FLX.L Regulatory News (FLX)

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Falanx Group Limited

("Falanx" or "the Company")

Proposed Accelerated Bookbuild and Conditional Acquisition

Falanx (AIM:FLX), the global intelligence, security and cyber defence provider, is pleased to announce the proposed fundraising and conditional acquisition of First Base Technologies LLP ("First Base").

Proposed Fundraise

The Company intends to raise up to £4.6 million, before expenses via a placing of New Ordinary Shares (the "Placing Shares") at a Placing Price of 4.5 pence per Ordinary Share. The proceeds will be used to fund the purchase of First Base and the remainder for working capital, integration, development expenditure and transaction fees.

The Placing Shares are being offered by way of an accelerated bookbuild ("Bookbuild" and/or "Placing") on the Company's behalf by the Company's sole bookrunner, Turner Pope Investments (TPI) Ltd ("Turner Pope"). The Bookbuild will be launched immediately following this announcement. The timing of the closing of the Bookbuild, the final number and allocation of Placing Shares to be issued at the Placing Price are to be determined at the discretion of the Company and Turner Pope.

Mike Read, Ian Selby and Emma Shaw, Directors of the Company have indicated that they currently intend to subscribe for up to £0.36m in the Placing ("Participating Directors"). This proposed participation by each of the Participating Directors will be deemed a related party transaction under Rule 13 of the AIM Rules, further details of which will be announced separately in due course.

A further announcement will be made following closing of the Placing, confirming the final details of the fundraising. Further details of the Bookbuild can be found below.

Proposed Acquisition

Conditional on the Placing, the Company will purchase the assets of First Base for a cash consideration of £3.2m. The founders of First Base, Peter Wood and Didi Barnes (the "Vendors") will also receive warrants to subscribe for 800,000 shares in the Company with an exercise price of 4.5p per share.

First Base is a profitable cyber security testing and consulting business which was established in 1989. It has a broad spectrum of experience and a customer base of c.200 customers. These customers are spread over multiple vertical markets and range from SME's to FTSE 100 organisations. As well as traditional assessment and penetration services it is growing a wider consulting practice including "red team" assessments on wider organisational vulnerabilities. The business is based in Sussex near Gatwick airport.

In the year to 31 March 2017 it reported revenues of £1.8m and EBITDA of £0.6m and had a NAV of £0.7m. First Base also benefits from strong cash generation. Over recent periods, First Base has achieved annual revenue growth in excess of the wider industry growth rate and it is trading well in its current financial year. The acquisition is structured as an asset purchase as it is an LLP. First Base's 16 staff and customer relationships and contracts will transition into a new wholly owned subsidiary of Falanx, along with a normalised level of working capital.

The Board of Falanx believes that there are many synergies and cross selling opportunities between the current Falanx Cyber division and First Base. The targeted synergies are:

1. Deployment of Falanx's MidGARD monitoring services into the enlarged customer base. These monitoring services typically have a higher margin and better cash generation than professional services and are for multi-year periods. This should increase the overall margin and forward visibility of earnings.

2. Improved utilisation of professional services resources and deployment of specialist skills over a larger base.

3. Use of common infrastructure and processes.

The Vendors of First Base will remain as consultants with the group and will support the integration process. Thereafter, founder Peter Wood will remain as a member of the Falanx Group advisory board, supporting the executive management team with his extensive and longstanding insight and experience within the Cyber Security industry.

Consideration Warrants

The Vendors of First Base will receive 800,000 warrants over new Ordinary Shares in Falanx. They have an exercise price of 4.5 p. They will vest equally at intervals of 12, 24 and 36 months from the date of grant.

Proposed Placing - Further Detail

In the event that the Company raises £4.6 million pursuant to the Placing, the Placing Shares are expected to represent approximately 39.4% of the enlarged issued share capital of the Company at Admission and the Company has existing shareholder authorities to issue and allot the Placing Shares on a non pre-emptive basis.

The Directors expect that, pursuant to the Placing, Turner Pope will place 102,222,222 new Ordinary Shares at a price of 4.5 pence per share to raise £4.6 million before expenses.

The Placing Shares will, when issued, rank pari passu in all respects with the existing Ordinary Shares, including the right to receive dividends and other distributions declared following Admission.

Application will be made to the London Stock Exchange for the admission of the Placing Shares to trading on AIM.

Increase of Share Capital

In accordance with its Memorandum of Association of Falanx Group, the Directors have today passed a board resolution to increase the authorised level of the issue of share capital from 300,000,000, up to but not exceeding 500,000,000. The Board is mindful of the use of its power to allot share capital is in the best interests of shareholders and will support its program of value adding acquisitions and investment in services and technology.

Issue of Placing Warrants

As part of commissions for the Placing, Turner Pope will receive 2,571,111 warrants over the Company's ordinary shares. These warrants have a life of three years from the date of this announcement and a strike price of 4.5 pence. They can only be exercised if the average share price for a period of 20 consecutive trading days has been greater than 10 pence per share.

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About Falanx

Falanx Group Limited, is a global intelligence and cyber defence provider working with blue chip and government clients. The Group listed on AIM in June 2013 under ticker FLX For more information: http://www.falanx.com/