/NOT FOR DISTRIBUTION TO US WIRE SERVICES OR FOR
DISSEMINATION IN THE UNITED STATES OF
AMERICA/
TORONTO, Aug. 17, 2021 /CNW/ - PopReach Corporation
(TSXV: POPR) ("PopReach") is pleased to announce that it has
entered into a letter of intent ("LOI") dated August 16, 2021 with 2810735 Ontario Inc. d/b/a
Federated Foundry, an acquirer and operator of digital technology
companies ("Federated" and together with PopReach, the
"Parties", and each, a "Party"), pursuant to which
PopReach and Federated will combine to form a leading,
publicly-listed Canadian technology and media enterprise (the
"Transaction"). The LOI outlines the principal terms and
conditions for the Transaction, which will result in a reverse
takeover of PopReach by Federated and its shareholders.
In connection with the announcement of the LOI, which
constitutes an RTO Agreement (as such term is defined in the
policies of the TSX Venture Exchange (the "TSXV")) for the
Transaction, trading in the common shares of PopReach ("PopReach
Shares") has been halted pursuant to the policies of the TSXV.
Trading will remain halted until, among other things, PopReach
completes certain regulatory filings in connection with the
Transaction with the TSXV and the TSXV has completed certain
matters it considers necessary or advisable, potentially until the
completion of the proposed Transaction.
Highlights
- Multi-pronged strategy to acquire, enhance and optimize
digital technology assets: Federated was launched in 2021
to pursue a strategy of acquiring, enhancing and optimizing
technology assets in the digital media and ecommerce space. Since
its launch, Federated has already completed two acquisitions, and
anticipates closing another in the third quarter of
20211. The combination with PopReach's
platform to acquire and optimize free-to-play games gives the
combined company broader purview to a deep pool of high quality
targets across the digital technology and media landscape to
maximize return on invested capital.
- Immediate scale: On an unaudited basis, Federated's two
existing portfolio companies generated over US$23.5M in revenue in the first six months of
2021, with the third portfolio company (expected to close in the
third quarter of 20211) having generated
US$2.2M in revenue for the same
period. Management expects the companies' combined financial
strength to result in greater access to capital, which will
facilitate and help accelerate growth.
- Digital audience synergies: Federated's portfolio
companies deliver 30 billion monthly advertising impressions for
500 direct advertising clients/partners to 650 million unique users
across 1,900 publisher sites. PopReach has over 1.9 million monthly
active users across its portfolio of 25+ games. Federated's
platform and expertise will help PopReach expand its advertising
revenue, while PopReach provides a growing delivery channel for
Federated's advertising customers.
- Management depth and experience: A new board of
directors and an expanded and combined executive management team
will bring complementary strengths and deep experience in the areas
of mergers and acquisitions, digital media and advertising, mobile
user acquisition, and digital content monetization.
1
|
As described in
the "About Federated" section of this press release.
|
Transaction
It is currently anticipated that the Transaction will be a
cashless transaction, effected by way of a three-way amalgamation
amongst Federated, PopReach and a newly-incorporated, wholly-owned
subsidiary of PopReach.
It is proposed that PopReach will acquire all of the issued and
outstanding shares of Federated ("Federated Shares") on a
fully-diluted basis (including all common shares issued or issuable
on any exercise of the outstanding options, warrants and other
securities convertible, exercisable or exchangeable for Federated
Shares, collectively, the "Purchased Shares") for an
indicative aggregate purchase price of C$160
million, subject to adjustments for assumed debt, working
capital and other customary terms and conditions to be set out in
the Definitive Agreement (as defined below), payable by the
issuance by PopReach of such aggregate number of PopReach Shares to
the shareholders of Federated (including those from the exercise,
exchange or conversion of options, warrants and other securities
convertible, exercisable or exchangeable for Federated Shares)
pro rata based on the number of Purchased Shares held by
each such shareholder of Federated, at the deemed price per
PopReach Share of C$0.80,
representing a premium of 27% over the PopReach Share closing
price, and a premium of 32.9% over the PopReach Share 20-day VWAP,
as at August 16, 2021. The aggregate
purchase price is subject to due diligence and the assumptions,
terms and conditions of the LOI, and is also subject to Federated
having closed the acquisition of Contobox (as described below)
prior to the Transaction.
