BEAMTREE HOLDINGS LIMITED — M&A Activity 2020

Apr 20, 2020

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ASX Announcement

PKS Holdings Limited (ASX: PKS)

Sydney, 21 April 2020

PKS acquires Australian healthcare technology company Pavilion Health

Highlights

• PKS has acquired 100% of Pavilion Health Australia Pty Ltd in an all scrip transaction.

• This is consistent with PKS’ growth strategies to acquire complimentary healthcare technology companies and expand beyond pathology.

• Pavilion Health is an Australian cloud-based software company, operating under a Software as a Service (SaaS) model, providing audit and risk applications and consulting services to hospitals and governing health bodies globally.

• The strategic benefits and synergies for this acquisition include:

• Scale: the resulting combined entity increases revenue by c 113% (FY19A), diversifies customer base with a c 58% growth to 190+ customers;

• Customers: strong cross and upselling product potential between complementary customer bases;

• Technology: combined delivery of an enhanced product roadmap into hospitals and pathology sectors whilst facilitating trends of digitisation and use of analytics to improve efficacy and efficiency in healthcare; and

• Management: bolster expertise of executive management with the addition of a COO, CTO and CCO from Pavilion.

• Pavilion Health audited sales for FY2019 were $4.37 million and will double the sales for PKS. Operational EBITDA for FY2019 was $ 1.66 million.

• The acquisition is on an all scrip, cash free and debt free basis with Pavilion Health shareholders being issued 65.2 million new PKS shares, which equates to 35% of the company post acquisition. The issue of these shares is subject to PKS shareholder approval at an Extraordinary General Meeting ( EGM ).

• At the share price of $0.13 as of 17[th] April 2020, it values the acquisition consideration at $8.5 million or 1.9 times FY19 revenue and 5.1 times FY19 Operational EBITDA.

• Stephen Borness, former Chairman of Pavilion Health, will join the PKS Board and Neil Broekhuizen will retire from the PKS Board.

About Pavilion Health

Pavilion Health is a privately owned Australian based healthcare technology company, which was established in 2007. Pavilion Health is a specialist healthcare technology solutions and services business focused on providing audit and risk applications to hospitals and governing health bodies.

PKS’ acquisition of Pavilion will double PKS’ revenue whilst opening up significant opportunities through

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their complementary health information solutions into hospitals. It’s suite of products and services includes:

• PICQ: Pavilion audit tool assesses clinical records to ensure data is correctly coded

• RISQ: Pavilion risk tool uses hospital data to identify hospital incident trends

• Codexpert: provides an e-Book for full health-data classification referencing for coding of patient episodes.

• Pavilion’s Advisory Services: facilitate an independent audit of health data using Pavilion’s health tools to improve data timeliness and transparency

Pavilion Health represents an appealing acquisition for PKS with its vital relationships with hospitals, valuable client and industry data information, advisory and consulting experience, cloud and SaaS expertise and key offshore marketing position.

Pavilion has access to over 550 hospitals in Australia. It has a 64% penetration of the addressable public and 45% of the addressable private hospital markets in Australia, with international clients in Ireland, Singapore and Saudi Arabia. Pavilion has zero churn rate with established deeply ingrained blue-chip customers. Pavilion generally leads sales of its PICQ and RISQ products via data driven advisory services for its hospital clients and governing health bodies.

The amalgamation of the PKS and Pavilion businesses creates a pathway to provide a unified solution, offering both pathology and hospital customers invoice audit, code check, clinical decision support and risk management of incidents and products.

Financials

Pavilion Health audited sales for FY 2019 was $4.37 million which is a 47.7% increase in recurring revenue from FY 2018. Operational Gross Profit margin increased to 66.5% for FY 2019 with an Operational EBITDA margin of 37.9%.

The combined PKS and Pavilion Pro Forma P&L for FY2019 actuals is as follows:

Combined PKS and Pavilion Pro Forma P&L	Combined PKS and Pavilion Pro Forma P&L	Combined PKS and Pavilion Pro Forma P&L
(June Y/E; A$m)	FY 2018	FY 2019
Revenue	6.6	8.2
Recurring revenue	4.6	5.5
Services Revenue	2.0	2.7
Gross Margin	5.6	6.8
% of revenue	84.5%	82.3%
Opex	2.8	3.7
% of revenue	42.2%	45.2%
Operational EBITDA	3.3	3.8
% of revenue	50.2%	46.4%

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Rationale for the acquisition

The strategic benefits and synergies for the acquisition of Pavilion Health is as follows:

• Facilitates growth by increasing the scale and technical capabilities of the business

The revenue of the group increases PKS’ revenue by circa 113% (FY19A) and results in a larger and more diversified customer base (growth of circa 58% to 190+ customers).

