CentralNic Group Plc acquisition of KeyDrive S.A.

Summary financial information on SK.NIC
£'000 (except percentage figures)	31 December 2015	31 December 2016	31 December 2017
Revenue	2,916	3,397	3,207
Gross Profit	2,592	3,010	2,106
Gross Profit Margin	88.9%	88.6%	65.6%
Adjusted EBITDA	2,429	2,839	1,942
Depreciation	(7)	(12)	(15)
Operating profit	2,418	2,823	1,917
Operating Profit	2,418	2,823	1,917
Profit after tax	1,851	2,163	1,508

 

SK.NIC has seen increasing registration volumes over the three years ended 31 December 2017, during which period has seen revenue increase from £2.9 million to £3.2 million.

The increased registrations have also been converted into increased renewal volumes with over 300,000 renewals in FY17. The percentage of customers renewing has increased to over 86.3 per cent. in FY17 (85.4 per cent. FY16).

One reason for the increase of registrations and renewal volumes in FY17, is the reduction in pricing of SK.NIC domains. SK.NIC management took the decision to reduce pricing to align more closely with the pricing of .com domains, and this was approved by the policy committee, representing the Company, the Government of Slovakia, the domain industry and the local internet community. Given their recent experience, the Directors believe the current pricing model provides for sustainable growth.

Gross profit decreased in FY17 to £2.1 million (£3.0 million FY16) with the gross profit margin decreasing to 65.6 per cent. (85.6 per cent. FY16). This was partly due to planned price reductions and other certain one-off mitigation and system upgrade costs. In the first 4 months of the current financial year margins have increased back to in excess of 80 per cent. and the SK.NIC business has traded in-line with the Directors expectations.

 

Summary financial information on CentralNic

	Year ended	Year ended	Year ended
£'000 (except percentage figures)	31 December 2015	31 December 2016	31 December 2017
Revenue	10,393	22,129	24,348
Gross Profit	4,860	7,667	9,794
Gross Profit Margin	46.76%	34.65%	40.23%
Adjusted EBITDA	3,254	5,483	6,607
Depreciation	(71)	(125)	(100)
Operating profit	1,459	1,409	1,022
Operating Profit	1,459	1,409	1,888
Profit after tax	906	955	1,022

Revenue has grown over the three years from £10.4 million in FY15 to £24.3 million in FY17. This growth has primarily occurred as the result of the acquisition of Instra on 14 January 2016, which contributed £10.4 million of revenue in FY16 and £11.1 million in FY17. In December 2016 the sale of premium domain names generated in excess of £3.5 million of revenue. In November 2017, the Group generated £3.0 million of revenue from the sale of various SLDs.

Gross margin has decreased from 47 per cent. in FY15 to 40 per cent. in FY17, primarily as a result of the Instra acquisition which has diluted the overall Group margin. Instra's revenue stream comes from the retail segment, which generates approximately 20 per cent. to 25 per cent. gross margin, by contrast

 

 CentralNic's wholesale and enterprise gross margins are typically between 40 per cent. to 75 per cent Recurring revenue comprises subscription based domain names and ongoing contracts for set services. Over the review period the proportion of recurring revenue increased from 66 per cent. in FY15 to 85 per cent. in FY17.

8.      Principal Terms of the Acquisition

CentralNic has agreed, subject to a number of conditions, including the approval of the Acquisition by Shareholders at the General Meeting and subject to Admission, to acquire 100 per cent. of KeyDrive's share capital for an initial consideration of $35.8 million, representing an Enterprise Value of $44.5 million. At completion, KeyDrive is estimated to have approximately $8.7 million of net debt which the Company intends to discharge. The initial consideration is subject to adjustment following a completion accounts exercise. The initial consideration comprises $16.5 million in cash and the issue of 28,006,607 Consideration Shares valued at $19.3 million at the Placing Price. CentralNic has incorporated a wholly owned German subsidiary (Holdco) and both CentralNic and Holdco will acquire shares in KeyDrive as part of the Acquisition. In addition to the cash and Consideration Shares, if certain financial performance tests are met, CentralNic will pay Inter.Services a performance-based earn-out of up to $10.5 million, a minimum of 15 per cent. of which shall be settled in cash and up to 85 per cent. of which may be settled by the issue of Additional Consideration Shares, taking the total maximum enterprise value to $55.0 million. If the performance-based earn-out pays out less than $10.5 million in total, CentralNic will pay for certain tax losses within the KeyDrive Group on the same basis as the payment of the performance-based earn-out but only to the extent that such tax losses are used by the Enlarged Group and provided that the aggregate consideration for the earn-out and the tax losses does not exceed $10.5 million.

The Consideration Shares will be issued to Inter.Services, the largest shareholder of which is Alex Siffrin, the founder and CEO of the KeyDrive Group. Following the Acquisition (and prior to payment of any earn-out consideration), Inter.Services will have an interest in 28,006,607 Ordinary Shares representing 16.4 per cent. of the Enlarged Share Capital. The initial cash consideration of $16.5 million will be paid to the minority shareholders of the KeyDrive Group.

The Acquisition Agreement contains provisions to ensure Inter.Services is not capable of holding in excess of 25 per cent. of the issued share capital of the Company following the issue of Additional Consideration Shares.

The Acquisition Agreement contains certain warranties given by the shareholders of KeyDrive in relation to the KeyDrive Group, subject to certain limitations as to quantum. Claims under the warranties must be brought within two years of Completion. Please refer to paragraph 10.1 of Part IV of the Admission Document for further details about the Acquisition Agreement.

