TIDMMMX
RNS Number : 1037N
Minds + Machines Group Limited
04 May 2018
Strictly embargoed until 07.01: 4 May 2018
Minds + Machines Group Limited
("MMX" or the "Company")
Acquisition of ICM Registry LLC
Conclusion of Strategic Review
Minds + Machines Group Limited (AIM: MMX), one of the world's
leading owners and operators of Internet Top-Level Domains
("TLDs"), is pleased to announce that it has entered into a
conditional agreement (the "Acquisition Agreement") to acquire the
entire membership interests of ICM Registry LLC ("ICM"), a US
company, for a cash payment of $10.0 million, funded from the
Company's existing cash reserves, and a total of 225,000,000 new
Ordinary Shares (the "Acquisition") with an equivalent value of
approximately $31.0 million*. The Acquisition is conditional on
receiving approval from the Internet Corporation for Assigned Names
and Numbers ("ICANN").
ICM, a Florida based company, is the owner of four high value,
niche TLD's that are regulated by ICANN. In its tax filings for the
12 months ended 31 December 2017, ICM reported net sales of $7.27
million and net income of $3.5 million, from approximately 100,000
registrations. In 2017, approximately 78% of revenue was renewal
based and approximately 14% was generated from premium sales.
Toby Hall, CEO of MMX, commented:
"We are delighted to have entered this agreement. We expect the
Acquisition to be earnings enhancing in the current year and
believe it will deliver scale, strong recurring revenues and
positive working capital to the Company in 2018 and future years.
Further, it will strengthen the quality of our revenues, both
accelerating MMX's already fast-growing renewal base and improving
the geographic make-up of our sales, given ICM's revenues are
primarily derived from the US and Europe. We see this transaction
as a major step forward in our ambition to introduce a progressive
dividend policy over the next 18 months."
Separately, the Company has entered into a Facility Agreement
with a vehicle associated with its substantial shareholder, managed
by London and Capital Asset Management Ltd**, which is beneficially
interested in approximately 16.03 per cent of the current issued
share capital of the Group. The $3.0 million working capital
facility, for draw-down at the Company's calling post completion of
the Acquisition, is available to support future innovation and
acquisition orientated activity.
The above transactions formally mark the end of the strategic
review process begun in May 2017.
Acquisition highlights
-- ICM is a Florida based TLD owner of four niche, high value, ICANN regulated TLD's
-- In its filed accounts for the year ending 31 December 2017,
ICM generated net sales of $7.27 million and net income of $3.5
million, from approximately 100,000 registrations
-- In 2017, approximately 78% of ICM's revenue was renewal based
and approximately 14% was generated from premium sales
-- The consideration comprises:
o $10.0 million in cash, funded from the Company's existing cash
resources;
o 96,699,235 new Ordinary Shares to be issued on Completion,
75,000,000 of which are subject to a four month lock-in and
21,699,235 of which are subject to a 12 month lock-in; and
o 128,300,765 new Ordinary Shares to be issued to the Vendors on
1 January 2019, to be locked-in until the 12 month anniversary of
Completion
-- The Acquisition is expected to be earnings enhancing in the
current year with further earnings enhancement to be targeted from
cost synergies and scale efficiencies post integration of the
Acquisition
-- ICM has historically generated high levels of recurring cash
flow which will support the Enlarged Group's strategy to introduce
a progressive dividend policy over the next 18 months
-- The Acquisition is conditional upon regulatory approval by
ICANN, which is expected to be received by 30 June 2018
("Completion"). A further announcement will be made at this
time.
Further details on the Acquisition and Facility are set out
below. The Company currently has 699,857,562 Ordinary Shares in
issue.
* Based on the closing share price of an MMX ordinary share of
10.10 pence on 3 May 2018, being the last practicable day prior to
the announcement and an exchange rate of GBP1.00 = USD1.362.
** Underlying shareholder being BNP Nominees Re: Carey Pension
3253.
For further information:
Minds + Machines Group Limited
Toby Hall, CEO 07713 341072
Michael Salazar, COO/CFO 001 310 740 7499
finnCap Ltd
Corporate finance - Stuart Andrews/Carl
Holmes/Simon Hicks
Corporate broking - Tim Redfern/Richard
Chambers 020 7220 0500
Belvedere Communications Limited
John West
Llewellyn Angus 020 3567 0515
The information communicated in this announcement contains
inside information for the purposes of Article 7 of the Market
Abuse Regulation (EU) No. 596/2014.
