TIDMFCS
RNS Number : 9409S
Falanx Cyber Security Limited
09 November 2023
This announcement contains inside information for the purposes
of Article 7 of the UK version of Regulation (EU) No 596/2014 which
is part of UK law by virtue of the European Union (Withdrawal) Act
2018, as amended ("MAR"). Upon the publication of this announcement
via a Regulatory Information Service, this inside information is
now considered to be in the public domain.
FALANX CYBER SECURITY LIMITED
("Falanx" or the "Company")
Proposed Disposal of Cyber Security Division
Proposed Change of Name
Proposed Amendment to the Memorandum and Articles of
Association
and
Notice of General Meeting
Falanx Cyber Security Limited (AIM: FCS), announces that,
further to its announcement on 20 September 2023, it has entered
into a conditional agreement to dispose of its Cyber Security
Division. This will be achieved by the sale of its wholly owned
operating subsidiary, Falanx Cyber Defence Limited ("FCD") and its
wholly owned subsidiary Falanx Cyber Technologies Limited ("FCT")
(together the "Cyber Division" or the "Division"), to Thetis Bidco
Limited for a total enterprise value of GBP4.2 million payable ,
subject to working capital, net debt and intercompany balance
adjustments, in cash (the "Disposal"). Completion of the Disposal
is expected to take place in early December 2023, subject to
Shareholder approval.
Following completion, the net proceeds of the Disposal will be
used to settle liabilities and effectively close the operational
side of the remaining business (as shown in the table below, which
apart from the Enterprise Valuation consideration are
estimates).
GBP'm
------------------------- --------- ------------------------------------
EV consideration 4.20
Debt repayment, net (c.2.60) Debt repayment, creditor backlog,
debt & working capital adjustments for cash/debt like
items, various net working capital
items
Deal Fees and other (c.0.54)
costs
Parent company close (c.0.71) Principally redundancies
down
------------------------- --------- ------------------------------------
Remaining Cash c.0.35
Upon completion of the Disposal, the Company will be regarded as
an AIM Rule 15 cash shell, having ceased to own, control or conduct
all or substantially all, of its existing trading business,
activities or assets. The Disposal is therefore conditional on the
consent of Shareholders at the Extraordinary General Meeting. The
Resolutions to be proposed at the General Meeting also include
changing the Company's name to Cloudified Holdings Limited and an
amendment to the memorandum and articles of association of the
Company.
A copy of the Circular containing more information in relation
to the Disposal, change of name, amendment to the memorandum and
articles of association and Notice of General Meeting will be
available to Shareholders on 9 November 2023 on the Company's
website at https://falanxcyber.com/shareholder-documents/ .
The General Meeting will be held at the offices of Blake Morgan
LLP, Apex Plaza, Forbury Road, Reading RG1 1AX at 9.30 a.m. on 27
November 2023.
Enquiries:
Falanx Cyber Security Limited Via IFC
Alex Hambro Chairman
Mike Read CEO
Ian Selby CFO
WH Ireland
Mike Coe/ Sarah Mather (Nomad)
Fraser Marshall (Corporate Broking) + 44 (0) 207 220 1666
IFC Advisory Ltd
Financial PR & IR
Graham Herring / Zach Cohen +44 (0) 203 934 6630
About Falanx
Falanx Cyber Security Limited is a cyber security services
provider, offering enterprise-class offensive and defensive
security solutions to Small and Medium-sized Enterprises (SMEs).
For further information visit: www.falanxcyber.com
Details of the proposed Disposal, change of name, amendment to
the memorandum and articles of association and Notice of General
Meeting
1. Introduction
Further to its announcement of 20 September 2023, the Company
has today announced that it has entered into a conditional
agreement to dispose of its cyber security businesses. This will be
achieved by the sale of its wholly owned operating subsidiary,
Falanx Cyber Defence Limited ("FCD") and its wholly owned operating
subsidiary Falanx Cyber Technologies Limited ("FCT") (together the
"Cyber Division"), to Thetis Bidco Limited for an enterprise value
of GBP4.2 million payable, subject to working capital, net debt and
intercompany balance adjustments, in cash.