9.      Financial Impact of the Acquisition

CentralNic is financing the Acquisition and associated expenses through the Placing, raising gross proceeds of £24 million, its own cash resources and debt. SVB will be providing debt of c.£6 million, which is an extension of the current facilities entered in to for the SK.NIC acquisition (summarised in paragraph 10.7 of Part IV of the Admission Document). The Company estimates that the gross debt of the Enlarged Group following completion of the Acquisition will be c.£13 million.

Following the acquisition the Directors believe the Group will have improved quality of earnings due to a higher percentage of recurring revenue. Based on 2017 financial years for CentralNic, SK.NIC and KeyDrive, the Enlarged Group would have had a 91 per cent. recurring revenue profile. The existing CentralNic Group (comprising CentralNic and SK.NIC) currently has an 86 per cent. recurring revenue profile based on 2017 pro forma numbers.

The Company will incur advisers' fees, commission and expenses of c.£3.5 million in connection with the Acquisition, the Placing and Admission.

In addition, the Company has agreed with Jabella Group Limited ("Jabella") that shortly after Admission, Jabella will repay the loan of £772,000 outstanding to the Company. This would be funded by a sale of shares by Jabella to Kestrel Partners LLP at the Placing Price on the date of Admission. Further details of this agreement are set out in paragraph 10.12 of Part IV of the Admission Document.

10.    Current Trading and Future Prospects

CentralNic has traded in line with expectations for the first four months of 2018 with revenue of £6.5 million. Management are especially pleased with SK.NIC's performance as it has integrated well within the Group

32and is trading in line with expectations with revenue of c.£1.0 million for the first four months of the year. The gross profit margin for the first four months of 2018 in SK.NIC has increased to 85 per cent., compared to 66 per cent. in 2017. The reduction in 2017 was due to the inclusion of one-off infrastructure investment and price reductions.

In addition, Instra, an acquisition made in 2016, has shown year on year growth in both revenue and EBITDA with revenue for the first four months of 2018 of £3.2 million.

Gross profit margin across CentralNic remains in line with expectations for the first four months of the year at approximately 30 per cent. reflecting lower activity within the premium domain trading business during the first four months of the year.

CentralNic's net debt at 30 April 2018 was £10.6 million, which was slightly more than expected due to timing differences relating to deferred consideration payments to SK.NIC. Net operating cashflow for the first four months of the year is in line with expectations.

KeyDrive performance for the first four months has been in line with management expectations, achieving revenues of c.$21 million with margins being achieved in line with management expectations.

11. Directors and Senior Management

Directors

Mike Turner (Non-Executive Chairman, age 57)

Mike is a recognised leader in UK and cross-border technology mergers and acquisitions. He has over 30 years of experience working in London, New York and Los Angeles, advising private and publicly held clients on corporate transactions in technology, telecoms, advertising/marketing services, traditional/digital media, internet and e-commerce sectors. Mike is a Partner and Global Head of Technology Media and Communications at the international law firm Taylor Wessing, as well as holding a number of non-executive board positions with media and technology companies. Previously, Mike was a general partner responsible for technology investments at Oakfield Partners. Mike obtained an LLB at the University of Reading.

Ben Crawford (Chief Executive Officer, age 53)

Ben Crawford has been the CEO of CentralNic for nine years, over which time the Company built its global distribution platform, listed on AIM, became a leading distributor of new Top-Level Domains, and then commenced its roll-up strategy to build a retail business focused on emerging markets. Ben is a specialist in global business and corporate development - his former positions included Founding President of Louise Blouin Media, integrating 11 acquisitions in three countries and launching artinfo.com; Managing Director of SportBusiness Group and Executive Producer of the official website of the Sydney Olympic Games. Ben has an MBA from the Australian Graduate School of Management and a First Class Honours Degree from the University of Sydney.

Don Baladasan (Chief Financial Officer, age 44)

Don, a Chartered Management Accountant, has several years' experience of being Finance Director of AIM listed companies. Over the last five years he has assisted AIM listed businesses in raising several million pounds of equity in addition to overseeing a series of acquisitions including reverse takeovers. Don has several years' experience of integrating internationally acquired companies from a finance, governance and commercial perspective. This experience was gained at Stemcor, an international steel trader which at the time had operations in 46 countries and a turnover in excess of £6 billion, where Don was Head of Accounting Development. Don initially studied Medicine at Guys Hospital before completing a BSc in Economics at CASS Business School. He was then awarded a place on the Financial Times graduate scheme where he trained as a Chartered Management Accountant.

Iain McDonald (Non-Executive Director, age 47)

Iain is a global expert in technology and e-commerce, having had a track record in investing in early stage companies such as ASOS, The Hut Group, Eagle Eye Solutions, Anatwine and Metapack. He is the founder of Belerion Capital, an investor and investment advisor in technology and e-commerce companies. Iain is also a non-executive director of various of his investee companies, as well as other technology companies such as My Sale Group plc, The Hut Group and Boohoo.com. Previously, Iain was a retail and e-commerce analyst and held positions in a number of UK investment banks. Iain graduated from the London School of Economics and Political Science (LSE), with a BSc in Economics & Economics History.

Samuel Dayani (Non-Executive Director, age 40)

Samuel Dayani is a partner at the Joseph Samuel Group, where he is responsible for managing the Group's investments and business development in the Real Estate, Medtech, Energy & Renewables, Fashion and Technology & Telecoms sectors. Samuel was responsible for purchasing CentralNic in 2003 and managing the restructuring of the business, building the management team and delivering an institutional grade business for its listing in 2013. Previously Samuel was the Chief Operating Officer and later Managing Director of ViaVision Ltd, an interactive TV company on Sky, when it was sold to Yoomedia plc in 2004. Samuel graduated from Queen Mary College, University of London with a Bachelor of Science in Business and Biology in 2000.