Minds + Machines Group Limited (LSE: MMX) is the owner and
operator of a world class portfolio of top-level domain assets
(gTLDs). As a sales and marketing-led registry business, we are
focused on commercializing our portfolio in partnership with our
expanding global network of distribution partners.
The MMX portfolio is currently focused around geographic domains
(e.g. .london, .boston, .miami, .bayern), professional occupations
(e.g. .law, .abogado, and .dds), consumer interests (e.g. .fashion,
.wedding, .vip), lifestyle (e.g. .fit, .surf, .yoga), outdoor
activities (e.g..fishing, .garden, .horse) and generic names such
as .work and .casa. As a business, we work through our expanding
international network of registrars and distribution partners to
bring the benefits of affinity based domain addresses to B2B and
consumer audiences. For more information on MMX, please visit
www.mmx.co
Background on ICM
ICM Registry LLC and subsidiaries, ICM Registry AD LLC, ICM
Registry PN LLC and ICM Registry SX LLC (together "ICM") is the
owner and operator of four niche ICANN regulated TLDs aimed at
affording greater protection to consumers on the Internet: dot-xxx,
dot-adult, dot-porn and dot-sex. ICM's TLDs are available through
many domain name resellers (registrars) around the world, including
GoDaddy, Enom, and Domain.com.
ICM's most valuable TLD is dot-xxx, which was originally awarded
to ICM in 2004 by ICANN but which did not go live until Spring 2011
following competitive challenges following the original award. The
policies by which dot-xxx operates are set by an independent body,
the International Foundation for Online Responsibility ("IFFOR"),
which was established to promote user choice, parental control, and
the development and adoption of responsible business practices
designed to combat online child abuse images. ICM partners with a
range of content monitoring organisations, most notably the
Internet Watch Foundation, to ensure its policies are maintained by
underlying website operators within the TLD. In 2012, ICM
successfully applied for and subsequently won the rights for
dot-adult, dot-porn and dot-sex under ICANN's new gTLD program. The
premise for each of the TLDs is to provide clear labelling to
Internet users through the domain ending as to the likely content
of a website, in much the same way film bodies and leading
streaming media companies provide guidance as to the content of a
film before it begins or is played.
As at 31 December 2017, ICM had five full-time employees and
three part-time employees. Employees are located in Florida and
Utah.
Background to and strategic rationale for the Acquisition
As a registry business, MMX's strategy is to a build a strong,
annuity based business of scale founded on recurring revenues. In
2017, MMX saw 100% growth in its renewal revenues with renewal
revenues of $4.8 million accounting for approximately 34% of total
2017 revenues. One-off premium sales accounted for approximately
49%, with approximately 53% of the Company's revenue being
generated from China. By contrast, ICM's revenues are predominately
derived from the US and Europe with renewal revenue accounting for
approximately 78% of their 2017 revenues and premium sales for
approximately 14%. The MMX Board expects that the Acquisition will
be earnings enhancing in the current year, with the scope for
further earnings enhancement through cost synergies post
integration of the Acquisition, increased operational leverage and
scale efficiencies. The MMX Board believes that the Acquisition
will position MMX as one of the leading gTLD operators in terms of
revenue and EBITDA.
ICM summary financials
In its filed accounts contained in the federal tax returns for
the year ending 31 December 2017, ICM generated net sales of $7.27
million and net income of $3.5 million, with total assets as at 31
December 2017 of $2.9million. Approximately, 78% of its revenues in
2017 were renewals with 14% being generated from premium sales. The
remainder was generated from standard new sales.
Summary of the Acquisition Agreement
Under the terms of a sale and purchase agreement dated 3 May
2018 (the "Acquisition Agreement") the Company has agreed, subject
to ICANN approval of a change of control of the dot-.XXX, .
dot-porn, . dot-sex and . dot-adult TLDs (together the "ICM TLDs"),
to acquire 100% of the issued membership units of ICM. ICM comprise
the following vendors: Stuart Lawley, Afilias USA Inc., Hawthorn
Corporation, Teresa Perea, Lynda Bradshaw and John Katona (together
the "Vendors").
