IDE.L Regulatory News (IDE)

Cupid plc

Disposal of Casual Dating Businesses

Highlights

·; The exit of Cupid plc from casual dating through the sale of Benaughty.com, Flirt.com and a number of other casual dating sites for a total value of £45.1m

·; This sale allows the Group to focus on its international portfolio of niche and mainstream online dating sites such as Cupid.com, LoveAgain.com and UniformDating.com

·; As part of the transaction Cupid plc has completed its first Flex software licensing agreement that will generate £2.0m of licence revenue for Cupid plc over the next 4 years

·; The Group continues to be profitable and cash generative

Further to the announcement on the 23 May 2013, that the Board of Cupid plc (AIM: CUP) was in discussions with third parties in relation to a possible offer for Cupid's casual dating business ("Casual Assets"), the Board is pleased to announce that it has entered into an agreement to sell the Casual Assets to Grendall Investment Limited ("Grendall"), for a total consideration of £43.1 million. Cupid has also entered into a separate software licensing agreement with Grendall worth £2.0 million bringing the total value of the transaction to £45.1 million.

Background to and reason for the Disposal

Within the online dating market there is a wide spectrum of products. At one end of the spectrum there is online dating for consumers looking for a serious relationship and a life partner, whilst at the opposite end is online dating for those just looking to have some flirtatious and short term fun, which the Company terms casual dating. Casual dating can also lead into areas of adult content, which Cupid plc has tried to avoid.

Cupid plc has always pursued a strategy of running a portfolio of sites rather than focusing all its customers into a one size fits all approach. As the dating market has grown it has become clear that pursuing a variety of sites and niches is an effective and valuable approach.

Cupid plc believes that in niches and mainstream dating, customers are demanding increasingly higher quality and that this can be a rewarding area for the Company to focus its efforts. By contrast the Company believes that the casual market consumer ultimately requires the potential for more adult oriented content and that moving towards this end of the spectrum of dating is not a route that the Company wishes to pursue.

Over the past few years, Cupid plc has increasingly invested M&A activities towards niche community sites and mainstream dating sites such as UniformDating.com and Cupid.com respectively, and then invested heavily in these sites post acquisition.

The Company believes that such sites have stronger long term potential, and building an international portfolio of niche and mainstream online dating sites makes for a better quality, more sustainable businesses in which to invest.

As such the casual sites do not fit within this approach and the Board believes that realizing cash from their sale to a party focussed on owning such assets is a very positive step for Cupid plc.

Use of Proceeds

Part of the net proceeds of the Disposal will be invested in the Group's remaining businesses for expansion and the Board is considering the options in relation to the remaining proceeds.

Cupid plc following the Disposal

Following the disposal, Cupid plc will operate a number of mainstream and niche dating sites. Those include Cupid.com, Amour.com, Serencontrer.com, UniformDating.com, GirlsDateforFree.com, Indian Dating.com, LoveAgain.com, Canoodle.com and YOLO.com as well as a number of international equivalents of these sites and the dating events business Speeddater.com.

The product portfolio will therefore consist only of mainstream dating sites and niches. The more concentrated portfolio will allow the Company to focus on improving the qualitative experience and positioning of these sites within their target audiences.

The main markets for the Company's products will remain unchanged as the UK, mainland Europe, North America and Australia, with the BRIC markets as a longer term development area.

As part of the disposal a number of staff will transfer to Grendall, primarily within the operational team in Ukraine.

The Casual Assets

The Casual Assets being sold consist of a portfolio of brands based around the following core group of sites: BeNaughty, Flirt, CheekyLovers, WildBuddies, Click&Flirt and QuickFlirt and their international equivalents. The disposal also includes the sale of 100% of the share capital of Cupid plc's Cyprus based subsidiary companies, Yarra Limited and EZD Limited which operated the Group's European casual dating sites.

In 2012 the Casual Assets of the Group generated total sales of approximately £51.1 million, and Adjusted EBITDA1 of approximately £9.7 million.

In 2012 the Group, excluding the Casual Assets, recorded sales of approximately £29.8 million, Adjusted EBITDA1 of £6.8 million and Adjusted Basic Earnings Per Share2 of 5.86 pence.

1 Adjusted EBITDA is defined as earnings before interest, tax, depreciation, amortisation, share based payments, acquisition costs and non-recurring French labour costs.

2 The adjusted earnings for the Adjusted Basic Earnings Per Share calculation is defined as profit attributable to shareholders before amortisation, share based payments, acquisition costs and non-recurring French labour costs.

Principal terms of the Sale Agreement 

The buyer, Grendall, is a BVI registered company that owns a portfolio of online dating sites and is managed by Max Polyakov, the co-founder of Cupid and a 15% shareholder of Cupid plc.