Thomas Rickert (Non-Executive Director, age 48)

Thomas Rickert is an attorney-at-law in Germany. He is the owner of Rickert Rechtsanwaltsgesellschaft mbH, a law firm based in Bonn, Germany. Thomas has extensive experience in the domain industry working on domain disputes as well as advising registrars, Registry Service Providers and registry operators both on contractual as well as policy matters. Thomas is an expert speaker on domain related subjects both at the national and international level. Thomas served on the Council of the Generic Names Supporting Organisation (GNSO), which is the body responsible for developing policy for generic domain names, for 4 years (2011-2015). He is one of the co-chairs of the CCWG-ACCT, a group that works on improving ICANN's accountability.

Tom Pridmore (Non-Executive Director, age 46)

Tom Pridmore began his career as a solicitor at Norton Rose, specialising in investment funds and corporate finance, where he acted on behalf of institutional clients in relation to a variety of Fund management and commercial activities. Tom then joined Telewest Plc as Head of Corporate Strategy, where he was responsible for directing investment into strategic internet and interactive television companies. Since 2000, Tom has acted as a fund manager, founding a number of investment management platforms in the UK and internationally. In this capacity he has managed real estate investment and development operations across the EMEA region, on behalf of both institutional and private clients.

KeyDrive Senior Management

Alex Siffrin (Chief Executive Officer, age 41)

Alex Siffrin is CEO of KeyDrive S.A. He founded KeyDrive, in 2000, whilst still a student studying physics and computer science at the Saarland University, Germany. Originally KeyDrive was an extension of his academic research in computer science and now he has grown the company to offer a range of domain name and web services globally. Alex is responsible for the corporate and operational strategy of KeyDrive, and has overseen the organic and acquisitive growth of the company over nearly 20 years. On completion of the Acquisition, Alex will become Group Chief Operating Officer on the Operating Board of the Enlarged Group.

Michael Riedl (Executive Vice President and CFO, age 42)

Michael Riedl has been Executive Vice President and CFO of KeyDrive S.A. since August 2011, overseeing the growth of the company over the last 6 years. Prior to joining KeyDrive, Michael held managing positions in the private equity and ICT industries. He started his career with Roland Berger Strategy Consultants where he specialised in performance improvement programs. Michael was Chief Restructuring Officer at Group Saint-Paul in Luxembourg from 2004 to 2007 before joining DZ Equity Partners, the private equity firm, in Frankfurt in 2007. In 2008, Michael joined BIP Investment Partners where he worked on private equity opportunities with a focus on buyouts until 2011, when he joined KeyDrive. Michael holds a Bachelor's degree in Computer Science from James Madison University, USA, a Master of Science degree in Business Administration from European Business School, Germany, and a LLM from Frankfurt School of Finance and Management. He is also a Chartered Management Accountant. On completion of the Acquisition, Michael will continue as Chief Financial Officer of the KeyDrive business, reporting to the Chief Financial Officer of the Enlarged Group.

Volker Greimann (Chief Legal Officer and General Counsel, age 43)

Volker has been the Chief Legal Officer and General Counsel at Key-Systems GmbH (a member of KeyDrive S.A. Group) since July 2008. Current appointments include Non-Executive Director and Nominations Committee member at Nominet UK, the official registry of UK domain names, a position he has held since April 2016. Volker is an experienced internet industry executive and has been involved at ICANN in the Registry Stakeholders Group from 2011 to 2012 and the GNSO Council where he served as Vice-Chair for 2 years from October 2012. At Key-Systems, Volker is responsible for registry policy management, contractual and legal compliance, contractual work, litigation management and providing legal and policy advice to the company. Volker studied Law and Japanese studies at the University of Trier. On completion of the Acquisition, Volker will become the Internal Legal Counsel for the Enlarged Group's registrar businesses. 

12.    Corporate Governance

The Directors acknowledge the importance of the principles set out in the QCA Code. Although this code is not compulsory for AIM quoted companies, the Company intends to continue to apply the principles set out in the QCA Code, as far as they consider appropriate for a company of CentralNic's size and nature. From 28 September 2018 the Company will disclose and explain where it departs from the QCA Code on the Company's website.

The Board comprises seven Directors, two of whom are executive Directors, a chairman and four of whom are non-executive Directors, each bringing a different experience set and background. Each of Iain McDonald, Thomas Rickert and Thomas Pridmore are considered to be "independent" non-executive Directors under the criteria identified in the QCA Code. Mike Turner is the non-executive Chairman.

The Board shall meet regularly to consider strategy, performance and the framework of internal controls. To enable the Board to discharge its duties, all Directors receive appropriate and timely information. Briefing papers are distributed to all Directors in advance of Board meetings. All Directors have access to the advice and services of the Chief Financial Officer, who is responsible for ensuring that the Board procedures are followed and that applicable rules and regulations are complied with. In addition, procedures are in place to enable the Directors to obtain independent professional advice in the furtherance of their duties, if necessary, at the Company's expense.

The Nominations Committee continually assesses the composition of the Board to ensure it has an appropriate balance of skills, diversity, experience, knowledge and independence, and is planning to further strengthen the Board in the course of 2018.

Board Committees

The Company has constituted three committees of its Board, namely the Audit, Nomination and Remuneration Committees.

The Audit Committee has Iain McDonald as Chairman, and has primary responsibility for monitoring the quality of internal controls, ensuring that the financial performance of the Company is properly measured and reported on and reviewing reports from the Company's auditors relating to the Company's accounting and internal controls, in all cases having due regard to the interests of Shareholders. The Audit Committee meets at least twice a year. Samuel Dayani, Thomas Rickert and Thomas Pridmore are the other members of the Audit Committee. Don Baladasan attends Audit Committee meetings by invitation.

