Cloudcoco Regulatory News (CLCO)

1 August 2011

Pinnacle Telecom Group plc ("the Company")

Acquisition of the business and assets of MacLellan IT Ltd

Pinnacle Telecom Group plc, the provider of cloud based technology solutions, is pleased to announce it has acquired the business and assets of MacLellan IT Ltd ("MacLellan"), a provider of IT solutions to the SME and mid-market, through its subsidiary Pinnacle Cloud Solutions Ltd ("Pinnacle").

Ý Acquisition of MacLellan IT Ltd for a total consideration of £1,060,465.

Ý Consideration satisfied in shares at 0.57p per share - a premium of 58%.

Ý The acquisition is expected to be earnings enhancing from the outset.

Ý The acquisition of MacLellan forms a key part of Pinnacle's strategy by escalating its in-house IT capability as it continues to build out its cloud services proposition.

Ý MacLellan's customer base complements that of Pinnacle and further strengthens its presence in the Scottish SME market.

Ý Strong cross-selling opportunities exist across the combined businesses.

Ý MacLellan's business has performed well in the last two years, despite the economic downturn, delivering unaudited retained profit in the full year to June 2011 of £240,065 (2010: £272,816).

The acquisition of the business and assets of MacLellan was acquired for a total consideration of £1,060,465 satisfied by the issue of 186,041,228 shares at a price of 0.57p per share, which represents a premium of 58% when compared to the mid-market price of 0.36p per share at the close of business on 29th July 2011.

The acquisition is conditional only upon the admission of the shares to AIM, which is expected to take place tomorrow, 2nd August 2011. Following admission, the sellers will have a notifiable interest in 186,041,228 shares representing 9.06% of the issued share capital of the Company. The sellers are unable to dispose of any shares, subject to certain exceptions, until a 20 month period has elapsed after completion.

Below are the unaudited annual results of MacLellan, which are prepared under UK GAAP.

Figures for the year ended 30th June 2011 are taken from the 2011 unaudited management accounts.

Figures for the year ended 30th June 2010 are taken from the filed accounts for that year.

The deal has been structured as a sale of the business and assets. The share capital of MacLellan has not been acquired. This allows Pinnacle to quickly integrate the operations of MacLellan, and avoids the ongoing costs associated with adding another limited company to the group structure. The Company fully expects to be able to novate the customer and other relevant contracts to Pinnacle.

Pinnacle is acquiring only the relevant operating assets of the business, less any associated liabilities attaching to the transferring assets. The Company estimates that the fair value of the transferring assets can be apportioned to the total consideration as follows:

The above figures are estimated. The business and asset purchase agreement includes a mechanism to review certain assets and agree the final figures within 30 business days following completion.

Information about MacLellan

MacLellan, based in Scotland, was established in 1999 as an IT outsourcing specialist. It provides a range of services and solutions to its clients, which includes IT strategy development, hardware and software installation, helpdesk support, various disaster recovery solutions and system integration. Through its Mainstay product, which has been developed in-house, MacLellan has particular expertise in the provision of property management software solutions. Mainstay is a front of house programme, which provides a comprehensive management solution for UK hotels and guest houses. Pinnacle has also acquired the Mainstay intellectual property and aims to evolve Mainstay into a cloud-based application over time.

With many years of experience across a broad spectrum of IT and Telephony projects, MacLellan is able to offer bespoke consultancy services to help clients both manage and maximise the effectiveness of their internal systems and operations in these areas. Pinnacle Telecom Group plc has built a strong reputation in this field and has a track record of success with a number of high profile clients throughout Scotland. As well as adding specialist expertise to Pinnacle, this acquisition brings a customer base of approximately 200 clients, nearly half of whom are on monthly support contracts.

MacLellan is highly profitable. It enjoys gross margins of 50%, and profit margins of 27%. MacLellan's revenue is mainly achieved from project revenues. A breakdown of the revenues is as follows:

MacLellan operates in multiple markets and is not reliant on any particular market. Many of its customers have enjoyed a long term relationship and the levels of attrition are low. The spread of clients has resulted in repeat business over many years. The directors believe that the acquired customer base would react well to a cross-selling campaign of Pinnacle's services and solutions into this base. The acquired business has 9 employees, all of whom will transfer to Pinnacle at completion. The key driver of the business, and an original founder, Katherine Melton-Scott, will be staying with Pinnacle, post completion.

Comments

Commenting today Katherine Melton-Scott, Managing Director of MacLellan IT Ltd, said:

"We've waited a long time to find a synergistic company that reflects our commitment to outstanding customer service and value for money. We were particularly impressed with Pinnacle's unique ability to harness innovations in technology and then deliver them in a business focused, market friendly manner. The acquisition significantly enhances the portfolio of services that the enlarged Group can offer, enabling one-stop, turnkey integrated solutions for Pinnacle's customers."

Commenting today Alan J Bonner, Chief Executive of Pinnacle Telecom Group plc, said:

"In order for Pinnacle to build out its cloud-solutions proposition, it has always been part of our strategy to increase our IT capability, I am therefore delighted to have agreed a deal with MacLellan and look forward to working with Katherine and her team. This latest acquisition is clearly earnings-enhancing, it is also an all-share deal with lock-in provisions, which preserves cash, aids an orderly market and keeps the Company free of bank debt.

Pinnacle shares a similar culture and set of values to MacLellan, which is focused on providing an exceptional level of service to its client base of approximately 200 business customers. It is also highly complementary to Pinnacle and brings the Company a group of skilled IT professionals, capable of helping business customers migrate to cloud-based solutions over time.

Importantly, we can see immediate value being added by the acquired business, which is profitable; enjoying retained operating profit for the full year to June 2010 of £272,816 and unaudited retained profit for the full year to June 2011 of £240,065.

The acquisition of MacLellan is very much in keeping with our strategy to build Pinnacle through bolt-on, well priced acquisitions; thereby enhancing our services, particularly through the deployment of next generation, cloud-based IP solutions, as well as strengthening our organic growth capabilities.

I continue to search for additional earning-enhancing acquisitions of this nature."

Enquiries:

About Pinnacle

Pinnacle Telecom Group plc (AIM: PINN) is a value added, solutions based provider of integrated telecommunications services including IP solutions. It focuses on the SME market across the UK, where it provides a wide range of communications solutions including telecommunications calls, access and consultancy, IT support, mobile solutions - both voice and data and hosted broadband voice services.

Pinnacle is a fully licensed Public Telephone Operator, has its own telephone network and interconnects with BT, Virgin Media and THUS. It has its own hosted voice (VoIP) platforms and engineers and owns Scotland's oldest ISP (and a founder member of Nominet), operating from its data centres in Glasgow, London and Brighton.

Pinnacle's strategy is to be a SME focused, value added, solutions based provider of next generation, cloud-based IP solutions, driven by leveraging organic opportunities as well as through targeted acquisitions. Pinnacle is seeking to acquire and grow businesses to bring together the four main elements of; traditional telephony, hosted cloud-based services, IT support and data centres. A particular target area is data centres, where the combination of recurring revenue and a platform to expand its hosted cloud-based services, would create a compelling earnings-enhancing proposition. A strategic acquisition in this area would potentially be transformational and as data centres are worldwide, it is widening the search parameters.