In view of the size and the fundamental nature of the Cyber
Division (being the only trading subsidiaries of the Company), it
is a requirement of the AIM Rules that the Disposal be approved by
Shareholders at a general meeting of the Company. The Disposal is
therefore conditional on the passing of Resolution 1 to be proposed
at the General Meeting.
In light of the Disposal, the Directors are also proposing to
change the name of the Company and to make various amendments to
the Articles, details of which are set out in paragraphs 10 and 11,
respectively.
The purpose of this announcement is to provide Shareholders with
further details of the Disposal, the Change of Name and the
proposed amendments to the Articles. Moreover, the document sets
out the Directors reasons for considering that the proposals are in
the best interests of Shareholders as a whole and recommend you
vote in favour of the Resolutions, which are required to be passed
in order for them to be implemented. The notice of the General
Meeting is set out at the end of the Circular.
The Company has received irrevocable undertakings to vote, or
procure a vote, in favour of the Resolutions from the Directors in
respect of, in aggregate, 279,644 Ordinary Shares representing
approximately 5.3 per cent. of the Company's existing issued
ordinary share capital.
In addition, the Company has received letters of intent from
certain institutional which together hold, or are able to control
voting in respect of Ordinary Shares, to vote, or procure a vote,
in favour of the Resolutions in respect of, in aggregate, 983,650
Ordinary Shares, representing approximately 18.7 per cent. of the
Company's existing issued ordinary share capital.
2. Information on Thetis Bidco
Thetis Bidco is a private company limited by shares,
incorporated on 22 January 2021. It is a wholly-owned indirect
subsidiary of Thetis Topco Limited, which itself is a subsidiary of
Macquarie Capital Principal Finance, a division of Macquarie Group
Limited. The other shareholders of Thetis Topco Limited include
Wavenet management. Thetis Bidco is also a non-trading holding
company of the Wavenet Group, including Wavenet Limited and Adept
Technology Group Limited. The directors of Thetis Bidco are William
(Bill) Dawson, Venetia Cooper, Philip Grannum, and Stewart
Motler.
Formed in 2000 and acquired by Macquarie Capital Principal
Finance, a division of Macquarie Group Limited in 2021, Wavenet is
a multi-award-winning provider of telecoms and technology solutions
to over 20,000 business and enterprise customers across the UK.
Wavenet is a Microsoft Solutions Partner, HPE Gold Partner, Extreme
Networks Diamond Partner and holds Platinum Partner status with
Mitel and Avaya. Mitel have awarded the business the Mitel Public
Sector 2022 Partner Award. Wavenet has multiple office locations
across the United Kingdom and employs c.900 people.
3. Information on the Company and the Cyber Division
The Company has been solely focused on cyber security service
provision following the disposal of its Assynt Strategic
Intelligence Division ("Assynt") in October 2021. The Cyber
Division offers a full-service cyber security portfolio covering
both offensive and defensive services, providing security
assessments, training, social engineering, penetration testing and
managed detection and response services to a wide range of
customers in the UK and overseas. The Cyber Division has a fully
functional security operations centre ("SOC") in Reading, UK. The
Company invested in the growth of the Cyber Division due to the
attractive potential growth opportunities offered by in Cyber
Security market.
The SOC service has a business model where revenues are
generated by annual contracts with monthly payments for the
monitoring of clients' security and this generates monthly
recurring revenue ("MRR"). The SOC has a relatively high fixed
costs, which include technology platform, people, infrastructure
and premises, but given a sufficient critical mass it has high
operational leverage with the vast majority of incremental MRR
flowing to profit and cash flow. The development of MRR has been a
key strategy to create value as it leads to higher quality revenues
and consequent valuations. In order to grow this, the Cyber
Division made significant investments in FY22 and FY23 in sales
expansion and incremental services to deliver against this
opportunity. The business had reworked its SOC offering away from
legacy technology in 2021 to use the Elastic technology platform
for the basis of its service delivery and it was believed this
solution would help better fit clients' needs.
