Cipherpoint Ltd (ASX:CPT) has entered into a binding term sheet to acquire 100% of cyber security services business Virtual Information Technology Pty Limited (VIT) for an initial outlay of $750,000 in cash and 10.2 million shares, which represents approximately 2.9% of the current issued capital of CPT.
Up to a further $1 million of ordinary CPT shares are to be issued on achieving FY22 and FY23 financial milestones.
CPT through its wholly owned subsidiary Brace168 Pty Limited is a focused managed cyber security services business, with a best of breed security operations centre and a highly trained operations and advisory team that identifies and detects security vulnerabilities.
Bolstering cybersecurity offering
The acquisition of VIT, which offers a range of cyber security services to its customers including digital forensics and incident response services, provision of Identity Protection solutions and a range of consulting services including security, Citrix and Red Hat (NYSE:RHT) Consulting, is aimed at bolstering CPT’s already strong cybersecurity services offering.
“The Cipherpoint team are excited that VIT Cyber Security will be joining us on the journey to offer best of breed solutions to the business and enterprise market both locally and internationally,” CPT executive chairman Ted Pretty said.
“Our focus is to acquire a business complementary to the Brace168 business operating in different markets and adjacencies which can leverage the skills and capabilities of the Brace168 team.
"VIT Cyber Security gives CPT the opportunity to leverage their capabilities into the Tasmanian market. It will enable us to continue to scale with an integrated offering and build on its increasing momentum in the cyber security market.”
VIT – a complementary business
Established in 2016 by Mark Hitchcock, VIT Cyber Security provides managed IT and security solutions and services to agencies of the Tasmanian Government and enterprise businesses including digital forensics and incident response services, provision of Identity Protection solutions and security, Citrix and Red Hat Consulting.
CPT would have marked VIT’s revenues as a positive before launching the acquisition with the latter bringing in A$703,000 in FY21.
VIT is also looking forward to the expected growth to come from this acquisition.
“We are excited about the prospect of joining the Cipherpoint team at this critical stage of our growth journey,” Hitchcock said.
“In our opinion, together we have the potential to set new standards in cyber security including providing managed detection and response services, security analytics and data protection. The ability to leverage this capability to service our customers will allow us to continue to provide best in class service to our clients in the Tasmanian market.”
CPT will work with VIT Cyber Security to build out VIT Cyber Security’s presence in the Tasmanian cyber security market leveraging the capabilities of its subsidiary Brace168 Pty Limited to cross-sell their solutions in the Tasmanian market that VIT Cyber Security is unable to provide.
Acquisition terms
Along with the initial $750,000, 10.2 million shares outlay, performance-based considerations have also been laid out once certain milestones are hit. All terms include:
1. Up-Front Cash Consideration. At completion, the VIT Vendor will receive A$750,000 cash consideration (less any working capital and other balance sheet adjustments).
2. Up-Front Consideration Shares. At completion, the VIT Vendor will receive 10.2 million shares (representing, on the basis of the current capital structure, approximately 2.9% of the current issued capital of CPT). The up-front consideration shares shall be voluntarily escrowed for a period of six months from completion of the acquisition. Performance Based Consideration: Further share issues will be made to the VIT Vendor on meeting certain earn-out milestones:
- 2022 Earn Out: If at the conclusion of VIT Cyber Security’s FY2022 (12 months to June 30, 2022), the revenue for VIT Cyber Security is $900,000 or more, then CPT shall allot a further $500,000 shares to the VIT Vendor. If the milestone is not met shares will be allotted on a prorata basis provided that no milestone shares will be issued unless revenue of $750,000 is achieved. The pricing of the shares to be calculated on the 15-day VWAP prior to June 30, 2022.
- 2023 Earn Out: If at the conclusion of VIT Cyber Security’s FY2023 (12 months to June 30, 2023), the revenue for VIT Cyber Security is $1.2 million or more, then CPT shall allot a further $500,000 shares to the VIT Vendor. If the milestone is not met shares will be allotted on a prorata basis provided that no milestone shares will be issued unless revenue of $900,000 is achieved. The pricing of the shares to be calculated on the 15-day VWAP prior to June 30, 2023.
CPT is looking to complete the transaction by October 31, 2021.