the proposed Acquisition which, the Board has concluded, represents the best opportunity to return to growth and generate longterm value for all stakeholders.

CloudCoCo was established in September 2017 by the former sales directors of Redcentric plc (a UK managed service provider) and offers a variety of cloud computing services, IT hardware, managed IT services, voice and connectivity solutions via its partner ecosystem, working with a number of entities to
provide services such as Microsoft Citrix, Fortinet, Alibaba Cloud services and Amazon Web Services.

CloudCoCo aims to offer its customers a simplified approach to IT services. Though only recently established, CloudCoCo is currently trading profitably and has a strong and growing pipeline of new business opportunities.

CloudCoCo brings with it a very strong and experienced sales and business development team.

Adept4’s top 20 customers represent c.50 per cent. of its revenue and profitability and they will be a focus for the team at CloudCoCo. The CloudCoCo management team has already shown its ability to win new business using its agile sales methodology and believes that the customer base of Adept4 will respond positively to this modern way of working.

It is proposed that Andy Mills, current chairman of CloudCoCo, will join the
board of Adept4 as Chief Executive Officer and will focus on driving the growth of the Enlarged Group. Mark Halpin (founder and current Chief Executive Officer of CloudCoCo) will lead the business development activities, with Robert Speight and Graham Collinson (respectively CloudCoCo’s Chief Sales Officer and Chief Operating Officer) concentrating on existing customers of the Enlarged Group.

3. INFORMATION ON CLOUDCOCO

CloudCoCo has established itself as an asset light, talent rich cloud solutions business. Its management believes that with its simplified approach and by remaining independent and acting as a broker across several providers and partners, it can deliver solutions in a highly responsive and agnostic manner when
compared with traditional IT services companies.

Though the company only began trading in April 2018, CloudCoCo was included in the Digital Enterprise Top 100 campaign to profile and celebrate the Leeds City Region’s most innovative, digitally mature, and transformational businesses. It has established itself on the YPO framework and the recent G-Cloud 11 framework which comprises a series of framework agreements with suppliers for which UK public sector organisations can buy cloud-based services covering hosting, software and cloud support, with 18 listings.

MXCG supported CloudCoCo by an initial investment of £100,000 for a 10.6 per cent. shareholding. Shortly before the Company entered into the Acquisition Agreement, MXCG sold this shareholding to Andy Mills, who it is proposed will become Chief Executive Officer of the Enlarged Group on Completion.

For the period 12 April 2018 (the date on which CloudCoCo commenced trading) to 30 September 2018, CloudCoCo generated revenue of £252,000 and a loss after tax of £112,000. As at 30 September 2018, the gross assets of CloudCoCo totalled £400,000. For the 11 months to 31 August 2019, CloudCoCo generated revenue of £1,021,000 and a profit before tax of £45,000. All figures in respect of CloudCoCo are unaudited.

CloudCoCo’s strategy is to focus on winning multi-year recurring revenue contracts with the intention that the profitability of the business improves across future years. It has already signed multi-year contracts with respected customers.

4. DETAILS OF THE ACQUISITION AGREEMENT

The Company and Holdings have entered into an agreement to acquire CloudCoCo for loan notes in Holdings, such loan notes being exchangeable for 218,160,586 new Ordinary Shares at any time within 10 Business Days from Completion. Adept4 will serve notice such that the Acquisition Shares will be issued to the Sellers immediately upon Completion. At the mid-market closing price of 2.8 pence on 1 October 2019, the latest practicable date prior to the publication of this document, the Acquisition Shares represent a total value of £6.1 million. The Sellers have provided warranties and indemnities appropriate to a transaction of this nature.

The Directors expect that the Acquisition will complete on 21 October 2019.

Additional information regarding the Acquisition Agreement is set out in the Appendix to this document.

The Acquisition Shares will be subject to a 12 month lock in followed by a 12 month orderly market agreement as detailed in paragraph 11 below.

5. INFORMATION ON CURRENT TRADING

The recent financial performance of Adept4 was set out in the Company’s unaudited interim results announcement released on 28 June 2019. For the six months ended 31 March 2019 revenues totalled £4.2 million with Trading Group EBITDA of £15,000 and a loss after tax of £1.1 million.

Net debt as at 31 March 2019 totalled £3.4 million. For the year ended 30 September 2018 revenues totalled £10.3 million, with Trading Group EBITDA of £0.6 million and a loss after tax of £3.8 million.

6. PROPOSED DEBT REFINANCING AND WARRANT AND OPTION AMENDMENTS

Adept4 currently has £5 million of unsecured loan notes in issue which are held by BGF. Conditional upon Completion:

l Pursuant to the Debt Refinancing Agreement, £1.5 million of the loan notes will be cancelled, thereby reducing the liability of the Company, and BGF will waive its rights to any redemption of the cancelled loan notes and any interest accrued thereon in respect of the period 30 June 2019 to 30 September 2019 (inclusive).