4. Results of year ended 31 March 2023 and current trading
On 29 June 2023, the Company provided an update for the year
ended 31 March 2023 ("FY23"). It was announced that total revenues
for FY23 are expected to be c.GBP3.8m (2022: c.GBP3.5m)
representing organic growth of c.9 per cent. year on year. The
Group also announced that it had experienced steady growth on
penetration testing revenues of 5 per cent. and strong growth in
SOC monitoring revenues which grew by c.21 per cent. compared to
FY22. Total SOC order values (New Logo, Renewals, Uplifts &
extensions) were up by 58 per cent. on FY22, reflecting the
continual achievement of service excellence (with a strong Net
Promoter Score of over 80 per cent.). This resulted in a growing
volume of SOC clients through high annual renewal levels as well as
growth in the estate coverage of individual clients.
Trading for the six months to 30 September 2023 is set out
below. Revenues have grown by c.3 per cent. compared to the
previous year although business won has increased by some 16%. MRR
revenues have shown some growth, but this is at a much lower rate
than the Divisions had targeted. Adjusted EBITDA losses have been
halved due to cost cutting and the receipt of a historic R&D
tax credit of c.GBP0.3m.
6 Months 6 Months Year to Year to
to 30 September to 30 September 31 March 31 March
2023 2022 23 2022
Unaudited Unaudited Unaudited Audited
-------------------- ----------------- ----------------- ---------- ----------
Revenue GBP'm 1.84 1.78 3.79 3.54
Gross margin % 38 36 36 41
Adjusted EBITDA
GBP'm (0.58) (1.18) (1.64) (1.27)
Cash outflow GBP'm
(*) (0.63) (1.49) (2.46) (2.48)
Net (debt)/ cash
GBP'm (1.65) (0.55) (1.26) 1.00
-------------------- ----------------- ----------------- ---------- ----------
As a result of focussing on the proposed Disposal, the Company
has not yet completed the audit of, or therefore published, its
results for the year ended 31 March 2023 ("FY23 Accounts").
Consequently, as a result of the Company having not yet published
its FY23 Accounts by 30 September 2023 (as required by AIM Rule
19), its shares were suspended with effect from 7.30 a.m. on 2
October 2023. The Directors do not expect the FY23 Accounts to be
published until and unless a reverse takeover transaction is
undertaken. Trading in the Company's shares will remain suspended
until the FY23 Accounts have been published.
5. Background and reasons for recommending the Disposal
As set out in paragraph 4 above, the Group expects to report a
loss for both the year ended 31 March 2023 ("FY23") and for the six
months to 30 September 2023. During those periods, the Group has
been cash consumptive. While the Group has grown revenue in FY23,
and as outlined above, the rate of growth has not been as strong as
the Directors had expected. As a result the Directors do not
believe the Group can become profitable and cash generative without
a significant further injection of capital in the form of equity
and/or debt to enable the SOC business to grow and compete more
effectively in its marketplace.
The Group's existing debt with Growth Lending 2021 Limited is
fully secured on the Group's assets, and therefore the Directors do
not believe there is a realistic prospect of securing additional
debt on reasonable terms. In addition, given the current depressed
state of the equity markets, particularly for micro-cap companies
such as Falanx, the Directors believe, having consulted with its
advisers and certain major shareholders, that securing the
necessary equity funds would be very difficult and, if possible at
all, would most likely only be achievable at a very significant
discount to the Company's market price and would therefore be very
dilutive for any shareholder who did not participate. Furthermore,
an investment may only help extend the runway and the changes in
the marketplace above may still mean that the Company does not grow
enough on a stand-alone basis to achieve profitable growth or to
become self-sustaining. Consequently, the Director's consider that
the interests of Shareholders and other stakeholders will be best
served by the Company proceeding with the Disposal.
