Tern Regulatory News (TERN)

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF EU REGULATION 596/2014 (WHICH FORMS PART OF DOMESTIC UK LAW PURSUANT TO THE EUROPEAN UNION (WITHDRAWAL) ACT 2018). UPON THE PUBLICATION OF THIS ANNOUNCEMENT THIS INSIDE INFORMATION IS NOW CONSIDERED TO BE WITHIN THE PUBLIC DOMAIN.

27 December 2023

Tern Plc

("Tern" or the "Company")

Device Authority Fund raise

Tern Plc (AIM:TERN), the investment company specialising in supporting high growth, early-stage, disruptive Internet of Things ("IoT") technology businesses, announces that Device Authority Limited ("Device Authority"), a company in which Tern had a 53.8% shareholding at 21 November 2023, has agreed a Series B type fundraising round (the "Fundraising"), securing up to US$7.0 million in new equity investment from Ten Eleven Ventures, and US$0.3 million from Alsop Louie Capital 3, L.P via conversion of short-term loans. Of the Fundraising, Tranche One ("T1") of US$4.0 million is expected to be completed before the end of 2023. Tranche Two ("T2") of US$3.3 million, is contingent on approval pursuant to the National Security and Investment Act 2021 ("NASI") and acceptance of the approval by Ten Eleven Ventures.

Highlights

· Device Authority has agreed US$4.0 million of a planned US$7.3 million total Fundraising, US$3.7 million from Ten Eleven Ventures and US$0.3 million from Alsop Louie Capital 3, L.P via conversion of short-term loans. The remaining US$3.3 million from Ten Eleven Ventures is contingent on approval pursuant to the NASI and acceptance of the approval by Ten Eleven Ventures

· The total Device Authority Fundraising is intended to provide Device Authority with sufficient funding to enable to grow in line with its strategy beyond the end of 2024, including expanding its US activities

· In conjunction with the Device Authority Fundraising, US$2.1 million of Device Authority convertible loan notes are to be converted into equity with reference to the Fundraising price, in line with the conversion terms of these loan notes

· Tern is to convert all of its Device Authority convertible loan notes together with all accrued interest (representing a total of US$1.0 million), into equity, in line with the terms of these loan notes but will invest no new money in this Device Authority Fundraising

· Device Authority will, from the proceeds of the Fundraising, repay in cash the US$175,000 of short-term loans provided by Tern in full, with accrued interest to date

· From completion of T1 of the Device Authority Fundraising, including the conversion of Tern's Device Authority convertible loan notes to equity, Tern will hold 35.7% of Device Authority's equity (before any dilution on exercise of share options), valued at approximately US$7.7m (approximately £6.1m) at the valuation implied by the Device Authority Fundraising issue price

· On acceptance of the NSAI approval by Ten Eleven Ventures and completion of T2 of the Device Authority Fundraising, Tern will hold 29.5% of Device Authority's equity (before any dilution on exercise of share options), which would be valued at approximately US$7.4 million (approximately £5.9 million) at the valuation implied by the Device Authority Fundraising issue price

Commenting Ian Ritchie, Chairman of Tern, said:

"We are pleased with the progress Device Authority is continuing to make and with a substantial investment from astute investors we, and the other shareholders in the business, believe that Device Authority's progress will be accelerated, particularly in the US.

"The Board of Tern are constantly assessing all of our portfolio companies for the value that can be achieved from an immediate exit versus that potentially achievable with further growth capital. We do not believe that now is the right time for Tern to sell its interest in Device Authority given the current valuation landscape and with the further progress that Device Authority can make with this investment.

"Whilst the valuation of the Device Authority Fundraising reflects the current venture capital market conditions, importantly we believe that it will provide the growth platform that will enable a premium valuation on exit and a substantially greater return for Tern's shareholders in the future.  Cyber security is essential for global commerce and the completion of the total series B type funding will give Device Authority a sufficient runway to achieve its potential during 2024 and beyond.

"Ten Eleven Ventures has a strong track record of providing a hands-on approach to develop cybersecurity technology businesses to the stage when a valuable exit can be achieved. We look forward to working with the Ten Eleven team to maximise the investment value for Tern shareholders from Device Authority and I look forward to making further announcements in due course."