Upon completion of the Transaction, it is anticipated that
current shareholders of Federated will own more than 50% of the
shares of the resulting issuer (the "Resulting Issuer") on a
non-diluted basis.
Additionally, it is anticipated that (i) the Resulting Issuer
will change its name to a name determined by the Parties in
connection with completion of the Transaction and (ii) a new equity
incentive plan will be established for the Resulting Issuer,
comprised of a 10% rolling stock option plan, and a restricted
stock unit plan. PopReach shall seek all requisite approval to
effect same upon completion of the Transaction.
Definitive Agreement
The LOI contemplates the negotiation of a definitive agreement
(the "Definitive Agreement"), which shall contain such
customary representations, warranties, covenants, agreements, terms
and conditions consistent with industry practice for a transaction
of the nature of the Transaction, including (among other things)
the following conditions precedent to closing:
- completion of mutual satisfactory due diligence investigations
of PopReach and Federated;
- approval of the Transaction by shareholders of PopReach and
Federated;
- approval of the Transaction by the boards of directors of
PopReach and Federated;
- receipt of all regulatory approvals with respect to the
Transaction, including approval by the TSXV;
- each of Ted Hastings,
Amy Hastings, Jeff Collins, Mike
Fitzgerald and Kevin Ferrell
shall have executed executive employment agreements with the
Resulting Issuer;
- confirmation of no adverse material change of PopReach or
Federated; and
- compliance by each of PopReach and Federated with
representations, warranties, covenants, obligations and conditions
of such Party as set out in the Definitive Agreement.
About Federated
Federated was incorporated as 2810735 Ontario Inc. on
January 25, 2021 under the
Business Corporations Act (Ontario). Federated is a diversified, rapidly
growing acquirer and operator of digital technology companies.
Federated identifies businesses with meaningful scale and longevity
and provides them with the platform, team and synergistic assets to
accelerate growth.
Federated's portfolio includes two operating divisions, a push
notification advertising platform operated by Notify AI, LLC, a
Wyoming limited liability company
("Notify AI"), and an industry-leading advertising and media
service provider, Q1Media, LLC, a Delaware corporation ("Q1Media").
Federated is currently working to close the acquisition of its
third portfolio company, Crucial Interactive Holdings Inc., an
Ontario corporation
("Contobox").
Notify AI is headquartered in Denver,
Colorado; its co-founders have over 60 years' experience in
the internet marketing technology space. Notify AI's push
notification subscription and monetization platform generates
revenue by delivering targeted ads across its network of publisher
websites.
Q1Media is headquartered in Austin,
Texas, and has been operating in the digital media industry
for over 17 years. Q1Media's clients are hundreds of longstanding
mid-market enterprises across the United
States, where Q1Media provides digital media advertising
strategies including social, video and search.
Contobox, is a leader in personalization, eCommerce and
creative advertising technologies. With offices in Toronto, Montreal, and New
York, Contobox is focused on developing and selling
marketing and advertising technology solutions for brands and
publishers.
The following table sets out certain unaudited financial
information of Federated and each entity acquired, or, in the case
of Contobox, intended to be acquired, by Federated for the
six-month period ending on June 30,
2021.
Six months
ended June 30, 2021
(all figures in US dollars, unaudited)
|
|
NotifyAI
|
Q1Media
|
Contobox 2
|
Federated
|
Revenue
|
$11,931,274
|
$11,607,598
|
$2,203,290
|
$0
|
Net
Income
|
$2,089,759
|
$732,542
|
$87,017
|
-$271,319
|
Adjusted
EBITDA 3
|
$2,202,810
|
$1,056,261
|
$276,507
|
-$271,319
|
Current
Assets
|
$3,939,116
|
$5,746,071
|
$3,472,202
|
$5,491,870
|
Total
Assets
|
$3,939,116
|
$5,804,593
|
$3,677,407
|
$5,491,870
|
Current
Liabilities
|
$1,970,320
|
$5,606,038
|
$5,332,531
|
$1,621,026
|
Total
Liabilities
|
$1,970,320
|
$5,606,038
|
$6,756,376
|
$1,621,026
|
|
|
2 The acquisition of Contobox by Federated is
currently pending completion. Subject to satisfaction of all due
diligence, receipt of professional advice by both Contobox and
Federated, and other conditions precedent to the completion of such
acquisition, Federated expects to complete the acquisition of
Contobox in the third quarter of 2021.