The Directors believe that, given the financial position of the
Company, and the wider continuing economic uncertainty, the
interests of the Cyber Division and its stakeholders will be best
served as part of a larger group outside the public arena and
without the considerable cost, management time and the legal and
regulatory burden associated with maintaining the Company's AIM
quotation.
Having undertaken a comprehensive sales process led by external
advisors, the Directors have agreed the terms of the sale of the
Group's Cyber Division, to Thetis Bidco for an enterprise value of
GBP4.2 million payable in cash upon Completion.
Following the Disposal, the Company will continue to be quoted
on AIM as a Rule 15 cash shell (subject to the restrictions noted
under paragraph 9 'Future Strategy') which may provide
opportunities to create and deliver enhanced shareholder
returns.
Shareholders should note that if the Disposal is not approved at
the General Meeting, the future of the Company will become very
uncertain and without an immediate injection of new equity or
unsecured debt the Company may be unable to continue to trade.
6. Principal terms of and conditions of the Disposal Agreement
and the Transitional Services Agreement ("TSA")
Subject to the terms of the conditional Disposal Agreement,
entered into by the Company (as seller) and Thetis Bidco (as buyer)
on 8 November 2023, the Company is proposing to sell to Thetis
Bidco the entire issued share capital of FCD and (indirectly) FCT
for an enterprise value of GBP4.2m (subject to a working capital,
net debt and intercompany balances adjustment, which will reduce
the actual consideration received by the Company as demonstrated in
paragraph 7 ('Use of consideration proceeds') below).
The Disposal Agreement:
-- is conditional upon shareholder approval (by way of passing
Resolution 1 to be proposed at the General Meeting) with completion
expected to occur within approximately 14 days from the passing of
Resolution 1.
-- contains the usual buyer protections for this type of
transaction, such as warranties (including tax warranties and a tax
covenant) with such warranties being insured by warranty and
indemnity insurance with the Company's liability (subject to
certain limitations) being capped at GBP1.
-- contains other customary and commercially negotiated terms
agreed between the parties in relation to the Disposal.
Should Resolution 1 not be passed at the General Meeting, the
Disposal Agreement will terminate and the Company will be liable to
pay GBP250,000 to Thetis Bidco as liquidated damages to cover,
inter alia, some of its deal costs.
The Company will also enter into a transitional services
agreement ("TSA") with Thetis Bidco under which it shall provide
limited back office services to Thetis Bidco for a period of up to
4 months from completion of the Disposal. The Company expects to
receive aggregate fees of approximately GBP25,000 under the
TSA.
The lease of the Company's premises (being situated at the
Blade, Abbey Square, Reading, RG1 3BD) is, conditional on
Completion of the Disposal, also to be assigned to Wavenet Limited
(a member of Thetis Bidco's corporate group).
7. Use of consideration proceeds
The Company will use the proceeds of the deal to settle
liabilities and effectively close the operational side of the
remaining business (as shown in the table below, which apart from
the enterprise value are estimates).
GBP'm
--------
Enterprise value 4.20
Debt repayment, net c(2.60) Debt repayment, creditor backlog,
debt & working cap adjustments for cash/debt like items,
various net working capital items
Deal fees and other c(0.54)
costs
Parent company close c(0.71) Principally redundancies
down
---------------------- -------- ---------------------------------------
Expected remaining c0.35
Cash
---------------------- -------- ---------------------------------------
8. Board changes
On completion of the Disposal, Mike Read, Rick Flood, William
Kilmer and Emma Shaw will all resign as Directors of the Company.
Their employment contracts will be terminated with settlement
agreements, and each of them will be paid out. The Continuing
Directors will continue as directors to focus on the Company's
future strategy on reduced remuneration.
9. Future strategy
If the Disposal is approved by Shareholders and completes in
accordance with its terms, the Company will move forward as a cash
shell in accordance with Rule 15 of the AIM Rules and retain cash
balances of approximately GBP0.35m as outlined above.