The Nomination Committee has Mike Turner as Chairman, and as necessary identifies and nominates for the approval of the Board, candidates to fill board vacancies as and when they arise. The Nomination Committee meets at least once a year. Samuel Dayani, Thomas Rickert and Thomas Pridmore are the other members of the Nomination Committee. Duties include reviewing the board composition and skills set, considering succession planning and keeping Board performance under evaluation with a view to continuous development.

The Remuneration Committee has Mike Turner as Chairman, and reviews the performance of the executive Directors and determines their terms and conditions of service, including their remuneration and the grant of options, having due regard to the interests of Shareholders. The Remuneration Committee meets at least once a year. Samuel Dayani, Thomas Rickert and Thomas Pridmore are the other members of the Remuneration Committee. The Remuneration Committee also considers broad policy in relation to the remuneration of the Chairman of the Board. Non-executive Director remuneration is a matter for the Chairman and the executive members of the Board. No Director is involved in any decisions as to their own remuneration or benefits.

13.    Share Dealing Code

The Directors understand the importance of complying with the AIM Rules, MAR and applicable legislation relating to dealings by directors and certain other employees of the Group in the Ordinary Shares and has established a share dealing code. The Company will take all reasonable steps to ensure compliance by the Directors and any relevant employees with that code. The Directors believe that the share dealing code adopted by the Board is appropriate for a company quoted on AIM and is compliant with rule 21 of the AIM Rules and applicable legislation relating to dealing policies.

14.    Applicability of the Takeover Code

The Takeover Code is issued and administered by the Panel and governs, amongst other things, transactions involving companies to which the Takeover Code applies. The Takeover Code applies to the Company and therefore its Shareholders are entitled to the protection afforded by the Takeover Code. Under Rule 9 of the Takeover Code, if an acquisition of interests in shares were to increase the aggregate holding of the acquirer and its concert parties to interests in shares carrying 30 per cent. or more of the voting rights in the Company, the acquirer and, depending on circumstances, its concert parties would be required (except with the consent of the Panel) to make a cash offer for the outstanding shares in the Company at a price not less than the highest price paid for interests in shares by the acquirer or its concert parties during the previous 12 months. This requirement would also be triggered by any acquisition of interests in shares by a person holding (together with its concert parties) shares carrying between 30 per cent. and 50 per cent. of the voting rights in the Company if the effect of such acquisition were to increase that person's and its concert parties' percentage interest in the Company's shares.

15.    The Bribery Act

The government of the United Kingdom has issued guidelines setting out appropriate procedures for companies to follow to ensure that they are compliant with the UK Bribery Act 2010. The Company has implemented an anti-bribery and anti-corruption policy that has been adopted by the Board.

16.    Dividend Policy

The objective of the Directors has historically been to focus on capital growth for Shareholders through its expansion strategy. However, taking into consideration the increased scale and cash generation potential of the Enlarged Group and the importance of dividend income to Shareholders, subject to the availability of distributable reserves, the Directors intend to commence a progressive dividend policy with a maiden final dividend (subject to Shareholder approval) of 0.75p payable for the year ending 31 December 2019.

All Ordinary Shares, including the New Ordinary Shares, carry equal dividend rights. As a holding company, the ability of the Company to pay dividends will principally depend on dividends or interest paid to it by its subsidiaries.

17.    Share Incentive Schemes

The Directors believe that the success of the Enlarged Group will depend to a high degree on the retention and future performance of the management team and key employees. Prior to its admission to AIM in September 2013, the Company implemented share option schemes for key executives and employees (the "Unapproved Share Option Scheme" and the "EMI Scheme"). The final tranche of the three rounds of Options granted under the EMI Scheme vested in April 2018. The Company also granted further options under the EMI Scheme and Unapproved Share Option Scheme in February 2016 and August 2016. The principal terms of the Unapproved Share Option Scheme and EMI Scheme are summarised in paragraph 8 of Part IV of the Admission Document.

The Company is seeking the approval of Shareholders for the New Share Plans, the CentralNic Group Plc Long Term Incentive Plan ("LTIP") and the CentralNic Group Plc Share Option Plan ("SOP"), the principal features of which are summarised in paragraph 8 of Part IV of the Admission Document and set out in Appendix I and Appendix II respectively of the notice of General Meeting set out in Part V of the Admission Document.

The rules of the LTIP and the SOP are available for inspection during normal business hours at the registered office of the Company and at the offices of CMS Cameron McKenna Nabarro Olswang LLP, Cannon Place, 78 Cannon Street, London EC4N 6AF from the date of despatch of the Admission Document until the conclusion of the meeting and will also be available for inspection at the meeting venue immediately prior to and during the meeting itself. In connection with the New Share Plans, the Directors recommend that CentralNic Shareholders approve the Share Plan Resolutions at the General Meeting.

The Directors intend to grant options to Ben Crawford and Don Baladasan under the proposed LTIP. Further details of these grants are set out at paragraph 5 of Part IV of the Admission Document.

18.    Information on the Placing

£24 million (before fees and expenses) is being raised by way of a placing of 46,153,847 Ordinary Shares at a placing price of 52 pence per Ordinary Share. The Placing Shares will represent c.27.0 per cent. of the Enlarged Group's issued share capital immediately following completion of the Acquisition. The Placing Price represents a discount of c.10.3 per cent. to the closing middle market price of 58 pence per Ordinary Share on 13 March 2018 (being the last business day before the shares were suspended pending an announcement regarding a reverse takeover). The Placing is not being underwritten.

The Placing Agreement contains certain provisions (including customary market related provisions) entitling Zeus Capital to terminate the Placing Agreement, and Stifel to terminate its rights and obligations under the Placing Agreement, in each case in certain limited circumstances at any time prior to Admission.