The total consideration of £43.1 million comprises:

a) An upfront consideration of £14.6 million based on:

i. cash consideration of £5.5 million payable on completion.

ii. the retention of the proceeds of the buy-back of 12,379,472 shares in the Company held on behalf of Max Polyakov and valued at £9.1 million based on the average of the market closing price of £0.732 per share for the five trading days ending Friday 12th July.

b) A deferred consideration of £28.5 million payable in monthly instalments over a 40 month period.

The shares that form part of the consideration are to be held in treasury.

As part of the transaction, and in order to secure the payment of the deferred consideration, Cupid has taken security in the form of debentures over the assets of certain companies in the Grendall Group and over the shares of Grendall and certain of its subsidiaries. This includes both Grendall's existing online dating business as well as the Casual Assets acquired from Cupid. In addition, the Company will retain title to the casual asset website domains until at least 50% of the deferred consideration has been paid.

The transaction represents a total value to Cupid plc of £45.1 millioncomprising:

i. £43.1 million in cash and retention of the buyback consideration for the sale of Casual Assets.

ii. A software licensing agreement that will generate £2.0 million of licence revenue for Cupid plc over the next 4 years. Within Cupid plc the internally developed cloud based Flex software system has allowed the Company to expand its volume of marketing spend and widen its marketing channels. Grendall already has its own platform, but has recognized the enhanced capabilities and opportunities offered by the Cupid Flex system and has chosen to migrate aspects of its platform to the Flex solution. The licence will entitle Grendall to software support, version upgrades and enhancements over the next 4 years at a cost of £0.5million per annum. Looking ahead Cupid plc will continue to explore further third party software licensing opportunities for the Flex software.

Related Party Transaction

Under the AIM Rules, as the Disposal is to a company managed by Max Polyakov, who holds more than 10% of the issued share capital of Cupid plc, it constitutes a related party transaction for the purposes of Rule 13 of the AIM Rules. The Directors, having consulted with Peel Hunt LLP, consider the terms of the Disposal to be fair and reasonable insofar as the Company's shareholders are concerned.

Current trading and strategy of the Continuing Group

Results for the Group for the first half of 2013 continue to be in line with the 21 June 2013 trading update, with expected revenues of £43m and adjusted EBITDA of £2.5m. In the second half of 2013 the business is expected to continue to be profitable at EBITDA level and in addition there shall be the significant one off gain from the sale of the Casual Assets.

Going forward, the Group will build upon the stronger, long term value proposition that exists within its international portfolio of niche and mainstream online dating sites. The Group will also continue to explore opportunities to supplement organic growth with acquisitions where there is a clear strategic fit within fast growing niche and mainstream dating.

The marketing strategy will be to drive more traffic to its continuing portfolio while at the same time improving the rate of conversion from free to paid subscribers. The Group will continue to invest in a broad range of marketing channels including both online media and offline media such as TV to drive further uptake.

The Group has invested heavily to improve the customer experience, particularly in the last six months through initiatives such as 'safe mode', and is committed to continuing to develop new and innovative ways to ensure the customer has an enjoyable and safe experience.

Cupid plc will continue to be one of the leading providers in the dynamic and growing online dating services market and the sale of the Group's Casual Assets provides a clear statement that the Company strongly believes that niche and mainstream dating are the optimal route to delivering long term sustainable shareholder value.

Bill Dobbie, Chief Executive of Cupid plc, said:

"The disposal of the Casual Assets is a significant positive step for the Group. The bulk of our M&A and investment over the past few years has been in the area of niche and mainstream sites, and this will continue to be our area of focus going forward.

"The proceeds from the sale will allow us to further enhance the remaining Group by strengthening our brands and also improving and widening the customer proposition. The consideration also gives us the potential to provide shareholders with further returns. We have built a strong, revenue generating Group and we very much look forward to driving further growth within our mainstream and niche sites over the coming period."

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Notes to Editors

§ Cupid plc listed on AIM in June 2010 and is a leading provider of online dating services

§ Cupid has built significant and growing revenues in 15 countries.

§ Cupid offers a wide variety of online dating services allowing members to interact with each other and access the content available on the Group's websites. These websites are intended to appeal to dating users of diverse ages, cultures and social interest groups. The Group's most heavily visited websites include www.cupid.com, www.girlsdateforfree.com, www.serencontrer.com, amour.com, www.datingforparents.com, www.indiandating.com, www.loveagain.com and www.uniformdating.com.

§ Cupid plc products are available across the web and also via mobile application stores.

§ Further information on the Company can be found at www.cupidplc.com.