• Combines complementary products to provide a broader offering, which is more attractive to customers and creating the potential for cross selling and upselling

PKS and Pavilion combined product suites offer complementary heath information to the wider healthcare industry. In addition, the existing customer bases of each company can be used to offer each other’s products and expand revenue growth.

• Provide an avenue for PKS to enter wider hospital market and accelerate the development of future products

Pavilion offers PKS a route to expand into new markets, in particular into the hospital pathology market and wider hospital market as Pavilion is well established in this area. The acquisition also represents an avenue to accelerate the development of Pavilion’s product roadmap by combining the software products of both companies, resources and the availability of capital.

• Optimise existing products by leveraging development expertise and technology to drive software improvements

Pavilion’s expertise in cloud-based and SaaS expertise is invaluable in supporting PKS’ RippleDown’s cloud-based development.

RippleDown’s rules engine will optimise Pavilion’s RISQ product and will benefit the development of new products such as Computer-Aided coding.

Combining the two teams will boost the artificial intelligence development for the products of both companies.

Combining PKS’ relationship with pathology and Pavilion’s aggregated and anonymised data set will enhancing existing and new products and advisory.

• Enhance the business development capabilities including international expansion

Pavilion has established customers and relationships in profitable international markets such as Ireland, Singapore, Fiji and the Middle East. These locations also act as an entry for further expansion into other European, Middle Eastern and Asian Markets.

• Bolsters the expertise of the executive management team, adding a COO, CTO, CCO who are the current executives of Pavilion. This management team will hold 22% of the equity in PKS post transaction.

Transaction details for the acquisition

The transaction will be on an all scrip, cash free and debt free basis with Pavilion being issued with approximately 65.2 million shares. This equates, post-acquisition, to a 65%:35% split of the Company. Voluntary escrow periods of up to 24 months will exist. The issue of these shares is subject to approval by PKS shareholders, which will be sought at the PKS EGM expected to be held at the end of May.

In addition, key employees will be invited to apply for 4,000,000 performance rights (split among the three executives) under an incentive scheme to focus the new team over the whole business based on achieving $9.0m Group FY21 revenue. The issue of these performance incentives is also subject to shareholder approval.

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PKS Board

Stephen Borness, the former Chairman of Pavilion Health, will join the PKS Board. Stephen is the Founder / Managing Director of several technology and health related private companies. Previously Stephen worked as an investment banker in Australian, European and U.S. markets.

Neil Broekhuizen will retire from the PKS Board and the Company thanks Neil for his contribution since the PKS IPO.

Please refer to the annexure for further information.

This announcement is authorised by the Board.

For further information please contact:

Ron van der Pluijm Mike Hill CEO PKS Holdings Chairman PKS Holdings Phone: 0427 498 615 Phone: 0421 056 691

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About PKS

PKS is an Australian Healthcare company that works with health organisations around the world to better capture, manage and leverage their human expertise to improve the performance of their business and deliver better patient outcomes; reduce medical errors; deliver greater operational efficiencies; improve productivity; and deliver significant cost savings.

RippleDown enables any clinical domain expert – typically a pathologist or clinician – to automate their unique, human decision-making process at scale in order to provide real-time clinical analysis, interpretations and treatment recommendations. By aggregating and analysing all available patient information – including current and historical results – RippleDown is able to provide a holistic view of patients to generate the most comprehensive and patient-specific interpretations and recommendations.

RippleDown is managed by domain experts, not IT, enabling rules to be built quickly and easily to ensure the system remains updated and relevant.

About Pavilion Health

Pavilion Health is a profitable, high-growth and scalable health data products business that builds and leverages its cloud-based, Software-as-a Service technology. Pavilion Health works with healthcare providers and payers to improve the accuracy and timeliness of their patient-level data, using its suite of products, bespoke analytics and specialist insights.