An application will be made to the London Stock Exchange for the Enlarged Share Capital to be admitted to trading on AIM. The Placing Shares will rank pani passu with the Group's existing issued Ordinary Shares.

The Placing is conditional on the Placing Agreement becoming unconditional (and not being terminated) and the Placing Agreement is conditional, among other things, on the Acquisition Agreement becoming unconditional (other than as regards any condition relating to the Placing Agreement or Admission having taken place) and on Admission becoming effective by no later than 8.00 a.m. on 2 August 2018 (or such later time as CentralNic, Zeus Capital and Stifel may agree). Admission is expected to become effective, and dealings in the Placing Shares to commence, at 8.00 a.m. on 2 August 2018. The Placing Agreement is not subject to any right of termination after Admission.

Upon Admission, CentralNic's Enlarged Share Capital will comprise 170,652,802 Ordinary Shares with voting rights. CentralNic does not hold any shares in treasury. This figure of 170,652,802 Ordinary Shares may be used by shareholders in CentralNic following Admission as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change in their interest in, the share capital of CentralNic under the FCA's Disclosure Guidance and Transparency Rules.

19.    Interests in Ordinary Shares

As at 13 July 2018, being the latest practicable date prior to publication of the Admission Document, the Directors were in aggregate interested, directly or individually, in 84,417 Ordinary Shares, representing c.0.09 per cent. of the Existing Ordinary Shares.

The Directors intend to grant options to Ben Crawford and Don Baladasan under the proposed LTIP. At Admission, the Directors will in aggregate be interested, directly or indirectly, in 7,345,806 Ordinary Shares, representing c. 4.3 per cent. of the Enlarged Share Capital.

As part of the Transaction, by way of participation in the Placing Don Baladasan will acquire 86,538 Ordinary Shares, Iain McDonald will acquire 96,153 Ordinary Shares and Michael Riedl (via an entity called Neozoon Sàrl) will acquire 1,087,713 Ordinary Shares. In addition, at Admission, Inter.Services, in which Alex Siffrin is the largest Shareholder, will hold 28,006,607 Ordinary Shares as a result of the issue of Consideration Shares.

20.    Lock-ins and Orderly Market Arrangements

At Admission, Inter.Services will hold, or be interested in, directly and indirectly, an aggregate of 28,006,607 Ordinary Shares, representing c.16.4 per cent. of the Enlarged Share Capital.

Inter.Services has undertaken not to dispose of any interest in such Ordinary Shares for the period of 12 months following Admission or any interest in the Additional Consideration Shares for the period of 12 months following their issue, save for in certain limited circumstances. In addition, Inter.Services has further agreed that, for a further period of six months, it shall only dispose of any interest in the Ordinary Shares or the relevant Additional Consideration Shares (as the case may be) through Zeus Capital and/or Stifel and in accordance with certain orderly market requirements.

Details of these lock-in and orderly marketing arrangements are set out in paragraph 10.3 of Part IV of the Admission Document.

21.    Admission, Settlement and Dealings

Application will be made to the London Stock Exchange for the Enlarged Share Capital to be re-admitted to trading on AIM. It is expected that Admission will become effective and dealings in the Enlarged Share Capital on AIM will commence at 8.00 a.m. on 2 August 2018.

The Ordinary Shares will be in registered form and will be capable of being held in either certificated or uncertificated form (i.e. in CREST).

CREST is a paperless settlement system enabling securities to be evidenced otherwise than by certificate and transferred otherwise than by written instrument in accordance with the CREST Regulations. 

Taxation

Information regarding taxation is set out in paragraph 14 of Part IV of the Admission Document. These details are intended only as a general guide to the current tax position in the UK. If an investor is in any doubt as to his or her tax position or is subject to tax in a jurisdiction other than the UK, he or she should consult his or her own independent financial adviser immediately.

22.      Risk Factors

Your attention is drawn to the risk factors set out in Part II of the Admission Document and to the section entitled "Important Information" on pages 2 to 5 of the Admission Document. In addition to all other information set out in the Admission Document, potential investors should carefully consider the risks described in those sections before making a decision to invest in the Company.

23.      Related party transactions

Kestrel Partners LLP is a substantial shareholder in the Company (and therefore a related party of the Company for the purposes of the AIM Rules), and has conditionally subscribed for • Placing Shares. In addition Don Baladasan and Iain McDonald have subscribed for 85,538 and 96,153 Placing Shares respectively. The participation of each of these parties in the Placing constitutes a related party transaction under Rule 13 of the AIM Rules.

In the case of each of the Directors above who has conditionally committed to subscribe, the remaining Directors are deemed to be independent and, in the case of Kestrel Partners LLP, all Directors are deemed to be independent. Therefore, having consulted with the Company's nominated adviser, Zeus Capital, each of the aforementioned Directors' participation, and Kestrel Partners LLP's participation in the Placing is considered, by the relevant independent Directors, to be fair and reasonable insofar as Shareholders are concerned.

24.      Additional Information

Shareholders should read the whole of the Admission Document and not just rely on the information in this announcement. Shareholders' attention is drawn to the information set out in Parts II to IV (inclusive) of the Admission Document which contain further information on the Company and the Group.

25.      Action to be Taken

A Form of Proxy for use in respect of the General Meeting will be enclosed with the Admission Document to be sent to Shareholders. Shareholders are entitled to appoint one or more persons as proxies to exercise all or any of their rights to attend, speak and vote at the General Meeting. A proxy need not be a member of the Company.

Whether or not Shareholders intend to attend the General Meeting, they should complete and sign the Form of Proxy in accordance with the instructions printed on it and return this as soon as possible but, in any event, to be valid, so as to reach the Company's Registrar, Link Asset Services Limited at The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU no later than 10.00 a.m. on 30 July 2018 (or, in the event that the meeting is adjourned, no later than two days before the time of any adjourned meeting). If Shareholders attend the meeting, Shareholders will still be able to vote but this will only be necessary if a Shareholder intends to change the voting instructions given on their Form of Proxy.

