K3 Business Technology Group Regulatory News (KBT)

KBT

2 March 2010

K3 Business Technology Group plc

("K3" or "the Group")

Announces Addition of Hosting Services

Via Acquisition of DigiMIS

K3, which provides Enterprise Resource Planning ("ERP") solutions to the supply chain industry, is pleased to announce that it has agreed terms to acquire the entire issued share capital of DigiMIS Limited ("DigiMIS"), the provider of cloud computing services, for an initial consideration of £0.803m, payable in a mix of cash, loan notes and shares. Further consideration of up to £1.325m is to be paid through an earn-out arrangement linked to DigiMIS's performance in the two years to

March 2012. 

The acquisition is a strategically important one for K3, providing the Group with hosting capabilities, in line with the Board's objective to build K3's managed services offering. K3 also has an existing relationship with DigiMIS since DigiMIS provides hosting services to a number of K3 customers who deploy SYSPRO ERP and Microsoft Dynamics. 

Based in Edinburgh, DigiMIS provides cloud application services from data centres in London, Edinburgh and New York. The company has a well-established reputation for hosting and supporting SYSPRO systems in particular. It also supports a wide variety of other software applications, including Microsoft Dynamics and is a Microsoft Gold Certified Partner in hosting solutions and networking infrastructure. DigiMIS' customer base comprises 14 contracted companies, with operations located across 65 sites internationally. Customers include Doncasters Group, the international engineering group, Gooch and Housego, the manufacturer of precision optical components, and Surrey County Council. Five DigiMIS customers are also customers of K3, with sites in the UK, Europe and the US. DigiMIS' contracts are typically multi-year, extending up to five years in length. Trading results for the half year to 31 December 2009, show an annualised run rate of £1.25m, generating a profit before tax of £0.2m.

The Board of K3 sees excellent synergies between its own customer base and DigiMIS. The attraction for companies to outsource the maintenance of their IT infrastructure is increasing and with over 1,500 customers, including some 500 SYSPRO customers, the acquisition of DigiMIS enables K3 to offer this service to its existing customer base as well as to new customers. DigiMIS's management will remain with the business in order to assist with its integration within the Group and to help accelerate the growth of K3's managed services operations.

Of the initial consideration of £0.803m, £0.425m will be satisfied in cash on completion, £0.278m will be satisfied in non-interest bearing loan notes, payable over two years and £0.1m will be satisfied by the issue of 108,400 ordinary shares of 25 pence each in the capital of K3 ("Ordinary Shares") at an issue price of 92.25 pence each, being the average mid-market price of a K3 share in the last 10 dealing days. Admission of the Ordinary Shares to trading on AIM is expected to take place on 8 March 2010. Further sums of up to £1.325m, in cash, may be due as deferred consideration, dependent on the achievement of certain performance targets. An earn-out formula, designed to ensure that the acquisition is earnings enhancing to K3, will be applied in relation to this deferred consideration.

Andy Makeham, Chief Executive of K3, commented,

"The acquisition of DigiMIS is strategically important to us and I am delighted that DigiMIS will be joining the K3 Group. As demand from our customers for hosted solutions grows, the inclusion of DigiMIS in our service mix will provide us with a clear competitive advantage.

Longer term, this acquisition is another key building block in K3's strategy to be a provider of end-to-end cloud delivered enterprise solutions to the mid-market."

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