Monitise Plc : - Acquisition of Clairmail Inc.

26 March 2012

MONITISE PLC
("Monitise" or the "Company")

Acquisition of Clairmail Inc.

Further enhances Monitise's global leadership position in mobile money

Accelerates penetration of the US market

Expected to be earnings accretive before end of calendar 2013

Monitise plc, (LSE: MONI.L), the technology and services company delivering mobile banking, payments and commerce networks worldwide,announces that it has entered into an agreement to acquire Clairmail Inc., a leading US provider of mobile banking and payments solutions (the "Acquisition"), further enhancing Monitise's position as the global leader in the fast expanding mobile money market. Clairmail is growing rapidly with revenues in 2011 up by 90% year on year.  

The Acquisition consideration will be satisfied entirely by the issue of up to 312,787,144 new Ordinary Shares representing approximately 26.5% of the fully diluted share capital of the enlarged Company1, post completion, and values Clairmail at approximately US$1732m (£109m), based on Monitise's share price of 35.0 p as of the close of trading on March 23, 2012. The deal is conditional upon US regulatory and shareholder approvals. It is expected that the Acquisition will be completed before the end of the financial year 2012.

Acquisition highlights and benefits:

·     Further enhances Monitise's position as the leader in mobile money globally.

·     Creates a pure-play mobile money company of unprecedented scale, in the US, which is expected to be the world's largest mobile banking and payments market.

·     Unique bank-grade technology capabilities, network partnerships and R&D expertise.

·     Currently, the combined businesses provide world-leading mobile money services to 13m registered end consumers via some of the world's leading financial institutions such as the Royal Bank of Scotland Group, two of the largest card issuers in the US, Lloyds TSB, PNC Bank, U.S. Bank and Fifth Third Bank among others.

·     Together the combined technology platforms process billions of transactions a year and over US$10bn of payments and transfers on a current weekly annualised basis.

·     In North America, the combined businesses following the completion of the Acquisition (the "Enlarged Group"), will provide mobile money services to the widest possible range of financial institutions. A third of the top 50 North American financial institutions (including 8 of the top 13) have chosen our services as well as 100s of smaller and medium sized financial institutions. The Acquisition provides a step change in growth potential for the Company through direct sales in North America. This, combined with Monitise's existing and unmatched Visa Inc. and FIS strategic partnerships, provides the Enlarged Group with a leading position in the US and three commanding routes to market.

·     Presents significant revenue synergies through leveraging the Enlarged Group's technology capabilities across the combined customer base and providing access to Monitise's partnership network:

o  Provides proven model for delivering services on both an on-premise and a Software as a Service (SaaS) basis to financial institutions in the US, maximising the potential pool of customers to which the Enlarged Group would be the supplier of choice.

o  Provides the ability to offer enhanced product functionality to US financial institutions and a far broader product roadmap.

o  Delivers the benefits of Monitise's network approach to US customers by enabling customers to connect to a wide variety of service providers spanning finance, merchants, loyalty programmes and ticketing.

·     The Acquisition creates a world class team with an in-depth knowledge of the US and global markets. The Clairmail management team and employees are expected to remain with the Enlarged Group with Pete Daffern CEO, of Clairmail, working closely with Frank D'Angelo, Executive Chairman Monitise Inc. and former Executive Vice President of Payment Solutions at FIS, as Monitise focuses on accelerating its significant growth opportunity in the US.

·     The Enlarged Group has 600 staff across North America, Europe, the UK, Asia-Pacific, Africa and India, providing an unprecedented level of expertise in this high growth space.

·     A detailed integration plan is in place and integration will begin immediately following closing.

Financial summary and outlook:

·     Like Monitise, Clairmail is in the high growth stage in addressing the substantial global mobile money opportunity.

·     Clairmail's revenues grew by 90% in calendar 2011 to US$18m3 (£11m), with a minimum contracted order book at year end of US$47m (£30m), plus an additional US$36m (£23m) of expected user generated revenues from existing contracts.

·     On a pro forma basis, the Enlarged Group's revenues for calendar 2011 would have been US$56m4 (£35m), with a minimum combined order book at year end of US$178m (£113m), plus a further US$226m (£143m) of expected revenues from existing contracts.