Device Authority Series B type Fund raise

Prior to the Device Authority Fundraising, Tern had a holding of 53.8% in Device Authority, plus had loans convertible into Device Authority equity of US$0.9 million, with accrued interest of US$0.1 million and short-term, non-convertible, unsecured loans of US$175,000. As at 30 June 2023, the date of Tern's last published book valuation, this investment had an unaudited book value of £11.9 million.

Device Authority has agreed the Fundraising, securing up to US$7.0 million in new equity investment from Ten Eleven Ventures and US$0.3 million from Alsop Louie Capital 3, L.P via conversion of short-term loans. Of the Fundraising T1 of US$4.0 million is expected to be completed before the end of 2023. T2 of US$3.3 million, is contingent on approval pursuant to the NASI and acceptance of the approval by Ten Eleven Ventures. T2 will be completed at such date as may be notified by Ten Eleven Ventures (in their absolute discretion) to Device Authority on or prior to 30 September 2024, provided that such date shall be: (i) no earlier than the fifth Business Day after NSIA approval has been obtained; and (ii) no later than the fifth Business Day after the date that Device Authority was notified by Ten Eleven Ventures.

Following T1 of the Fundraising, the conversion of Tern's US$0.9 million of loan notes and the conversion of US$1.2 million of loan notes held by other investors, Device Authority is now valued in total, at the price implied by the Device Authority Fundraising, at US$21.7 million on a post-money basis and Tern will have a holding of 35.7% in Device Authority (before any dilution on exercise of share options), with an unaudited book valuation of approximately US$7.7 million (approximately £6.1 million). On acceptance of the NSAI approval by Ten Eleven Ventures, Device Authority will be valued in total, at the price implied by the Device Authority Fundraising, at US$25 million on a post-money basis and Tern will hold 29.5% of Device Authority's equity (before any dilution on exercise of share options), which would have an unaudited book valuation of approximately US$7.4 million (approximately £5.9 million) at the valuation implied by the Device Authority Fundraising issue price.

Further information on Device Authority

Device Authority is a global leader in Identity and Access Management ("IAM") for the IoT; focused on the automotive, medical device ("IoMT") and industrial ("IIoT") sectors. Device Authority's KeyScaler? platform provides zero touch provisioning and complete automated lifecycle management for securing IoT devices and data at scale, with frictionless deployment across device provisioning, authentication, credential management, policy based end-to-end data security/encryption and secure OTA (over the air) and HSM (hardware security module) updates.

Device Authority has recently received further recognition of its market position, being positioned, for the fifth year in a row, as a 'Leader' in the 2023 SPARK Matrix? for IoT Identity and Access Management (IoT IAM) released by Quadrant Knowledge Solutions on 11 December 2023.

According to Swathi Suresh, Analyst, Quadrant Knowledge Solutions, "Device Authority offers an IoT security platform titled KeyScaler to enhance and streamline security measures within an IoT environment. The platform serves as a centralized hub engineered to oversee the lifecycle of cryptographic keys and credentials across a spectrum of IoT devices. The KeyScaler platform empowers organizations by seamlessly integrating with existing security setups, ensuring a cohesive approach to access control, authentication, and encryption across connected devices. Its advanced features enable secure key generation, distribution, and revocation, bolstering the overall resilience and reliability of IoT networks. This innovative solution not only protects sensitive data but also optimizes operational efficiency, presenting a comprehensive, scalable, and adaptable security framework for the ever-evolving IoT landscape. Device Authority has received strong ratings across technology excellence and customer impact and has been positioned as a leader in the SPARK Matrix?: IoT Identity and Access Management (IoT IAM), 2023."

Device Authority also won the 'IoT Security Champion' award at the recent TechWorks Awards held in Manchester on 7 December 2023.

Based on Device Authority's latest statutory accounts for the year ended 31 December 2022, as at that date it had net assets of £1,257,622 and incurred a loss for the year of £2,566,776. Given the historic nature of these figures Tern does not consider this to be representative of the current business and trading performance of Device Authority.

Further Information on Ten Eleven Ventures

Ten Eleven Ventures is a multi-stage global specialist venture capital investor focused on the cybersecurity sector, headquartered in the USA. Ten Eleven was founded in 2014, has raised over U$1 billion in capital and has a track record of successful investments and exits. These include Darktrace, where Ten Eleven first invested in 2016, before guiding the business to an IPO on the London Stock Exchange in 2021 valuing Darktrace at US$3 billion.

Further information on Ten Eleven may be found at: https://www.1011vc.com

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