The Continuing Directors intend to seek to acquire another
company or business in exchange for the issue of Ordinary Shares in
a single transaction (a "reverse takeover" or "RTO"), which will
only be able to go forward with Shareholder approval. In
considering the Company's future strategy, the Continuing Directors
will seek to identify opportunities offering the potential to
deliver value creation and returns to Shareholders over the medium
to long-term in the form of capital and/or dividends. The Company
has identified possible opportunities in technology (financial
technology) and other sectors. There is no certainty that these
opportunities will lead to a transaction.
The Company will be required to make an acquisition, or
acquisitions, which constitute a reverse takeover under AIM Rule 14
on or before the date falling six months from the completion of the
Disposal or be re-admitted to trading on AIM as an investing
company under AIM Rule 8. Failing that, the Company's Ordinary
Shares will be suspended from trading on AIM pursuant to AIM Rule
40. If the Company's shares remain suspended for six months,
admission of the Company's shares will be cancelled.
Pursuant to Rule 14 of the AIM Rules, a reverse takeover
transaction would require the publication of an Admission Document
in respect of the proposed enlarged entity and would be conditional
upon the consent of Shareholders being given at a general
meeting.
Market conditions may have a negative impact on the Company's
ability to make an acquisition or acquisitions, which would
constitute a reverse takeover under AIM Rule 14. There is no
guarantee that the Company will be successful in meeting the AIM
Rule 14 deadline as described above.
If no suitable acquisitions can be identified on a timely basis,
the Continuing Directors will consider appointing a liquidator and
entering a members' voluntary liquidation to return any remaining
cash to Shareholders. The Directors are seeking Shareholders'
approval to amend the Articles to allow such an appointment to be
made by the Continuing Directors without recourse to further
approval from Shareholders to ensure any such process could be
implemented as cost effectively and quickly as possible.
10. Change of Name
To reflect the new direction of the Company, the Board is
proposing to change the name of the Company. Under the Company's
Articles of Association, a change of name requires the passing of a
resolution of Shareholders. Therefore, a resolution will be put to
the General Meeting to approve the Company's change of name to:
"Cloudified Holdings Limited".
If Resolution 2 is approved, the change of name will be
effective once the BVI Registrar of Corporate Affairs has issued a
certificate of change of name (the "Effective Date"). This is
expected to occur in early December 2023. It is further noted that,
in accordance with section 23(2) of the BVI Business Companies Act
(As Revised), the Articles are deemed to be amended to state the
Change of Name with effect from the Effective Date. The tradeable
instrument display mnemonic ("TIDM") of the Company is expected to
change to "CHL" and is expected to become effective in early
December 2023.
11. Amendments to the Articles
To enable the Board to initiate winding up proceedings without
requiring further Shareholder approval and to remove the
requirement for the Company to have an annual general meeting, the
Company proposes to amend the Articles.
If Resolution 3 is approved, the amendments to the Articles will
be effective once they have been filed with the BVI Registrar of
Corporate Affairs. This is expected to occur in early December
2023. The articles are being varied to remove the need for an AGM
in the near term, but should the Company enter into an RTO then a
general meeting will be called and audited accounts presented.
12. General Meeting
A notice convening a General Meeting of the Company to be held
at the offices of Blake Morgan LLP, Apex Plaza, Forbury Road,
Reading RG1 1AX at 9.30 a.m. on 27 November 2023 is set out in the
Circular. The Notice of General Meeting sets out the proposed
Resolutions to approve the Disposal Agreement, the Change of Name
and the amendments to the Articles upon which Shareholders will be
asked to vote.
To become effective the Resolutions require passing by a simple
majority at a meeting of such Shareholders.
13. Action to be taken
Shareholders will find on the Company's website a Form of Proxy
for use in connection with the General Meeting. To be valid, the
Form of Proxy should be completed and returned in accordance with
the instructions thereon so as to be received by Computershare
Investor Services (BVI) Limited, The Pavilions, Bridgwater Road
BS99 6ZY as soon as possible and in any event not later than 48
hours before the time of the General Meeting. Completion and return
of the Form of Proxy will not prevent a Shareholder from attending
and voting at the General Meeting should he/she/it so wish.