·     Combined pro forma revenues for calendar 2012 are expected to be close to US$100m.

·     The EBITDA5 loss for Clairmail in calendar 2011 was US$21m6 (£13m), giving a pro forma EBITDA loss for the Enlarged Group of US$43m (£28m).

·     Before the end of calendar 2013, Monitise expects the Acquisition to be earnings accretive and the Enlarged Group to achieve EBITDA breakeven, with gross margins in excess of 70% by June 2013.

·     The Enlarged Group's net cash balance on a pro forma basis at the end of calendar 2011 was US$73m (£46m).

Alastair Lukies, Monitise Group Chief Executive, commented:

"Monitise has established itself as the world's number one platform and ecosystem of choice in the hugely exciting mobile money industry. This transaction further enhances this leadership position and is great news for all those wanting to offer bank-grade mobile money services to billions of consumers worldwide.

Combining Monitise and Clairmail substantially accelerates our already strong position in one of the world's leading banking and payments market, namely the US. With a population of 314 million and over a 100% mobile phone penetration, it is anticipated that 111 million US consumers will be using mobile banking by 20167 while mobile commerce revenues are forecast to hit $31 billion in 20168.  The future of payments, the internet, retail and social networking is all mobile.

This deal is transformational for our customers, our team, our shareholders and our company.  With the ongoing support of our strategic partners such as Visa and FIS we are perfectly placed to help our clients in the financial services industry defend and extend their position amid the seismic changes being unleashed by mobile.

Pete and his team have done an impressive job in building relationships, products and the overall Clairmail business which is very well respected in the US market. We look forward to welcoming them to the Monitise journey."

Pete Daffern, Clairmail Chief Executive Officer, commented:

"Since 2004, we have been dedicated to helping our financial institution clients interact with their customers and drive new sources of revenue via mobile, the strategic channel of the future.

Consumers in the US are benefiting from increasingly innovative and integrated mobile banking, payments and commerce services on their handsets so they can manage their money on the move. Clairmail has established itself as a market leader as the appetite for mobile banking and payments has grown exponentially.

We are excited to be joining the Monitise family at a key point in the mobile money revolution. This combination presents a significant opportunity to jointly propel our innovative and market-leading products and services to the next level. Together, we are a more attractive partner for our customers and a more exciting company for our employees."

Goldman Sachs International acted as financial adviser and Canaccord Genuity Limited as Nominated Adviser and Broker to Monitise in connection with the Acquisition.

An analyst and investor call and presentation will be held on Monday March 26 at 3.00pm BST/ 10.00 am EST/ 7.00 am PST.

Dial-in details are as follows:

Conference ID and name: 65441607, 'Monitise call'

UK: Free call at 0800 694 1610

UK Standard International: +44 (0) 1452 587 434

US: Free call at 1866 597 3800

Slides will be made available at https://webconnect.webex.com/webconnect/onstage/g.php?t=a&d=660179638

Please ensure that you register at least 10-15 minutes before the conference start time.

A replay facility will also be available athttp://www.monitisegroup.com/investor_relations from Tuesday, March 27 until Tuesday, April 3.

1. Taking account of assumed issue of warrants and shares under option scheme

2. Foreign exchange rate for Sterling/US Dollar used is $1.58, being the rate as at 23 March 2012

3. Management estimates of rebased IFRS numbers and accounting policies, equivalent revenues of $13m under US GAAP

4. Includes management estimates of rebased IFRS numbers and accounting policies

5. Defined as Earnings Before Interest Tax Depreciation and Amortisation, share based payments and exceptionals

6. Management estimates of rebased IFRS numbers and accounting policies, equivalent EBITDA loss of US$18m under US GAAP

7. Javelin Research, 2012

8. Forrester Research, 2011

Contacts:

Forward Looking Statements

This announcement contains 'forward-looking statements' concerning Monitise and Clairmail that are subject to risks and uncertainties. Generally, the words 'will', 'may', 'should', 'continue', 'believes', 'targets', 'plans', 'expects', 'aims', 'intends', 'anticipates' or similar expressions or negatives thereof identify forward-looking statements. Forward looking statements include statements relating to the following: (i) future capital expenditures, expenses, revenues, earnings, synergies, economic performance, indebtedness, financial condition, dividend policy, losses and future prospects; (ii) business and management strategies and the expansion and growth of Monitise's or Clairmail's operations and potential synergies resulting from the Acquisition; and (iii) the effects of government regulation on Monitise's or Clairmail's business.