BGF will also, at that time, release the subsidiaries of the Company from a guarantee and indemnity pursuant to which the subsidiaries provided credit support to the Company by guaranteeing its obligations under the loan notes;

l Also pursuant to the Debt Refinancing Agreement, MXCG (a wholly owned subsidiary of MXC Capital Limited) will purchase the remaining £3.5 million loan notes currently held by BGF at a price of £3.5 million. These loan notes will then be amended pursuant to the Deed of Variation. The amended loan notes will have a term of 5 years, and a coupon of 12 per cent. per annum, which is to be rolled up, compounded annually and payable at the end of the term;

l Furthermore, MXCG has agreed to provide an additional unsecured working capital facility to the Enlarged Group of up to £0.5 million pursuant to the Facility Agreement, with a term of 24 months and interest charged at a rate of 12 per cent. per annum on amounts drawn down;

In respect of the Options held by BGF to subscribe for 50,000,000 Ordinary Shares of the Company at a price of 6 pence per Ordinary Share, conditional upon Completion and pursuant to the Amended and Restated BGF Options, the exercise price of BGF’s current Options over 50 million shares will be rebased to 0.35 pence per share.

The terms of these Options will also be amended so that, save for certain customary exceptions (for example, a consolidation of the Ordinary Shares in issue), the exercise price will not be adjusted for any future event;

and l MXCG will cancel the Warrants it currently holds over 5 per cent. of the share capital of the Company as well as rights over new Warrants over 5 per cent. of any future issue of new Ordinary Shares pursuant to the Deed of Termination of MXC Warrants. On completion of the Acquisition, MXCG will not therefore hold Warrants over the share capital of the Company.

7. STRATEGY OF THE ENLARGED GROUP

Following completion of the Acquisition, the focus of the Enlarged Group will be on driving sales growth by leveraging the sales expertise of the CloudCoCo team alongside the existing infrastructure within Adept4 in order to build value for all stakeholders.

This sales growth is expected to come from both harvesting the strong relationships with existing customers of the Enlarged Group as well as from new customers.

The focus of the Enlarged Group will be on winning multi-year recurring revenue contracts with the intention that the visibility and profitability of the business improves across future years.

In addition, the Enlarged Group intends to expand its ecosystem of partners and supplier relationships in order to provide a range of flexible IT solutions to its customers via a simplified and agile approach.

8. PROPOSED BOARD, MANAGEMENT AND COMPANY NAME CHANGES

Following Completion, it is proposed that Andy Mills, current Chairman of CloudCoCo will join the board of Adept4 as Chief Executive Officer. Over the past 25 years, Andy has managed and helped to grow numerous technology companies. Andy co-founded Intrinsic Networks, which he sold to a buy and build IT services company and has held a number of senior leadership positions.

He has worked successfully in the technology industry for many years as a sales director and managing director and was most recently the sales director of Tax Systems plc which was a successful public company until it was recently taken private by a private equity company.

Upon his proposed appointment as Chief Executive Officer, Andy Mills will enter into a new service contract with the Company on a salary of £140,000 per annum, with the possibility of a discretionary bonus to be determined on criteria to be agreed with the Remuneration Committee in addition. Further details of Mr Mills’
service contract are provided in the Appendix to this document. Mr Mills’ appointment to the Board is conditional upon, inter alia, satisfactory completion of regulatory checks in accordance with Rule 17 and Schedule 2(g) of the AIM Rules.
It is also proposed that Tom Black, Non-Executive Director, will step down from the Board once a suitable replacement independent Non-Executive Director has been found.

The Company proposes to undertake a search for a suitable successor following Completion.

In addition, Mark Halpin, Chief Executive Officer and founder of CloudCoCo, will lead the Enlarged Group’s business development activities following Completion. Mark was previously New Business Sales Director of Redcentric and has over 20 years’ experience of new business acquisition.

Subject to Shareholder approval, it is proposed, in due course, to change the name of the Enlarged Group to CloudCoCo Group plc. Should Shareholder approval be granted for the change of name the Company also intends, following completion of the Acquisition, to change its ticker to CLCO.L and its website address will be changed, as part of the rebranding programme to be undertaken after Completion, to
www.cloudcoco.co.uk.

A separate timetable for each of these matters will be announced in due course
following Completion.

...........................................

