Transaction adds to monthly recurring revenue
with opportunity to scale the GSX addressable market by moving it
to a true cloud SaaS platform.
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OTTAWA, April 28, 2020 /CNW/ - Martello Technologies
Group Inc., ("Martello" or the "Company") (TSXV: MTLO), a
provider of digital experience monitoring (DEM) solutions deployed
in more than 5,000 enterprise networks around the world, today
announced two initiatives as part of a strategic investment to
strengthen its DEM capabilities.
The Company has entered into a share purchase agreement (the
"Share Purchase Agreement") dated April 28, 2020 to acquire 100% of the shares of
GSX Participations SA ("GSX"), a provider of end-user
experience monitoring for Microsoft Office 365 headquartered in
Geneva, Switzerland with more than
400 enterprise customers globally. The consideration for the
acquisition is 22,000,000 common shares and CDN$13,860,000 cash for an aggregate purchase
price of $18,700,000, subject to
adjustment (the "Purchase Price"),
Martello intends to close debt financing concurrently with the
closing of the Transaction. Financing provided by Vistara Capital
Partners will fund the acquisition of GSX, while a secured
revolving credit facility from National Bank of Canada will be made available to Martello to
draw upon from time to time to finance its day to day operations.
The transaction is subject to the completion of standard conditions
of closing for this type of transaction, including the completion
of the financings as well as conditions regarding minimum cash and
available cash at closing. Additional information about the
transaction and the debt financings above are detailed in this
press release. Closing is expected by May
28, 2020.
Martello also announced today that, as part of an enhanced focus
on its software as a service (SaaS) -based DEM strategy, the
Company has completed a strategic review of all operations and is
taking steps to achieve efficiencies across the organization. As a
result, Martello has reduced its workforce with a specific focus on
the former Elfiq division, and is in discussions with a third-party
regarding a divestment of this division. These decisions have been
taken in the context of rapidly expanding global remote work
requirements and the resulting opportunity created in the
SaaS-based DEM market, and by the Company's priority to achieve
positive adjusted EBITDA in the near term. Additional details are
provided in this press release.
GSX Transaction Highlights and Commentary:
- Based on unaudited financial statements prepared by GSX for the
year ended December 31, 2019:
-
- GSX generated €4.4M of revenues in FY2019, which is
approximately CDN$6.6M.
- Pro forma consolidated Martello revenues on a trailing
twelve-month basis are approximately $19.7M.
- Approximately 89% of total GSX revenue for its software during
FY2019 was recurring, with Monthly Recurring Revenue (MRR) of
approximately €0.3M, or CDN$0.45M.
- GSX billings from sales of Microsoft Office 365 digital
experience monitoring increased by 34% in FY2019.
- GSX's gross margins are approximately 90%.
- GSX EBITDA in FY2019 was (€1.1M)
- Complimentary to the earlier acquisition of Savision, the
acquisition of GSX further extends Martello's digital experience
monitoring capabilities into Microsoft Office 365, which is the
dominant business application platform used by Martello's
enterprise and SMB markets.
- While this acquisition has been in negotiation and diligence
for more than six months, recent events show the opportunity with
Microsoft Office 365. The service has 200 million monthly active
users, typically growing at a pace of 3 million users per
month1. With remote work increasing, Microsoft noted on
March 19, 20202 an
unprecedented spike in Teams usage, with daily users growing by 12
million in just seven days.
- Once synergies are realized from integration, Martello believes
that GSX should deliver positive adjusted EBITDA contribution, and
with MRR and Office 365 monitoring growth trajectories, should help
to deliver EBITDA margins typically associated with SaaS
vendors.
- GSX is a Microsoft Gold Partner in both Messaging and Cloud
Productivity.
- Near-term growth opportunities as a result of this transaction
include:
-
- Integrating the GSX software into Martello's multi-tenant cloud
SaaS environment to provide a simplified deployment model for GSX's
existing target market (large enterprise and MSPs) while also
expanding its addressable market to small and medium sized
businesses.
- Offering Office 365 user experience monitoring to existing
Martello customers and partners, many of whom use or sell Office
365.
"There are few services whose performance is as critical to CIOs
as Microsoft Office 365", said John
Proctor, President and CEO of Martello. "By acquiring GSX,
the Company extends its existing monitoring, analytics and network
optimization capabilities deeply into Office 365 and increases
monthly recurring revenue from this mission critical space. As we
take steps to exit the SD-WAN business, Martello will be focused on
strengthening its SaaS-based DEM market opportunity going forward,
to increase MRR and move towards positive adjusted EBITDA. We're
pleased to welcome GSX into the Martello family, and appreciate the
confidence that National Bank and Vistara Capital Partners have
placed in us - in today's uncertain market conditions, our lenders
recognize Martello's market opportunity together with GSX".