These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. Many of these risks and uncertainties relate to factors that are beyond Monitise's or Clairmail's ability to control or estimate precisely, such as future market conditions, changes in regulatory environment and the behaviour of other market participants. Neither Monitise nor Clairmail can give any assurance that such forward-looking statements will prove to have been correct. The reader is cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this announcement. Neither Monitise nor Clairmail undertakes any obligation to update or revise publicly any of the forward-looking statements set out herein, whether as a result of new information, future events or otherwise, except to the extent legally required.

Nothing contained herein shall be deemed to be a forecast, projection or estimate of the future financial performance of Monitise, Clairmail or any other person following the implementation of the Acquisition or otherwise.

1. INTRODUCTION AND SUMMARY

The board of directors of the Company (the "Board" or the "Directors") is pleased to announce that Monitise has entered into a conditional agreement to acquire Clairmail, Inc. ("Clairmail"). Clairmail is a US based leading provider of mobile banking and payments solutions.

The Directors believe that the Acquisition of Clairmail will accelerate Monitise's penetration of the US market, further enhancing Monitise's position as the global leader in the fast expanding mobile money market.

Monitise views the Acquisition as an important strategic opportunity to extend its presence in the US, delivering unparalleled scale in terms of platform capability, reach, revenues, sales presence, R&D, resources and network relationships. The Acquisition provides a step change in growth potential through direct sales in the US. This, combined with Monitise's existing and unmatched Visa Inc. and FIS strategic partnerships, provides the Enlarged Group with a leading position in the US predicated on three commanding routes to market.

The consideration for the Acquisition comprises entirely of the issue and allotment of up to 312,787,144  new Ordinary Shares (the "Consideration"). Nine percent of the Consideration (the "Deferred Consideration") shall not be issued on completion of the Acquisition but shall be held back by the Company for a period of up to 18 months from the completion of the Acquisition as partial security for the obligations of the  Clairmail shareholders and certain option holders under the agreement and plan of merger, dated as of March 24, 2012, by and among the Company, Millennium Merger Sub, Inc., Clairmail and Shareholder Representative Services LLC (the "Agreement").  The Consideration will be allocated among the holders of Clairmail common stock, preferred stock, options and warrants in accordance with the terms and conditions of the Agreement.

The Acquisition is conditional inter alia upon the issuance of a permit (the "Permit") approving the fairness of the Agreement pursuant to Section 25121 of the California Corporate Securities Law of 1968, as amended, and the rules promulgated thereunder by the California Commissioner of Corporations, and admission of the new Ordinary Shares to be issued as part of the consideration to trading on AIM ("Admission").  The Acquisition is also conditional upon other events customary for a transaction of this type such as US regulatory clearances.

A notice convening a general meeting of the Company will be sent to Monitise shareholders in due course, at which a resolution will be proposed seeking the authority for the Board of Monitise to allot the Ordinary Shares that are to be issued as the Consideration for the Acquisition.

It is expected that the Acquisition will be completed before the end of the financial year 2012.

2. INFORMATION ON CLAIRMAIL

Clairmail is a private company headquartered in San Rafael, California, USA and was founded in 2004. It is a leading provider of mobile banking and payments solutions in the US market. The Clairmail mobile platform operates across many different devices, protocols, carriers and applications.

Clairmail has been chosen by over half of the top 13 North American financial institutions, and a third of the top 50. These include two of the largest card issuers in the US, as well as PNC Bank, Sallie Mae and Fifth Third Bank among others. Its 48 customers represent an end consumer reach of 135 million. The Clairmail business has a large and rapidly growing end-user base, currently in excess of 6 million registered customers, a 110% increase over the prior year. Clairmail sees over 745 million transactions on an annualised basis on its platform.

