(AN-.L) Alternative Networks PLC Buy/Sell

(Adds details)
Nov 2 (Reuters) - Business communications service provider Alternative Networks said it bought software firm Aurora Kendrick James Group for a maximum of 5.5 million pounds ($9.04 million) to boost its customer service portal.
Alternative Networks said it would initially pay 3.75 million pounds in cash and 800,000 pounds in shares, with up to 750,000 pounds cash and 200,000 pounds in shares payable in 12 months.
Alternative Networks, which offers a range of fixed-line, mobile, voice and data products, said the acquisition would help in the management of a new three-year contract for a major network operator.
The company said it expected the contract to generate about 1 million pounds in fees in the first year.
The acquisition of Aurora, which provides billing services to more than 50 telecoms and IT service providers in the UK, is expected to add moderately to Alternative Networks' earnings in the current financial year.
In the year ended July 31, Aurora's posted a pretax profit of 300,000 pounds and its sales rose 4 percent to 3.6 million pounds.

($1=.6087 Pound)

(Reporting by Purwa Naveen Raman in Bangalore; Editing by Vinu Pilakkott) Keywords: ALTERNATIVENETWORKS/ (purwa.naveen@thomsonreuters.com; +91 80 4135 5800; Reuters Messaging: purwa.naveen.thomsonreuters.com@reuters.net)

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James Murray, Chief Executive of Alternative Networks, commented:

"Acquiring the exclusive right to AKJ's software will accelerate our development and enhance our broader service offering. It represents a sensible use of cash, increases our commercial opportunities and provides a sound strategic platform from which to gain an increasing share of the market, both organically and through further acquisitions. Specifically, exclusive access to the software will facilitate the efficient integration of future acquisitions."

Acquisition

The Company today announces the acquisition of the Aurora Kendrick James Group [Limited] for a maximum consideration of £5.5 million (the "Acquisition"). The consideration is to be satisfied by £3.75 million in cash and £800,000 through the issue of 707,076 ordinary shares (the "Initial Consideration Shares"), and a deferred consideration of £750,000 cash and £200,000 cash or shares at the Company's choice, depending on the performance of AKJ over the 12 month period to 31 October 2010.

The acquisition is expected to be moderately earnings enhancing for the group in the year ended 30 September 2010.

All new ordinary shares issued as consideration will be credited as fully paid and will rank pari passu with the Company's existing ordinary shares. It is expected that Admission of the Initial Consideration Shares will become effective on Friday 6 November. The Initial Consideration Shares are subject to lock-in provisions for a period of two years from completion of the Acquisition.

AKJ is a leading provider of billing, customer care and telecom estate management (TEM) software to over 50 of the UK's larger telecoms and IT service providers and resellers including AN. The business also provides a range of outsourced billing services and acts as an enabler for new market entrants that wish to expand their services to include legacy and next generation telephony and IP based services.

AN has licensed AKJ's software for nearly 10 years for its own use, and has spent over £0.35m with AKJ in the last two years on support and bespoke development of the software which also enables AN to provide SME and corporate customers with full control of their billing costs, usage and estates via 'Clarity', (AN's existing customer billing and management portal).

Most recently, AKJ has supported AN to enhance 'Clarity' to include a web based tool to enable users to manage Personal Billing on their mobile devices and for businesses to recharge personal use by employees, and track these expenses for VAT and tax compliance purposes.

Prior to this acquisition, the exclusive licence which AN held to the 'Clarity' software was set to expire next year in 2010.

Strategy

The rationale behind the acquisition is threefold:

AN does not compete directly with most of these partners and recognises the potential value and opportunity of working with AKJ's partners and will provide the necessary assurances, as soon as possible, that it will not leverage its position to gain competitive advantage or exert undue influence on these partners via any services it receives from AKJ. AN expects that the communality of interests it shares with these customers of AKJ will mean that by working with AN, AKJ's partners will be able to leverage faster access to more market leading services under AN ownership.

AKJ : Financials and Outlook

In the year ended 31 July 2009, AKJ increased sales by 4% to £3.6m, and the group made a pre tax profit of £300,000, and underlying EBITDA of £585,000. The gross assets of the business were 2.3m.

AKJ has benefited from a lower corporation tax charge, averaging 14% of pre tax profits in the last three years due to the beneficial impact of R&D tax credits and tax losses in the group, as well as qualifying as a smaller company. On a proforma basis, tax charges are estimated at 22% profits when part of a larger group.

The deferred consideration is graduated and linked to targets on the recurring licence and software support revenues. The maximum deferred consideration will be achieved should AKJ increase contracted revenues by 10%, net of any customer losses within the next 12 months.

The Group is undertaking a review of both companies' billing operations and a review of the development roadmap of both companies' developers. It is expected that there are limited synergies to arise from the acquisition, and there will be only minor integration of AKJ's activities within the next 12 months.

Contract Win

AN today announces the Company has been awarded a contract to manage the billing and customer services of a major network operator. The contract is in respect of approximately 50 business customers spending an average of over £50,000 per annum and is expected to deliver management fees of approximately £1 million to AN over the next 12 months. The contract is for 3 years. AN is not restricted from selling its own non-competing products and services to these customers.

The Company won this business through a tender process in which its billing platform and related call management and reporting services were subjected to considerable scrutiny, as well as the company's CRM platform and customer services, and the successful features of these services were critical to the outcome of the tender.

The provision of billing and customer services to major network operators is similar to other existing ancillary services AN carries out in partnership with others, but it is not core to the strategy of the company. However, it is expected AKJ will contribute considerably to managing this business, and the cashflow arising from this contract win will help fund further development of the group's CRM and customer portal.

About AKJ

AKJ was formed in 2005 by a merger of Aurora UK Limited, a software house, and Kendrick James Limited, a provider of telecom management services to UK network operators and corporates. It subsequently bought the trade and assets of Software 360, a specialist billing software provider, in 2008.

AKJ occupies leased premises in Chatham, Kent and employs circa 50 staff primarily in the areas of software development and support of managed bureau billing and reporting services.

About AN

Alternative Networks is a leading UK independent business communications service provider. The Company provides a fully converged communications portfolio including fixed line, mobile, voice, data and systems solutions to over 4,000 business customers in the SME and small corporate market.

Established in 1994, Alternative Networks achieved consistent year-on-year profitable growth. In the year ended 30 September 2008, sales increased by 30% to £93.7m and underlying operating profits increased 31% to £10.4m.

The company listed on the AIM market in February 2005, and has a stated twin track strategy of organic and acquisitive growth. Organic growth is fuelled by gaining market share in the larger customers in the SME market, cross-selling new products into its expanding customer base, and minimising customer churn through excellent managed service. Since flotation, the Company has acquired and integrated two significant acquisitions, accounting for approximately 25% of today's revenues.

AN has offices in London, Theale and Manchester and currently employs over 360 staff.

ENQUIRIES:

Alternative Networks plc 0870 190 744

James Murray, Chief Executive Officer Edward Spurrier, Chief Financial Officer

Investec 020 7597 5970

Martin Smith Patrick Robb

Pelham Public Relations 020 7337 1509 / 07802 442 486

Archie Berens Francesca Tuckett

This information is provided by RNS The company news service from the London Stock Exchange

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