14. Recommendation
The Directors unanimously recommend Shareholders to vote in
favour of the Resolutions, as they irrevocably committed to do in
respect of their shareholdings amounting in aggregate to 279,644
Ordinary Shares representing 5.3 per cent. of the Company's total
voting rights.
EXPECTED TIMETABLE OF PRINCIPAL EVENTS
2023
Announcement of the proposed Disposal 9 November
Publication and posting of the Circular and Form 9 November
of Proxy
Latest time for receipt of Form of Proxy 23 November
General Meeting 27 November
DEFINITIONS
The following definitions apply throughout this announcement
unless the context requires otherwise:
"AIM" the market of that name operated by the
London Stock Exchange
"AIM Rules" the AIM Rules for Companies published
by the London Stock Exchange from time
to time
"Articles" the memorandum and articles of association
of the Company
"Change of Name" the proposed change of name of the Company
to Cloudified Holdings Limited further
details of which are set out in paragraph
10 of the Letter of the Chairman
"Circular" the circular to Shareholders dated 9 November
2023
"Company" or "Falanx" Falanx Cyber Security Services Limited
a limited company incorporated in the
British Virgin Islands with registered
number 1730012 and with its registered
office at PO Box 173, Maples Corporate
Services (BVI) Limited, Kingston Chambers
Road Town, Tortola, British Virgin Islands
"Completion" completion of the Disposal on the terms
set out in the Disposal Agreement
"Consideration" the gross consideration, before the repayment
of debt and other adjustments, payable
by the Purchaser to the Company for the
Disposal amounting to GBP4.2 million
"Continuing Directors" Alex Hambro and Ian Selby
"Cyber Division" the businesses of FCD and FCT
"Directors" or "Board" the directors of the Company or any duly
authorised committee thereof
"Disposal" the proposed sale of the entire issued
share capital of Falanx Cyber Defence
Limited and its subsidiary Falanx Cyber
Technologies Limited in accordance with
the terms of the Disposal Agreement
"Disposal Agreement" the agreement dated 8 November 2023 made
between the Company and the Purchaser,
relating to the sale and purchase of the
entire issued share capital of Falanx
Cyber Defence Limited
"Falanx Cyber Defence" Falanx Cyber Defence Limited, a limited
company number incorporated in England
and Wales with registered number 08224292
and with its registered office at The
Blade, Abbey Square, Reading, England,
RG1 3BE
"Falanx Cyber Technologies Falanx Cyber Technologies Limited, a limited
" company number incorporated in England
and Wales with registered number 10590204
and with its registered office at The
Blade, Abbey Square, Reading, England,
RG1 3BE
"FCD and FCT" Falanx Cyber Defence and Falanx Cyber
Technologies
"Form of Proxy" the form of proxy for use in connection
with the General Meeting, copies of which
are available on the Company's website:
https://falanxcyber.com/aim-rule-26/
"Group" the Company and its subsidiaries and subsidiary
undertakings at the date of this announcement
"General Meeting" the general meeting of the Company convened
for 9.30 a.m. on 27 November 2023
"Notice" the notice of the General Meeting of Shareholders
set out at the end of the Circular
"Ordinary Shares" ordinary shares of nil par value in the
capital of the Company
"Purchaser" Thetis Bidco
"Resolutions" the resolutions to be proposed to the
Company's Shareholders at the General
Meeting
"Shareholders" the holders of Ordinary Shares
"Thetis Bidco" Thetis Bidco Limited, a limited company
number incorporated in England and Wales
with registered number 13152295 and with
its registered office at Ropemaker Place,
28 Ropemaker Street, London, United Kingdom,
EC2Y 9HD
"WH Ireland" WH Ireland Limited, nominated adviser
and broker to the Company
"GBP", "pounds sterling", are references to the lawful currency
"pence" or "p" of the United Kingdom
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END
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