The key features of Clairmail's customer contracts are:

·     Multiyear contracts delivering minimum committed revenues;

·     Recurring annual license fees and associated support fees;

·     Incremental revenue from additional user generated fees; and

·     Revenue for implementation services.

Clairmail's existing contracts at 2011 calendar year end represented a minimum contracted order book of US$47m (£30m), with an additional US$36m (£23m) of expected user generated revenue from existing contracts.

Clairmail has an established 25 strong direct sales force in the US and 88 developers and engineers based in the San Francisco area.

On an IFRS basis for the twelve months ended 31 December 2011, Clairmail generated revenues of US$18m (£11m), an EBITDA loss of US$21m (£13m) and had gross assets of US$13m (£8m).

3. BENEFITS OF THE ACQUISITION

The US market for mobile banking, payments and commerce is projected to soar driven by smart phone adoption.  Of the 327 million wireless subscriber connections for a population of 314 million, 96 million of those subscribers have smart phones. The US market as at December 2010 represents an issued cardholder base, including debit and credit cards, of 1.1 billion compared with 140 million in the UK1.According to Forrester mobile commerce revenues are forecast to hit $31 billion in 2016 and Javelin research forecasts that 111 million US consumers will be using mobile banking by 2016.

This high smart phone penetration coupled with a US market made up of approximately 7,500 banks provides a compelling market opportunity for Monitise, the leading provider of mobile money services worldwide. The Acquisition will serve to accelerate, extend and strengthen Monitise's existing reach in this key market.

The principal benefits of the Acquisition on Monitise are as follows:

Routes to market

The Acquisition provides a step change in growth potential for the Company through direct sales in the US. This, combined with Monitise's existing and unmatched Visa Inc. and FIS strategic partnerships, provides the Enlarged Group with a leading position in the US and three commanding routes to market.

Customer base

Clairmail has been chosen by over half of the top 13 North American financial institutions, and a third of the top 50. It extends Monitise's US customer base of 250 financial institutions with the addition of Clairmail's 48 financial institutions. Clairmail's customers includetwo of the largest card issuers in the US, as well as PNC Bank, Sallie Mae and Fifth Third Bank among others.

Synergies

The Acquisition presents significant revenue synergies through leveraging the Enlarged Group's technology capabilities across the combined customer base and providing access to Monitise's partnership network.

The Enlarged Group will have the ability to deliver services on an on-premise basis or on a Software as a Service (SaaS) basis and offer current and prospective customers a broader product offering with enhanced functionality.

Monitise will also bring the benefit of its network approach to US customers by enabling customers to create compelling mobile propositions  by connecting to a wide variety of service providers including mobile phone top-up, prepaid cards and transit ticketing providers among others.

The Acquisition delivers an enhanced product suite that is relevant across the full spectrum of financial institutions, in the US and globally, and brings cross-selling opportunities.

These benefits are expected to drive new customer wins and even higher user generated and transaction revenues for the Enlarged Group.

Resources

The Enlarged Group will benefit from a pool of high-quality technology, R&D and sales staff, across key geographies including North America, Europe, the UK, Asia Pacific, Africa and India, further enhancing Monitise's position as the leading global provider of mobile money services and solutions with approximately 600 staff.

Market knowledge and relationships

The Acquisition creates a world class and complementary team with an in-depth knowledge of the US & global markets. The Clairmail management team and employees are expected to remain with the Enlarged Group. Pete Daffern will remain in his role as Head of the Clairmail business and will also join the Group Executive Board of Monitise, bringing his substantial experience and expertise to bear across the Group growth strategy. In his role Pete Daffern will be working closely with Frank D'Angelo, Executive Chairman of Monitise Inc.

4. PRINCIPAL TERMS OF THE ACQUISITION

The Agreement is conditional upon, amongst other things:

(i)           the issuance of the Permit; and

(ii)          the approval for the issuance of the new Ordinary Shares by Monitise Shareholders;

(iii)         all waiting periods under the Hart-Scott-Rodino Act having expired; and;

(iv)         admission of the new Ordinary Shares to be issued in respect of the Consideration to trading on AIM.