RELATIONSHIP AGREEMENT

With a view to preserving the independence of the Company from certain Sellers who, on Completion, will hold 31.6 per cent. of the voting rights of the Company, the Company and Mark and Caroline Halpin, have agreed (conditional on Completion) to enter into the Relationship Agreement with N+1 Singer pursuant to which they will ensure that the Company is capable of carrying on its business independently of them and their associates.

Under the terms of the Relationship Agreement, Mark and Caroline Halpin undertake, inter alia, that they shall use all their rights and powers (including, without limitation, voting rights) (“Voting Rights”) attaching to the Acquisition Shares in which they are interested from time to time, and shall procure that their ssociates
shall use their Voting Rights, to procure that the Enlarged Group and its business shall be managed for the benefit of the Shareholders as a whole.

The Relationship Agreement shall be immediately terminated if Mark and Caroline Halpin and/or any of their associates cease to be Shareholders together holding directly or indirectly 25 per cent. or more of the issued ordinary voting capital of the Company.

Further details of the Relationship Agreement are set out in the Appendix to this document.

LOCK IN AND ORDERLY MARKET AGREEMENT

The Sellers have agreed to enter into lock-in deeds on Completion whereby they undertake not, for a period of 12 months from Completion, to sell, charge or grant any interest over any Acquisition Shares held by them; and to not, for a further period of 12 months thereafter, make any disposal of any Acquisition Shares
otherwise than through N+1 Singer subject in each instance to customary carve-outs.
Further details of the Lock In Agreement are set out in the Appendix to this document.

PROPOSED MANAGEMENT INCENTIVISATION ARRANGEMENT

The Directors and the Proposed Director believe that the success of the Enlarged Group will depend, to a high degree, on management and other members of staff being appropriately motivated and rewarded. It is therefore currently proposed that, shortly following Completion, a new incentive scheme will be put in place over new Ordinary Shares, in an amount equal to up to 15 per cent. of the Enlarged Share Capital.

The new incentive scheme will be designed to assist in the recruitment, motivation and retention of staff and will carry performance conditions which align the interests of the management team with those of Shareholders.

[computercoders] 04/10/2019 20:44

I'll copy and paste for those on here "Beeks is my follow-along troll bulletin board stalker by the way Linton...like my shadow. Excuse his foul mouth. My nickname for him is "Reek". I chopped off his todger last year which has calmed him down some but he's still a bit fiesty with the old swear words the poor little chap. Only 4 foot 9 so go easy on him. He's from Leeds. A nice little chap, managed to tame him somewhat poor old chap."

[computercoders] 04/10/2019 20:44

I'll copy and paste for those on here "Beeks is my follow-along troll bulletin board stalker by the way Linton...like my shadow. Excuse his foul mouth. My nickname for him is "Reek". I chopped off his todger last year which has calmed him down some but he's still a bit fiesty with the old swear words the poor little chap. Only 4 foot 9 so go easy on him. He's from Leeds. A nice little chap, managed to tame him somewhat poor old chap."

[computercoders] 04/10/2019 19:52

Not going through this again with the village idiot

[beeks of arabia] 04/10/2019 18:53

Really? I'm pretty sure he said AD4 paid 6.1m for cloudcoco, when they quite obviously didnt.He hasn't got a scooby, just like you.

[computercoders] 04/10/2019 18:18

Beeks - Chimers owned you this week you silly fool. If only you had a brain hey...and money

[computercoders] 04/10/2019 14:40

Good topup opportunity before next news imo

[moneymunch] 04/10/2019 12:08

Lots of potential game changing material news awaiting disclosure from CloudCoCo in 2 weeks time....Gla holders:-)

[computercoders] 04/10/2019 09:57

You don't have to post on a share bb to invest in a share or trade it. Lol it isn't a prerequisite.

[sharestobuy] 04/10/2019 08:30

My target here has gone from 10p to 5p. On news on wednesday we havent really risen at all. It almost got up to 4p and now its back to 2.7p so almost the news has had no affect. More to come however 10p now looks out of the question

[computercoders] 04/10/2019 08:17

Hope you guys followed my tip on BPC lol imo GLA

[computercoders] 04/10/2019 08:08

Beeks - BPC is not my new share, I've been in and out of it whilst maintaining a core holding for around 4 years lol.

[computercoders] 03/10/2019 19:04

Beeks - hard for someone like you with no cash to understand but it's possible to be in multiple shares.

[beeks of arabia] 03/10/2019 19:01

LoL!Looks like the ctea and ad4 party is over for CC.What a clueless bell.

[computercoders] 03/10/2019 17:50

Checkout BPC more gains to come tomorrow imho. I know the company like the back of my hand. 2.5p in first hour tomorrow is my prediction imo GLA

[moneymunch] 03/10/2019 16:47

Looks like the impatient were happy to give their shares up cheaply today....Gla ;-)