Earthport Regulatory News (EPO)

18 August 2014

Earthport plc

("Earthport", or the "Company")

Acquires Minority Stake in ASPone to Reinforce Existing Supplier Relationship

Earthport plc (AIM: EPO, "Earthport"), the cross-border payments service provider, and ASPone Limited ("ASPone"), a leading-edge financial technology company and important existing supplier to Earthport, have reinforced their customer-supplier relationship by the entry into an agreement between Earthport and the shareholders of ASPone, whereby Earthport will purchase a 45% stake in ASPone in four years' time (the "agreement").

For Earthport, this forward acquisition will be based on a minimum enterprise value of £6 million for 100% of ASPone, which will be reduced by an amount equal to any distributions from ASPone to its existing shareholders from its free cash flow over the next four years. The maximum amount payable by Earthport for the 45% stake in ASPone will be £2.7 million, which will be reduced by an amount equal to any distributions from ASPone to its existing shareholders or debt holders from its free cash flow over the next four years as well as by 45% of ASPone's net debt at the time of acquisition of the stake. The agreement also includes protective provisions for Earthport and options for Earthport to acquire the balance of ASPone's issued share capital as detailed below.

The reinforcement of the relationship between the two companies represents a strategic opportunity for Earthport to leverage ASPone's sophisticated and highly scalable development capabilities, based out of multiple international locations, to better serve its existing and future clients, and continue to enhance the functionality of its leading payments platform.

ASPone is specialised in the development and provision of technology and communication based solutions for the finance industry. It has a broad international presence with offices in Istanbul, Moscow, Singapore, Hong Kong and London. The company has deep expertise in fast, high-volume, highly robust transactional systems tailored to the needs and constraints, including compliance, of financial companies. ASPone is organised around two divisions: (i) a systems division that sells trading solutions, as well as architecting, developing, maintaining and/or hosting bespoke financial software solutions, and (ii) a networks division that sells voice and data connectivity solutions to financial institutions.

For the financial year ended 31 March 2013, ASPone had a turnover of £5.2 million, loss before taxation of £0.8 million, and net liabilities of £2.6 million. ASPone's revenues or costs will not have any direct impact on Earthport's revenue or costs other than as a strategic supplier which will continue to be negotiated on a commercial basis.

Hank Uberoi, CEO at Earthport, said: "Since re-focusing our strategy in 2010, and in the last 18 months in particular, Earthport has made significant progress in creating a modern day utility for cross-border money movement. This is clearly evidenced by the blue-chip list of leading global financial institutions that have become clients, and the growth in value and scope of pipeline opportunities. As we continue forward towards becoming a true global utility we are constantly looking to grow our capabilities to offer our clients additional value-added services.

"The addition of 100+ currencies capability through the acquisition of Baydonhill last year has added significantly to our product capability. Now the forward purchase of a significant minority stake in ASPone provides Earthport with an additional comfort to deepen its customer-supplier relationship. Our reinforced partnership with ASPone will allow us to leverage their technology assets more extensively to better serve our customers and to achieve scale at pace. In addition, we believe that the financial terms secured provide a prudent level of protection whilst also reflecting our belief in the strength of the ASPone team and offering. We have had a strong working relationship with ASPone for some time; going forward, we look forward to further solidifying this relationship and working more closely together to service our global clients and, in some cases, accelerate their ability to adopt our solution."

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Transaction details

On 15 August 2014, Earthport entered into a sale and purchase agreement with (1) Ekwienox Limited; (2) Mustafa Sina Hakman; (3) Julian Kelly; and (4) Patrick McGrath for the purchase of up to 100 per cent. of the issued share capital of ASPone.

Consideration

For the 45% stake (the "Minority Stake"):

For 4 years from the date of the agreement, excess free cash flow will be used to repay existing shareholder debt, as well as fund any potential management incentive payments, and distributions to the ASPone shareholders prior to the date of the agreement (the "Existing Shareholders") up to a cumulative maximum of 45% of (£12 million less net debt of ASPone in 4 years) (collectively, the "Distributions").

If the Distributions are equal to or greater than 45% of (£6 million less net debt of ASPone in 4 years), then no consideration will be due to the Existing Shareholders for the Minority Stake. This equates to a minimum enterprise valuation of £6 million, potentially funded by the Distributions.

If the Distributions are lower than 45% of (£6 million - net debt of ASPone in 4 years), then Earthport will pay the Existing Shareholders the shortfall as consideration for the Minority Stake. Any consideration can be paid to the Existing Shareholders in cash or shares at Earthport's option. Any shares used for payment would be valued based on average middle-market closing price of an Earthport share in the 10 trading days prior to the payment becoming due.

At Earthport's discretion, the 4-year, forward purchase of the Minority Stake can be accelerated at any time, subject to the minimum enterprise valuation of ASPone being increased to £12 million. In such a case, the payment of consideration would not be due at the time of the accelerated purchase, but paid in equal monthly instalments in the period starting 6 months from the date of the accelerated purchase and ending 4 years from the date of the agreement.

Primarily due to the fact that the only commitment of the agreement is the forward purchase of the Minority Stake, no consolidation of ASPone accounts into Earthport's is envisaged in the near- to medium-term. Following the agreement, it is anticipated that the transaction will be accounted for as a single balance sheet item.

Protective Provisions

Earthport has reasonable protective provisions, including over ASPone's future issuance of debt and distributions.

Earthport also has two call options, granted pursuant to the agreement, over ASPone's equity:

1st Option: On 10% of ASPone's equity, at same enterprise valuation as Minority Stake (including in accelerated case) calculated as 10% of (£6 million less net debt of ASPone in 5 years time). This option expires on the 5th anniversary of agreement and the payment conditions are similar to those of the Minority Stake.

2nd Option: On the balance of ASPone's fully-diluted equity not owned by Earthport, at a value equal to the higher of the two following enterprise values: (i) £6 million and (ii) 5 times ASPone's adjusted, trailing twelve month free cash flow. This option expires on the 7th anniversary of the agreement.

For the purpose of clarity, Distributions will also go towards reducing the exercise price of the options. These options can be accelerated and/or partially exercised under certain conditions. There are also provisions in case of a change in control of Earthport.

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About Earthport

Earthport plc, a regulated global financial services organisation, specialises in the provision of a white label cross-border payments service.

Through its innovative payments framework, specifically designed for high volumes of low value cross-border payments, Earthport provides a cost-effective and transparent service for secure international payments. Earthport's clients include banks, money transfer organisations, payment aggregators, e-commerce and foreign exchange businesses. Through Earthport's well established payments infrastructure, clients can clear and settle payments directly to banked beneficiaries in 60 countries.

The company is headquartered in London and is listed on the Alternative Investment Market (AIM) on the London Stock Exchange. It operates globally with additional regional offices in Dubai and New York. Earthport plc is authorised and regulated by the Financial Conduct Authority under the Payment Service Regulations 2009 for the provision of payment services. To learn more, please visit www.earthport.com and follow us via RSS or on social channels, Twitter @Earthport, LinkedIn, Youtube and Slideshare.