Consideration

The maximum consideration that could become payable pursuant to the Acquisition is 312,787,144 new Ordinary Shares, representing approximately 26.5% of Monitise's fully diluted enlarged share capital post completion.

The Consideration, less the Deferred Consideration, becomes payable on completion of the Acquisition and shall comprise 284,636,301 new Ordinary Shares. This includes the issue of new Ordinary Shares and the assumption by the Company of existing options and warrants of Clairmail, which will be converted into rights to receive the number of new Ordinary Shares described in the Agreement.  The Deferred Consideration shall be held back for a period of up to 18 months following completion of the Acquisition and shall become payable, subject to the terms of the Agreement.  Each holder of Clairmail common stock and preferred stock shall be entitled to receive such number of new Ordinary Shares as is set forth in the Agreement. 

Lock-up

The new Ordinary Shares issued to certain shareholders and option holders of Clairmail in connection with the Acquisition are subject to lock-up provisions for twelve months from the date of completion. Trading during the six months following that period is subject to orderly market trading provisions. 

Permit

The parties will apply to have issued by the California Commissioner of Corporations a permit authorising the issuance of the new Ordinary Shares pursuant to a registration exemption under Section 3(a)(10) of the US Securities Act of 1933, as amended, and  Section 25121 of the California Corporate Securities Law of 1968, as amended.  The California Commissioner of Corporations will hold a hearing to review the Merger and the Merger Agreement.  The issuance of the permit is a condition to the obligations of the parties to consummate the Merger.  It is currently anticipated that the hearing before the California Commissioner of Corporations will occur within the next 6-8 weeks.

Agreement

The Acquisition is to be effected as a merger under US law. Specifically, Monitise has created a new wholly owned US subsidiary, which will merge with and into Clairmail.  The separate legal existence of the new subsidiary will cease and Clairmail will continue as the surviving corporation and a wholly-owned subsidiary of Monitise.

Following receipt of the Permit and the satisfaction of other specific closing conditions (including the admission of the new Ordinary Shares to trading on AIM), the merger will be effective at the time the certificate of merger is filed with the Secretary of State of the State of Delaware.  The merger agreement may be terminated by each party prior to closing under certain circumstances, including because of a material, uncured breach of the merger agreement by one of the parties.

5. GENERAL MEETING

A general meeting of Monitise will be convened, at which a resolution will be proposed which will seek the authority for the Board of Monitise to allot the Ordinary Shares that are to be issued as the Consideration for the Acquisition.

A notice convening this meeting will be sent to Monitise Shareholders in due course.

6. ADDITIONAL INFORMATION

Application will be made to the London Stock Exchange for the new Ordinary Shares to be issued as part of the Initial Consideration to be admitted to trading on AIM. It is expected that Admission will become effective, and that trading in the New Ordinary Shares will commence following receipt of the Permit and the Agreement becomes wholly unconditional but for Admission.

The new Ordinary Shares will, when issued and fully paid, rank pari passu in all respects with the existing Ordinary Shares, including the right to receive any dividend or other distribution declared or made after Admission.

This announcement does not constitute, or form part of, an offer to sell, or the solicitation of an offer to subscribe for or buy any securities.

This announcement is not an offer of securities for sale in or into the United States. Any securities issued in connection with the Acquisition have not been and will not be registered under the US Securities Act of 1933, as amended (the "Securities Act") and may not be offered, sold, taken up or renounced in the United States absent registration under the Securities Act or an applicable exemption from such registration. There will be no public offering of securities in the United States. The Ordinary shares have not been and will not be registered with any regulatory authority of any state or other jurisdiction of the United States.

1. Source: Bank of International Settlement

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This press release was issued by Monitise plc and was initially posted at http://online.hemscottir.com/ir/moni/rnsfeed.jsp?item=971107138033533 . It was distributed, unedited and unaltered, by noodls on 2012-03-26 10:08:16 AM. The issuer is solely responsible for the accuracy of the information contained therein.