26.      General Meeting

The General Meeting is to be held at 10.00 a.m. on 1 August 2018 at CMS Cameron McKenna Nabarro Olswang LLP, Cannon Place, 78 Cannon Street, London EC4N 6AF to consider and, if thought fit, pass the Resolutions proposed in connection with, inter alia, the Acquisition and the Placing.

The General Meeting Resolutions to be proposed are set out in the notice of General Meeting in Part V of the Admission Document, and are summarised below:

·       an ordinary resolution that, subject to the passing of the next three resolutions referred to below, the Acquisition be approved for the purposes, inter alia, of Rule 14 of the AIM Rules;

·       an ordinary resolution to authorise the Directors to allot Ordinary Shares up to an aggregate nominal amount of (a) £42,160.46 (such amount to include the Placing Shares and the Consideration Shares);

·       an ordinary resolution to authorise the Directors to allot Ordinary Shares up to an aggregate nominal amount of £12,943.79 (such amount being an estimate of the maximum number of Additional Consideration Shares which may be issued pursuant to the Acquisition Agreement to Inter.Services). This resolution expires on 31 July 2023, the anticipated time period in which Additional Consideration Shares may be required to be issued.

·       a special resolution to grant the Directors power to allot Ordinary Shares for cash on a non pre-emptive basis up to an aggregate nominal amount of £36,553.85 in connection with the Placing;

·       an ordinary resolution that:

(a)   the rules of the LTIP (the principal features of which are set out in Appendix I of the notice of General Meeting set out in Part V of the Admission Document) be approved; and

(b)   the Directors be authorised to adopt further schemes for the benefit of employees outside the UK based on the LTIP but modified for local laws provided that any shares made available under such further schemes are treated as counting against any limits on individual or overall participation in the LTIP;

·       an ordinary resolution that:

(a)   the rules of the SOP (the principal features of which are set out in Appendix II of the notice of General Meeting set out in Part V of the Admission Document) be approved; and

(b)   the Directors be authorised to adopt further schemes for the benefit of employees outside the UK based on the SOP but modified for local laws provided that any shares made available under such further schemes are treated as counting against any limits on individual or overall participation in the SOP;

·       an ordinary resolution to authorise the Directors to allot Ordinary Shares up to an aggregate nominal amount of £56,884.27 (such amount being approximately equal to thirty three per cent. of the issued share capital of the Company immediately following Admission); the Directors currently intend only to make use of this authority (a) to issue Ordinary Shares as consideration in connection with any acquisitions of companies or businesses which the Company may wish to make in the future; and/or (b) in connection with an offer for subscription or placing of Ordinary Shares with investors to raise additional funds for the Company in the future;

·       a special resolution to grant the Directors power to allot Ordinary Shares for cash on a non pre-emptive basis up to an aggregate nominal amount of £17,065.28 (such amount being approximately 10 per cent. of the issued share Capital of the Company immediately following Admission); the proposed resolution also disapplies the statutory pre-emption provisions in connection with a rights issue or other pre-emptive offer.

28. Recommendation and Irrevocable Undertakings

The Directors consider that the Acquisition and the Placing are in the best interests of the Company and Shareholders as a whole. Accordingly, the Directors recommend that Shareholders vote in favour of the Transaction Resolutions at the General Meeting, as they have irrevocably undertaken to do so in respect of their own aggregate holdings of 84,417 Ordinary Shares, representing 0.09 per cent. of the issued share capital as at the latest practicable date before publication of the Admission Document.

The Directors consider that the New Share Plans are in the best interests of the Company and Shareholder as a whole. Accordingly, the Directors recommend that Shareholders vote in favour of the Share Plan Resolutions at the General Meeting, as they have irrevocably undertaken to do so in respect of their own holdings.

The Directors consider that the Directors' authorities granted by the General Authority Resolutions are in the best interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend that Shareholders vote in favour of the General Authority Resolutions at the General Meeting, as they have irrevocably undertaken to do so in respect of their own holdings.

In addition, irrevocable undertakings to vote in favour of the General Meeting Resolutions at the General Meeting have been secured from Shareholders holding in aggregate 31,017,273 Ordinary Shares, representing 32.14 per cent. of the issued share capital.

The Company has also received a binding commitment from Kestrel Partners LLP to vote in favour of the Transaction Resolutions in respect of a total of 18,086,593 Ordinary Shares representing 18.7 per cent. of the Existing Ordinary Shares.

 

Yours faithfully

Mike Turner
Chairman

 

DEFINITIONS

The following definitions apply throughout this Announcement, unless the context requires otherwise:

 