|
|
|
3 Please refer to "Non-GAAP Measures" section of
this press release.
|
Updates to PopReach Board and Proposed Principals and
Insiders of Resulting Issuer
The Transaction, if completed on terms described herein, will
represent a strategic expansion for PopReach from its historical
focus on 'free-to-play' games to include also an overall strategy
of acquiring, enhancing and optimizing other digital media and
ecommerce assets and opportunities.
The board of directors of the Resulting Issuer is anticipated to
consist of seven members: three nominees from PopReach (being
Jon Walsh, Christopher Locke and Mike Vorhaus) and four from Federated (being
Ted Hastings, and three directors
independent in relation to the Resulting Issuer with complementary
skills and experiences, including in digital media and advertising,
mobile user acquisition, and digital content monetization).
Mr. Schnarr, who was a director of the TSXV capital pool company
(the "CPC") that is a predecessor of PopReach and who
continued to serve as a director of PopReach upon PopReach's 'go
public' transaction via the CPC, Mr. Sharma, who similarly was a
director of the CPC and who joined the PopReach Board in late
July 2020 after PopReach's 'go
public' transaction via the CPC, and Mr. Patterson, who joined the
PopReach Board upon completion of PopReach's 'go public'
transaction, have each resigned from the PopReach Board. The
Board and management of PopReach sincerely thanks Messrs. Schnarr,
Sharma and Patterson for their invaluable service and guidance of
PopReach in its formative years as a public company, as well as
their expert insights and advice in the execution of PopReach's
strategy to date in digital game assets.
The expanded and combined team of executive officers of the
Resulting Issuer will include Ted
Hastings as Executive Chairman, Jon
Walsh as Chief Executive Officer, Christopher Locke as President, Greg Donaldson as Chief Financial Officer, and
Amy Hastings as General Counsel and
Corporate Secretary.
It is anticipated that Michael
Fitzgerald of Denver,
Colorado, and James Mansfield
of Austin, Texas, will become
Insiders (as such term is defined in the policies of the TSXV) of
the Resulting Issuer as holders of more than 10% of the issued and
outstanding shares of the Resulting Issuer immediately upon
completion of the Transaction.
Jon Walsh
Mr. Walsh, currently Chief Executive Officer and a director of
PopReach, is a veteran of game publishing and digital media
technology industries. He has delivered more than 30 games across
console, PC and mobile platforms that have collectively generated
more than 50 million downloads. Prior to PopReach, he was the
Founder and CEO of Fuse Powered, a mobile ad mediation and
analytics platform used by hundreds of successful apps, which was
acquired by Upsight, where he served as President. Prior to Fuse,
Mr. Walsh founded Groove Games, a retail game publisher that
produced over a dozen PC and console games that sold millions of
units and generated tens of millions of dollars in revenue. He
holds an HBA and MBA from the Richard Ivey School of Business at
the University of Western Ontario.
Christopher
Locke
Mr. Locke, currently President, Chief Operating Officer,
Corporate Secretary and a director of PopReach, has led the
development, publishing and commercialization of industry defining
free-to-play mobile games that have generated hundreds of millions
of dollars in revenue, including Smurfs' Village and Kim Kardashian: Hollywood. Mr. Locke was the founder and Chief
Executive Officer of Blammo Games, acquired by Glu Mobile (NASDAQ:
GLUU), where he served as Senior Vice President.