Under the terms of the Acquisition Agreement, subject to
Completion, the Company will immediately pay to the Vendors (pro
rata to their interest in ICM) $10.0 million (the "Cash
Consideration") and issue 96,699,235 new Ordinary Shares at a
deemed price of $0.1376 per Ordinary Share (the "Consideration
Shares") based on the 10.10 pence mid-price of the Company's shares
listed on the London Stock Exchange at the close of 3 May 2018 (at
an exchange rate of GBP1.00 = USD1.362). In addition to the Cash
Consideration and the Consideration Shares, on 4 January 2019 the
Company will issue to the Vendors (and/or their appointed
nominees), in aggregate 128,300,765 new Ordinary Shares at a deemed
price of $0.1376 per Ordinary Share (the "Deferred Consideration
Shares") based on the 10.10 pence mid-price of the Company's shares
listed on the London Stock Exchange at the close of 3 May 2018 (at
an exchange rate of GBP1.00 = USD1.362).
As a condition of Completion, both the Consideration Shares and
the Deferred Consideration Shares will be subject to lock-in and
orderly market conditions as set out below:
-- 75,000,000 Consideration Shares shall be subject to a four
month lock-in period from Completion during which time Vendors
shall be prohibited from selling their respective holding of
Consideration Shares (other than in certain specific circumstances
including a general offer for the Company or in the event of death
or an intervening Court Order), after which period the Vendors
shall be subject to orderly market obligations in relation to
proposed sales for a period of 12 months;
-- 21,699,235 Consideration Shares shall be subject to a 12
month lock-in period from Completion during which time Vendors
shall be prohibited from selling their respective holding of
Consideration Shares (other than in certain specific circumstances
including a general offer for the Company or in the event of death
or an intervening Court Order), after which period the Vendors
shall be subject to orderly market obligations in relation to
proposed sales for a period ending 31 December 2019; and
-- 128,300,765 Deferred Consideration Shares shall be subject to
a lock-in period expiring on the 12 month anniversary of Completion
during which time Vendors shall be prohibited from selling their
respective holding of Consideration Shares (other than in certain
specific circumstances including a general offer for the Company or
in the event of death or an intervening Court Order), after which
period the Vendors shall be subject to orderly market obligations
in relation to proposed sales for a period ending 31 December
2019.
The Company and the Vendors provided customary warranties to
each other in relation to the Acquisition, including in particular
a tax indemnity from the Vendors in relation to the tax liabilities
of ICM prior to Completion.
New Facility
Separately, the Company has entered into a Facility Agreement
with a vehicle associated with its substantial shareholder, managed
by London and Capital Asset Management Ltd, which is beneficially
interested in approximately 16.03 per cent of the current issued
share capital of the Group.
The Facility Agreement provides a $3.0million working capital
facility, for draw-down at the Company's calling post completion of
the Acquisition, to support future innovation and acquisition
orientated activity by the Company. The term of the Facility is up
to 12 months from Completion (the "Availability Period"). The
interest payable will be 0.5% (monthly) on funds not drawn and 1%
(monthly) on funds drawn. Interest will be paid by the Company
during the period of the loan exercised by the Company and will not
accrue and compound. Funds can be drawn down at any time during the
Availability Period, in one tranche or through multiple draw-down
notices The Facility Agreement contains customary events of default
to protect the Lender, following which the Facility would become
immediately repayable. The Directors have no current intention of
drawing down the Facility but welcome the increased financial
flexibility that it affords.
Related Party Transaction
The provision of the Facility is deemed to be a related party
transaction pursuant to the AIM Rules for Companies as the Lender
is a substantial shareholder in the Company (the "Related Party
Transaction").
The Board has considered alternative forms of funding and
reviewed other options that may be available from other debt
providers. Having consulted with the Company's Nominated Adviser,
finnCap Ltd, the Directors consider the terms of the Facility to be
fair and reasonable insofar as the Company's shareholders are
concerned.
Admission/Issue of Equity
Completion of the Acquisition is conditional upon ICANN approval
and the admission of 96,699,235 Ordinary Shares to be issued to the
Vendors in connection with the Acquisition to trading on AIM
("Admission"). MMX will apply to the London Stock Exchange for the
Admission of such Ordinary Shares upon receipt of ICANN approval. A
separate announcement will be made in due course.
This information is provided by RNS
The company news service from the London Stock Exchange
END
ACQUORARWKAVRUR
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