"Businesses in every industry are deploying cloud services such
as Microsoft Office 365, unified communications and video
conferencing", said Antoine Leboyer,
President and CEO of GSX. "Martello has built an impressive
family of solutions which combines monitoring and analytics
capabilities to ensure an optimum user experience for these key
business services. We are excited that GSX's advanced synthetic
Digital Experience Monitoring capabilities will enhance Martello's
portfolio of solutions, while adding more value to our clients and
partners"
"As the world has shifted to remote work and usage of
cloud-based communication and collaboration tools such as Microsoft
Teams has grown rapidly, Martello's opportunity has become even
more attractive", said Noah Shipman,
Partner in Vistara Capital Partners. "We are impressed by
Martello's management team, technology and market opportunity, and
believe that the acquisition of GSX will help accelerate its growth
with a solution for the expanding Microsoft Office 365 market.
Vistara invests in ambitious technology companies with resilient
business models across North
America and are specifically proud to support another
emerging Canadian technology leader in Martello".
"National Bank is pleased to partner with Martello, a leading
provider of monitoring and analytics solutions for real-time cloud
services. We're proud to support the growth of this renowned
Ottawa-based company and to have
assisted them with financing this strategic investment. This
collaboration is in line with our firm commitment to promoting
innovation, even in uncertain economic times, and supporting
Canadian businesses," said David
Looi, Senior Director, Technology and Innovation Banking
Group at National Bank.
Transaction and Financing Details
Through its wholly owned subsidiary, Martello Technologies
Corporation ("MTC"), Martello will purchase all the issued
and outstanding securities of GSX. The Purchase Price is payable as
follows: (i) a cash payment of CDN$13,860,000 and (ii) the issuance of
22,000,000 common shares of the Company (the "Common
Shares") to the shareholders of GSX (the "Vendors").
Upon completion of the transaction, it is expected that the Vendors
will own 9.5% of the issued and outstanding shares of Martello on
an undiluted basis. While no new insiders will be created upon
closing, the Martello Shares issued to GSX's largest Vendor will be
subject to a 4-month plus 1 day hold period. Sampford Advisors
acted as exclusive M&A adviser to Martello on this transaction.
The transaction does not constitute a Fundamental acquisition as
per TSXV Policy 5.3.
As part of the transaction described above, MTC will complete
debt financing with Vistara Capital Partners ("Vistara").
Vistara will provide a subordinated secured term loan of
US$8M (the "Term Loan".
The Vistara credit agreement (the "Vistara Credit
Agreement") is dated April 27,
2020. The Term Loan is repayable within 36 months of closing
and carries interest of the greater of (i) 12.50% per annum; and
(ii) the U.S. prime rate plus 8.75% per annum calculated monthly in
arrears on the outstanding principal amount. Vistara will take
subordinated security interest in all the present and after
acquired property of MTC, the Company, and the Canadian, US, Swiss,
and Dutch subsidiaries of the Borrower (the "Corporate
Guarantors"). Repayment of the Term Loan will be guaranteed by
the Company and each of the Corporate Guarantors.
As consideration for providing the Term Loan, Vistara will
receive upon closing 12,777,273 bonus warrants to purchase
Common Shares ("Bonus Warrants") subject to the TSXV Policy
5.1 – Loans, Loan Bonuses, Finder's Fees and Commissions
("TSXV Policy"). Each Bonus Warrant will be exercisable into
one Common Share (a "Bonus Share") at an exercise price of
CDN $0.22 per Bonus Share for up to
36 months from closing (the "Expiry Time"), unless the Term
Loan is repaid earlier, then the Expiry Time shall be reduced in
accordance with TSXV Policy. Subject to TSXV approval, the Bonus
Warrants may be exercised on a "cashless basis". Furthermore, if at
any time, after four months and a day after the Issue Date, the
volume weighted average price (VWAP) of the Common Shares for any
twenty (20) consecutive Trading Days on the TSXV, during which the
total volume of common shares traded in such period exceeds
5,000,000, is equal to or exceeds CDN $0.44 being 100% premium on exercise price then
all of the Bonus Warrants shall be deemed to be automatically
exercised by Vistara on a cashless basis. The Bonus Shares will be
subject to an initial four month plus one day hold period from the
date of issuance of the Bonus Warrants. Issuance of the Bonus
Warrants is subject to approval by the TSXV. Existing term debt to
Royal Bank of Canada will be
repaid on or prior to closing.
Additional Financing
In addition, National Bank of Canada ("National Bank" or the
"Senior Lender") has offered to provide a senior secured
revolving credit facility of up to CDN $7.5M (the "Revolving Facility") which MTC
can draw upon from time to time to finance its day to day
operations. The National Bank credit agreement (the
"National Bank Credit Agreement") is dated
April 27, 2020. It is comprised of a
demand revolving line of credit and other ancillary facilities. The
credit facility carries interest of Canadian Prime Rate plus 2.85%
per annum. This facility will be undrawn at the close of the
transaction.