Mike Vorhaus
Mr. Vorhaus, currently a director of PopReach, is the founder
and CEO of Vorhaus Advisors, a research and consultancy firm to
media, internet and video game companies. Previously, he was
President of Magid Advisors, where he founded their Internet and
Gaming practices, advising many of the top digital and gaming
companies in the U.S. and abroad. Mr. Vorhaus is a director of
Perion (NASDAQ: PERI), where he chairs the Nominations Committee
and serves on the Audit Committee, a director of Altimar
Acquisitions (NYSE: ATAC), and an advisor to venture capital and
private equity firms in regard to investments in the media and tech
spaces. Mike Vorhaus appears
regularly on CNBC, CNBC Asia, MSNBC, CBS, NPR, and Fox Business,
and is often quoted in newspapers and Websites, such as The
New York Times, The Wall Street
Journal, USA Today, Reuters,
MarketWatch, TheStreet, and others.
Ted Hastings
Mr. Hastings has an 18-year career as a CEO/President including
30+ acquisitions in both the public (LSE, TSX) and private markets.
He has served as CEO of RhythmOne (LSE AIM: RTHM), CEO of Perk
(TSX: PER), President of Cyberplex, CEO of Tsavo Media, and CEO of
GBG (sold to NYSE: MMM) through his career in leadership positions
in software and internet companies. He was named to Canada's Top 40 Under 40 for 2009, is a CPA
and a graduate of Wilfrid Laurier.
Greg Donaldson
Mr. Donaldson, CPA, CA, currently Chief Financial Officer of
PopReach, has held senior finance positions at technology companies
including ecobee, Freshbooks and VarageSale. He also served as the
most senior financial officer for Timminco Limited, a TSX listed
company with revenue in excess of $150MM.
Amy Hastings
Ms. Hastings has been advising both public and private companies
on M&A, financing transactions and general corporate matters
for over 10 years. She has previously served as General Counsel to
each of Perk Inc. (TSX: PER) and RhythmOne plc (LSE AIM: RTHM). She
played a critical role in guiding Perk through a reverse take-over
transaction and listing on the Toronto Stock Exchange in 2015,
several M&A transactions and an eventual sale to RhythmOne plc
(LSE AIM:RTHM) in 2017. At RhythmOne she led several corporate
development initiatives, including the company's acquisition of
Yume, Inc. (NYSE: YUME). Ms. Hastings has recently served as Legal
Advisor to a number of Ad Tech companies, including, TextNow, Inc.,
Beachfront Media, LLC and Snapsort Inc. She earned her LL.B. from
University of Windsor and B.A. from
Columbia University.
Arm's Length Transaction
The Transaction will constitute an Arm's Length Transaction (as
such term is defined in the policies of the TSXV). No person who or
which is a Non-Arm's Length Party of PopReach has any direct or
indirect beneficial interest in Federated, its shareholders or its
assets prior to giving effect to the Transaction and no such
persons are also Insiders of Federated. Similarly, there is no
known relationship between or among any person who or which is a
Non-Arm's Length Party of PopReach and any person who or which is a
Non-Arm's Length Party to Federated.
Shareholder Approvals
The Transaction will be a Reverse Takeover (as such term is
defined in the policies of the TSXV) and therefore will require
approval of the shareholders of PopReach. It is anticipated that
PopReach will seek approval of its shareholders at an annual
general and special meeting of shareholders as soon as reasonably
practicable (the "PopReach Shareholders Meeting"). It is
anticipated that shareholders will be requested to approve: (A) the
Transaction, (B) the proposed name change, (C) the election of new
directors, (D) the proposed new equity incentive plan, (E) such
other matters that may be reasonably required in order to give
effect to the Transaction, and (F) such other matters to be
addressed at an annual general meeting, being to receive and
consider the fiscal 2020 annual financial statements and the
appointment of MNP LLP as auditor. In connection with the
Transaction, the PopReach Shareholders Meeting and pursuant to the
requirements of the TSXV, PopReach will prepare an information
circular, which will contain details regarding the Transaction,
PopReach, Federated and the Resulting Issuer. The information
circular and other materials for the PopReach Shareholders Meeting
will be mailed to shareholders of PopReach and posted under
PopReach's profile on SEDAR at www.sedar.com.