"Acquisition"	the proposed acquisition by Holdco of the entire issued share capital of KeyDrive pursuant to the Acquisition Agreement, further details of which are set out in paragraph 10.1 of Part IV of the Admission Document
"Acquisition Agreement"	the share sale and purchase agreement dated 16 July 2018 between (1) Inter.Services (2) PrizeFlyer LLC (3) BIP Venture Partners S.A. (4) the Company and (5) Holdco pursuant to which, conditional on, inter alia, the passing of the Resolutions and Admission becoming effective, the Company and Holdco and shall acquire the entire issued share capital of KeyDrive
"Act"	the Companies Act 2006 (as amended)
"Additional Consideration"	the additional consideration which may be payable to Inter.Services pursuant to the Acquisition Agreement which may be satisfied by the allotment of the Additional Consideration Shares or cash
"Additional Consideration Shares"	Ordinary Shares which may be allotted to Inter.Services pursuant to the Acquisition Agreement in connection with the earn-out payable under it
"Admission"	admission of the Enlarged Share Capital to trading on AIM becoming effective in accordance with Rule 6 of the AIM Rules
"Admission Document" or "Document	the admission document of the Company dated 16 July 2018
"AIM"	the market of that name operated by the London Stock Exchange
"AIM Rules"	the AIM Rules for Companies (including, without limitation, any guidance notes or statements of practice) published by the London Stock Exchange which govern the rules and responsibilities of companies whose shares are admitted to trading on AIM (as amended or reissued from time to time)
"AIM Rules for Nominated Advisers"	the rules setting out the eligibility, ongoing obligations and certain disciplinary matters in relation to nominated advisers, as published by the London Stock Exchange (as amended or reissued from time to time)
"Annual General Meeting Authorities"	means the authority to allot shares and the disapplication of pre-emption rights granted to the Directors following the passing of the resolutions at the annual general meeting of the Company held on 25 June 2018
"Articles"	the articles of association of the Company, as at the date of Admission, a summary of which is set out in paragraph 4 of Part IV of the Admission Document
"Audit Committee"	the audit committee of the Board, as constituted from time to time
"Board"	the board of directors of the Company from time to time, or a duly constituted committee thereof
"certificated" or "certificated form"	recorded on the relevant register of the share or security concerned as being held in certificated form in physical paper (that is, not in CREST)
"Company" or "CentralNic"	CentralNic Group Plc, a public limited company incorporated in England and Wales with registered number 08576358 and registered office at 35-39 Moorgate, London EC2R 6AR
"Company's Registrars"	the Company's registrars, being Link Asset Services Limited
"Completion"	Completion of the Acquisition in accordance with the terms and conditions of the Acquisition Agreement
"Compliance Committee"	a committee established to be responsible for compliance with, inter alia, governance policies
"Consideration Shares"	the 28,006,607 Ordinary Shares to be allotted and issued by the Company to Inter.Services on Completion pursuant to the Acquisition Agreement
"CREST"	the computer based system and procedures which enable title to securities to be evidenced and transferred without a written instrument, administered by Euroclear UK & Ireland in accordance with the CREST Regulations
"CREST Regulations"	the Uncertificated Securities Regulations 2001 (SI 2001/3755), including (i) any enactment or subordinate legislation which amends those regulations; and (ii) any applicable rules made under those regulations or such enactment or subordinate legislation for the time being in force (as amended)
"Directors"	the directors of the Company as at the date of the Admission Document, whose details are set out on page 15 of the Admission Document, and "Director" means any of them
"EBITDA"	earnings before interest, taxation, depreciation and amortisation
"EMI Scheme"	the Company's Enterprise Management Incentive Scheme established prior to the date of the Admission Document
"Enlarged Group"	the combined group comprising the Group and the KeyDrive Group following the Acquisition
"Enlarged Share Capital"	the entire issued share capital of the Company immediately following Admission comprising the Existing Ordinary Shares and the New Ordinary Shares
"Euroclear UK & Ireland"	Euroclear UK & Ireland Limited, a company incorporated under the laws of England and Wales with registered number 2878738 and the operator of CREST
"Existing Ordinary Shares"	the 96,492,348 Ordinary Shares issued as at the date of the Admission Document
"FCA"	the UK Financial Conduct Authority
"Form of Proxy"	the form of proxy sent to eligible shareholders with the Admission Document
"FSMA"	the Financial Services and Markets Act 2000 (as amended)
"FY15"	the financial year ended 31 December 2015
"FY16"                                                      the financial year ended 31 December 2016	"FY17"
"FY18"                                                      the financial year ended 31 December 2017	"FY19"
"General Authority Resolutions"	the resolutions to be put to Shareholders at the General Meeting in connection with the Directors seeking authority to allot shares and disapply pre-emption rights being the resolutions numbered 7 to 8 inclusive in the notice convening the General Meeting
"General Meeting" or "GM"	the general meeting of the Company to be held at CMS Cameron McKenna Nabarro Olswang LLP, Cannon Place, 78 Cannon Street, London EC4N 6AF on 1 August 2018, notice of which is set out at the end of the Admission Document
"General Meeting Resolutions"	the Transaction Resolutions, the Share Plan Resolutions and the General Authority Resolutions
"Group"	the Company and its subsidiary undertakings (prior to the Acquisition)
"Holdco"	CentralNic Germany GMBH, a holding company incorporated in Germany with registered number 23747 and registered office at Kaiserplatz 7-9 53113 Bonn
"IFRS"	International Financial Reporting Standards, as adopted for use in the European Union
"Integration Steering Committee"	a committee established to be responsible for integration between CentralNic and KeyDrive on which Don Baladasan, Alex Siffrin, Michael Riedl and Stuart Fuller sit
"Inter.Services"	Inter.Services GmbH
"Instra Group"	together, Instra Holdings (UK) Ltd, Instra Holdings (Aus) Pty Ltd, Instra Holdings (NZ) Ltd, Instra Corporation PTY Limited, Instra Domain Directors B.V., Instra Corporation PTE Limited, Instra-Internet Services One-person LLC, Instra Corporation Limited, Europe Registry Ltd, Domain Directors PTY Ltd, Domain Directors (Europe) Ltd, Domain Directors (Finland) Oy, Domain Directors (France) Sarl, Domain Directors CA Inc, Instra Domain Directors Inc.2
"ISIN"	international security identification number
"KeyDrive" or the "KeyDrive Group"	KeyDrive S.A. and its subsidiaries
"LIBOR"	London Interbank Offered Rate
"London Stock Exchange"	London Stock Exchange plc
"Long Term Incentive Plan" or "LTIP"	the new share plan described in paragraph 8.5 of Part IV of the Admission Document
"New Ordinary Shares"	the Consideration Shares and the Placing Shares
"New Share Plans"	the Long Term Incentive Plan and Share Option Plan
"Nomination Committee"	the nomination committee of the Board, as constituted from time to time
"Official List"	the official list maintained by the UK Listing Authority
"Option"	an option or any other right to acquire or receive Ordinary Shares
"Operating Board"	the Operating board comprised of all key members of the Company's management responsible for the day to day management of the Company and executing the strategy laid out by the Board
"Ordinary Shares"	ordinary shares of £0.001 each in the capital of the Company
"Panel"	the UK Panel on Takeovers and Mergers
"Placing"	the conditional placing of the Placing Shares by Zeus Capital and Stifel as agents for the Company, pursuant to the Placing Agreement
"Placing Agreement"	the conditional agreement dated 16 July 2018 between the Company, Holdco, the Directors, Zeus Capital and Stifel, relating to the, Placing, further details of which are set out in paragraph 10.2 of Part IV of the Admission Document
"Placing Price"	52 pence per Placing Share
"Placing Shares"	the 46,153,847 Ordinary Shares to be allotted and issued by the Company pursuant to the Placing, such allotment being conditional upon Admission
"Prospectus Directive"	the EU Prospectus Directive 2003/71/EC (as amended)
"Prospectus Rules"	the prospectus rules made by the FCA under Part VI of FSMA (as amended or reissued from time to time)
"QCA"	the Quoted Companies Alliance
"QCA Code"	the Corporate Governance Code for Small and Mid-Size Quoted Companies issued by the QCA (as amended or reissued from time to time)
"Remuneration Committee"	the remuneration committee of the Board, as constituted from time to time
"Reporting Accountant"	Crowe U.K. LLP, a limited liability partnership registered in England with registered number OC307043 and its registered office is at St Bride's House, 10 Salisbury Square, London, EC4Y 8EH
"Shareholder(s)"	holder(s) of Ordinary Shares
"Share Option Plan" or "SOP"	the share option plan described in paragraph 8.6 of Part IV of the Admission Document
"Share Plan Resolutions"	the resolutions to be put to Shareholders at the General Meeting in connection with the New Share Plans being the resolutions numbered 5 and 6 inclusive in the notice convening the General Meeting
"SK-NIC"	SK-NIC A.S., a company incorporated in Slovakia with registered number 35698446 and registered office at Borská 6, Bratislava 841 04.
"Stifel"	Stifel Nicolaus Europe Limited, a company incorporated in England and Wales with registered number 3719559 and registered office at 150 Cheapside, London EC2V 6ET
"SVB"	Silicon Valley Bank
"Takeover Code"	the City Code on Takeovers and Mergers issued by the Panel (as amended or reissued from time to time)
"Transaction Resolutions"	the resolutions to be put to Shareholders at the General Meeting in connection with the Acquisition and the Placing, being the resolutions numbered 1 to 4 inclusive in the notice convening the General Meeting
"UK" or "United Kingdom"	the United Kingdom of Great Britain and Northern Ireland
"UK Listing Authority"	the FCA, acting in its capacity as the competent authority for the purposes of Part VI of FSMA
"Unapproved Share Option Scheme"	the Company's unapproved share option plan established prior to the Date of the Admission Document
"uncertificated" or "uncertificated form"	recorded on the relevant register of the share or security as being held in uncertificated form in CREST and title to which, by virtue of the CREST Regulations, may be transferred by means of CREST
"United States" or "US"	the United States of America, its territories and possessions, any State of the United States of America and the District of Columbia
"USD" or "US$"	United States Dollars
"VAT"	value added tax
"Zeus Capital"	Zeus Capital Limited, a company incorporated in England and Wales with registered number 4417845 and registered office at 82 King Street, Manchester M2 4WQ