The facilities provided by National Bank will be guaranteed by
the Company and its subsidiaries in Canada, US, Netherlands, and GSX (the "Corporate
Guarantors") and will be secured against the property of MTC
and of certain of the Corporate Guarantors. Repayment of the
National Bank revolving facility is expected to also be guaranteed
in part by Export Development Canada.
Strategic Review Results
Martello has taken steps to achieve efficiencies in sales,
general and administrative and development operations. As part of
this initiative, the former Elfiq network technology division
workforce has been reduced by approximately 70% through temporary
layoffs, to focus on the SaaS-based components of Martello's DEM
strategy. The Company intends to exit the former Elfiq network
technology business, and is in discussions with a possible buyer
for the intellectual property and assets of this division. This
operational change will allow Martello to allocate more resources
to SaaS-based DEM activities, while reducing Martello's operating
cash burn immediately.
1. Microsoft Q1
FY2020 Financial Results (23 October 2019)
2. Microsoft Teams at 3: Everything you need to connect with your
teammates and be more productive (19 March 2020)
|
About Martello Technologies Group
Martello Technologies Group Inc. (TSXV: MTLO) is a technology
company that provides digital experience monitoring (DEM)
solutions. The company develops products and solutions that provide
monitoring and analytics on the performance of real-time
applications on networks, while giving IT teams and service
providers control and visibility of their entire IT infrastructure.
Martello's products include unified communications performance
analytics software, and IT analytics software. Martello
Technologies Group is a public company headquartered in
Ottawa, Canada with offices in
Montreal, Amsterdam, Paris, Dallas
and New York. Learn more at
http://www.martellotech.com
About Vistara Capital Partners
Headquartered in Vancouver BC,
Vistara Capital provides highly flexible and less dilutive growth
debt and hybrid debt-equity financing solutions for mid-late stage
technology companies across North
America. Founded, managed, and funded by seasoned technology
finance and operating executives, "Vistara" (Sanskrit for
"expansion") is focused on enabling the growth and expansion of its
portfolio companies. Additional information is available
at www.vistaracapital.com.
About National Bank
With $289 billion in assets as at
January 31, 2020, National Bank of
Canada, together with its
subsidiaries, forms one of Canada's leading integrated financial groups.
It has more than 26,000 employees in knowledge-intensive positions
and has been recognized numerous times as a top employer and for
its commitment to diversity. Its securities are listed on the
Toronto Stock Exchange (TSX: NA). Follow the Bank's activities at
nbc.ca or via social media such as Facebook, LinkedIn and
Twitter.
This press release does not constitute an offer of the
securities of the Company for sale in the
United States. The securities of the Company have not been
registered under the United States Securities Act of 1933, (the
"1933 Act") as amended, and may not be offered or sold within
the United States absent
registration or an exemption from registration under the 1933
Act.
This press release shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of
the securities in any state in which such offer, solicitation or
sale would be unlawful.
Neither the TSXV nor its Regulation Services Provider (as
that term is defined in the policies of the TSXV) accepts
responsibility for the adequacy or accuracy of this news
release.
Cautionary Note Regarding Forward-Looking
Statements
This news release contains "forward-looking statements".
Forward-looking statements can be identified by words such
as:"anticipate," "intend," "plan," "goal," "seek," "believe,"
"project," "estimate," "expect," "strategy," "future," "likely,"
"may," "should," "will" and similar references to future periods.
Examples of forward-looking statements include, among others,
statements we make regarding accretive monthly recurring revenues,
closing of the proposed transaction, effect of closing on the
Company's gross margins.
Forward-looking statements are neither historical facts nor
assurances of future performance. Instead, they are based only on
our current beliefs, expectations and assumptions regarding the
future of our business, future plans and strategies, projections,
anticipated events and trends, the economy and other future
conditions. Because forward-looking statements relate to the
future, they are subject to inherent uncertainties, risks and
changes in circumstances that are difficult to predict and many of
which are outside of our control. Our actual results and financial
condition may differ materially from those indicated in the
forward-looking statements. Therefore, you should not rely on any
of these forward-looking statements. Important factors that could
cause our actual results and financial condition to differ
materially from those indicated in the forward-looking statements
include, among others, the following:
- Continued volatility in the capital or credit markets.
- Our ability to maintain our current credit rating and the
impact on our funding costs and competitive position if we do not
do so.
- Changes in customer demand.
- Disruptions to our technology network including computer
systems and software, as well as natural events such as severe
weather, fires, floods and earthquakes or man-made or other
disruptions of our operating systems, structures or equipment.
- Delayed purchase timelines and disruptions to customer budgets,
as well as Martello's ability to maintain business continuity as a
result of COVID-19.
Any forward-looking statement made by us in this news release is
based only on information currently available to us and speaks only
as of the date on which it is made. Except as required by
applicable securities laws, we undertake no obligation to publicly
update any forward-looking statement, whether written or oral, that
may be made from time to time, whether as a result of new
information, future developments or otherwise.
SOURCE Martello Technologies Group