The Transaction will require approval of the shareholders of
Federated. All of Federated's shareholders are subject to a voting
trust agreement allowing for Ted
Hastings, in his capacity as Chief Executive Officer of
Federated, to exercise voting rights in respect of the Federated
Shares.
Sponsorship
The TSXV has discretion to require sponsorship in connection
with certain significant transactions where the TSXV considers
sponsorship necessary or advisable. In the event the TSXV
determines that sponsorship is required in connection with the
Transaction, PopReach intends to make an application to the TSXV
for a waiver from sponsorship requirements. There is no assurance
that if applied for, a waiver will be granted.
Management Commentary
"Ted Hastings and the Federated
Foundry team have a strong track record of growth, both organic and
inorganic, and a shared philosophy in uncovering, acquiring and
optimizing technology assets that drive meaningful returns and cash
flows." said Jon Walsh, CEO of
PopReach. "The combination of our businesses greatly increases our
addressable market, access to capital, and the ability to
accelerate value creation for our shareholder bases."
Added Christopher Locke,
President of PopReach, "This Transaction brings together two
established consolidation platforms in free-to-play games and
digital media technology, a strategy validated by strong recent
precedents in our industry. It not only creates instant critical
mass for both of our organizations, but owning cash flowing
businesses that provide digital media services, technology
platforms, and content, provides the opportunity to capture more
margin across the value chain as we fully integrate our
operations."
Non-GAAP Measures
The Parties prepare their financial statements in accordance
with IFRS. However, the Parties consider certain non-GAAP financial
measures as useful additional information to assess its financial
performance. These measures, which the Parties believe are widely
used by investors, securities analysts and other interested parties
to evaluate its performance, do not have a standardized meaning
prescribed by GAAP and therefore may not be comparable to similarly
titled measures presented by other publicly traded companies, nor
should they be construed as an alternative to financial measures
determined in accordance with IFRS. "EBITDA" and "Adjusted EBITDA"
are non-GAAP measures.
EBITDA and Adjusted EBITDA
Earnings before interest, taxes, depreciation and amortization
("EBITDA") and consolidated adjusted earnings before interest,
taxes, depreciation and amortization ("Adjusted EBITDA") are
non-IFRS measures of financial performance. The presentation of
these non-IFRS financial measures is not intended to be considered
in isolation from, as a substitute for, or superior to, the
financial information prepared and presented in accordance with
IFRS, and may be different from non-IFRS financial measures used by
other companies. Management of the Parties defines EBITDA as
follows: IFRS Net income (loss) adding back accretion and
interest expenses (including amortization of deferred financing
fees), income taxes, amortization, gain/loss on disposal of assets,
and fair value gain/loss on financial liabilities. Adjusted
EBITDA is calculated as EBITDA and excludes discontinued operations
and the effects of significant items of income and expenditure
which may have an impact on the quality of earnings, such as
restructuring costs, legal expenses, and impairments where the
impairment is the result of an isolated, non-recurring event. It
also excludes the effects of equity-settled share-based payments,
and changes in deferred revenues.
The Parties believe EBITDA and Adjusted EBITDA are useful
financial metrics to assess operating performance on a cash basis
before the impact of non-cash items.
The following table presents Federated's calculation of EBITDA
and Adjusted EBITDA, on an unaudited basis, for the six months
ended June 30, 2021:
All figures in US
dollars
|
NotifyAI
|
Q1Media
|
Contobox 2
|
Federated
|
Reconciliation
of non-GAAP measures
|
|
|
|
Net
Income
|
$2,089,759
|
$732,542
|
$87,017
|
-$271,319
|
Add:
|
|
|
|
|
Interest and
accretion expenses
|
-$113
|
$41,606
|
$29,247
|
$0
|
Current
taxes
|
$0
|
$133,774
|
$0
|
$0
|
(Gain) / loss
on sale
|
$0
|
-$3,587
|
-$42,297
|
$0
|
Amortization
& Depreciation
|
$0
|
$12,927
|
$52,487
|
$0
|
EBITDA
|
$2,089,646
|
$917,261
|
$126,453
|
-$271,319
|
|
|
|
|
|
Add:
|
|
|
|
|
Extraordinary
one-time expenses
|
$113,163
|
$139,000
|
$150,054
|
$0
|
Adjusted
EBITDA
|
$2,202,810
|
$1,056,261
|
$276,507
|
-$271,319
|
|
|
2 The acquisition of Contobox by Federated is
currently pending completion. Subject to satisfaction of all due
diligence, receipt of professional advice by both Contobox and
Federated, and other conditions precedent to the completion of such
acquisition, Federated expects to complete the acquisition of
Contobox in the third quarter of 2021.