 

GLOSSARY

"API"	an application programming interface, which is part of the server that receives requests and sends responses
"country code top level domain" or "ccTLD"	an internet top-level domain generally used or reserved for a country, a sovereign state, or a dependent territory e.g. .uk, .jp
"DNS" or "domain name system"	a hierarchical distributed naming system for computers, services, or any resource connected to the internet or a private network
"domain name registrar" or "registrar"	an organisation or commercial entity that manages the reservation of internet domain names
"Domain Registries"	organisations that manage the registration of domain names within the domains for which they are responsible, control the policies of domain name allocation and technically operate their domains
"GDPR"	the General Data Protection Regulation (GDPR) EU 2016/679
"gTLD"	generic top level domain
"ISO"	International Organisation for Standardisation
"MAR"	the Market Abuse Regulation (EU) No. 596/2014 (MAR)
"recurring revenue"	revenue associated with subscription services that require periodic renewal payments to ensure continuity of service, such as domain names and hosting contracts
"registry operator"	an entity that maintains the database of domain names for a given top-level domain and generates the zone files which convert domain names to IP addresses. It is responsible for domain name allocation and technically operates its top-level domain
"Registry Service Providers"	a company that runs the operations of a TLD on behalf of the TLD owner or licensee. (the registry service provider keeps the master database and generates zone files to allow computers to route internet traffic using the DNS)
"SLD"	second level domain
"SSL Certificates"	data files that encrypt data packets such as login and credit card details
"SSL Certification"	the installing of a secure sockets layer on a web server that enables encrypted communication between a web browser and a web server, designed to decrease the risk of sensitive information from being stolen or tampered with
"The Internet Corporation for Assigned Names and Numbers" or "ICANN"	a non-profit private organisation that was created to oversee a number of internet-related tasks previously performed directly on behalf of the US government
"Tier III"	a Tier III data center is a location with redundant and dual-powered servers, storage, network links and other IT components
"top level domain" or "TLD"	the suffix attached to internet domain names e.g. .com, .net