|
About PopReach Corporation
PopReach, a Tier 1 Issuer on the TSX Venture Exchange, with
shares also trading on OTCQX® Best Market, is a free-to-play game
publisher focused on acquiring and optimizing proven franchises.
The Company has to date acquired successful game franchises enjoyed
by over 1.9 million unique players a month, including Smurfs'
Village (IP under license), PAYDAY Crime War (IP under
license), Peak - Brain Training, Kitchen Scramble,
Gardens of Time, City Girl Life, War of
Nations and Kingdoms of Camelot. PopReach, headquartered
in Toronto, employs a team of over
130 experts in Toronto,
Vancouver, London, UK, and Bangalore, India.
Additional information about the Company is available at
www.sedar.com
Completion of the Transaction is subject to a number of
conditions, including but not limited to, TSXV acceptance and if
applicable, disinterested shareholder approval. Where applicable,
the transaction cannot close until the required shareholder
approval is obtained. There can be no assurance that the
transaction will be completed as proposed or at all.
Investors are cautioned that, except as disclosed in the
management information circular or filing statement to be prepared
in connection with the transaction, any information released or
received with respect to the transaction may not be accurate or
complete and should not be relied upon. Trading in the securities
of PopReach should be considered highly speculative.
Certain financial data contained herein is unaudited and may
be subject to refinement or modification during the audit process.
Investors are cautioned that, except as disclosed in the management
information circular or filing statement to be prepared in
connection with the Transaction, any information released or
received with respect to the Transaction may not be accurate or
complete and should not be relied upon.
The TSXV has in no way passed upon the merits of the proposed
transaction and has neither approved nor disapproved the contents
of this news release.
This news release does not constitute an offer to sell or the
solicitation of an offer to buy any securities in any
jurisdiction.
Cautionary Statement Regarding Forward-Looking
Information
This news release contains "forward-looking information"
within the meaning of Canadian securities legislation. Forward-
looking information generally refers to information about an
issuer's business, capital, or operations that is prospective in
nature, and includes future-oriented financial information about
the issuer's prospective financial performance or financial
position.
The forward-looking information in this news release includes
disclosure about the terms of the Transaction and the proposed
structure of the Transaction.
PopReach and Federated made certain material assumptions,
including but not limited to: prevailing market conditions; general
business, economic, competitive, political and social
uncertainties; delay or failure to receive board, shareholder or
regulatory approvals; and the ability of the resulting issuer to
execute and achieve its business objectives, to develop the
forward-looking information in this news release. There can be no
assurance that such statements will prove to be accurate, as actual
results and future events could differ materially from those
anticipated in such statements. Accordingly, readers should not
place undue reliance on forward-looking statements.
Actual results may vary from the forward-looking information
in this news release due to certain material risk factors. These
risk factors include, but are not limited to: adverse market
conditions; the inability of PopReach or Federated to complete the
Transaction on the terms disclosed in this news release, or at all;
the unavailability of exemptions from prospectus requirements for
the issuance of PopReach Shares; the risks associated with the
marketing and sale of PopReach Shares; refusal of the proposed
directors or officers to act for any reason, including conflicts of
interest; reliance on key and qualified personnel; and regulatory
and other risks associated with the technology, media and digital
gaming industries in general. The foregoing list of material risk
factors and assumptions is not exhaustive.
SOURCE PopReach Corporation