Pavilion Health is a leader in working securely with health data in the cloud and has invested significant customer and development effort in building a secure health data platform, with privacy designed-in from the beginning. As a result, Pavilion Health has been entrusted with access to real-time health data that allows it to better enable its customers to complete two key functions:

• track and improve the quality of patient care to provide better health outcomes; and,

• secure funding from government and private health funds that accurately represents the clinical activity that was conducted.

Due to Pavilion’s high market penetration and high level of customer trust, Pavilion has a unique and defensible ability to provide industry-wide benchmarking of the accuracy and clinical safety of hospital data.

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Annexure

Information provided pursuant to ASX Guidance Note 8, Section 4.15

The following information is being provided pursuant to section 4.15 of ASX Guidance Note 8:

Parties to the agreement:	The parties to the acquisition agreement are: • PKS Holdings Limited (PKS,or theCompany); and • Pavilion Health Australia PtyLimited(Pavilion).
A description of the assets of businesses proposed to be acquired or disposed:	PKS is proposing to acquire 100% of the of the issued share capital in Pavilion. Pavilion is a specialist healthcare technology solutions and services business focused on the quality and integrity of healthand costing data withinthehealthcareindustry.
The consideration for the acquisition or disposal:	The consideration for the acquisition of Pavilion is 64,812,564 shares issued to the sellers of Pavilion (Consideration Shares) that will be subject to an escrow arrangement for the period of: i. 12 months from the date of issue of 50% of the Consideration Shares; and ii. 24 months from the date of issue for the remaining 50%of the Consideration Shares.
The expected date for completion of the acquisition or disposal:	Subject to the satisfaction of certain conditions (as described below), the acquisition is expected to complete no later than 5 business days after the date of the extraordinary general meeting.
In the case of an acquisition, the intended source of funds to pay for the acquisition and, if that involves a capital raising, including the timetable and its effect on the total issued capitalofthe entity:	The Consideration Shares will be issued by the PKS to satisfy the purchase price of the acquisition and will result in PKS’s ordinary share capital increasing to 186,370,231.
In the case of a disposal, the intended use of funds (if any) receivedforthe disposal:	Not applicable.
Any material conditions that need to be satisfied before the contract becomes legally binding or proceeds to completion:	The parties have signed a legally binding share sale agreement in relation to the acquisition. Completion of the acquisition is subject to the following material conditions, that: • PKS has obtained all necessary approvals for each of the transactions contemplated by the share sale agreement (including the issue of the Consideration Shares); and • Pavilion has obtained the agreement, consent, approval or waiver of certain contracts considered

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	to be material to the Pavilion business in a form acceptable to the parties. In connection with the transaction, the following arrangements are contemplated: • the execution of new employment agreements by certain key Pavilion employees; and • the sellers of Pavilion entering into voluntary escrow arrangements in relation to their Consideration Shares.
Any security holder approvals that may be required in relation to the transaction and the time table for those approvals:	PKS will be seeking shareholder approval to issue the Consideration Shares which is required in relation to the transaction. PKS intends to hold a general meeting in late May or early June to obtain shareholder approval to issue the Consideration Shares. If shareholder approval is not obtained at this general meeting, the Consideration Shares will not be issued and the conditions to proceed to completion of the transaction will not be satisfied.
Any changes to be board or senior management proposed as a consequence of the transaction:	As part of the proposed acquisition of Pavilion, the sellers of Pavilion have the right to nominate a director to the Board of PKS subject to completion occurring. A current PKS director, Neil Broekhuizen, will be resigning following completion, however, this is unrelated to the acquisition Further, from completion of the proposed transaction, key Pavilion employees Douglas Henry, Paul O’Connor and Michael Pollitt will join PKS’s executive team.
Any other material information relevant to assessing the impact of the transaction on the price or value of the entity’s securities:	PKS is not aware of any other material information relevant to assessing the impact of the transaction on the price or values of its securities that has not already been disclosed in this announcement.

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Material Contracts Summary

Employment Agreements

Douglas Henry

Mr Henry will sign a new employment contract which will take effect from the date of completion of the Acquisition. Mr Henry’s base remuneration package will be $250,000 p.a. (inclusive of mandatory superannuation contributions) and he may be entitled to an annual bonus equal to 50% (gross) of base salary at the discretion of the Board based on achieving key performance indicators agreed between the Board and Mr Henry each financial year.

Mr Henry is also eligible to participate in the Company’s Long Term Incentive Plan ( LTIP ). Subject to receiving Shareholder approval at the Company’s upcoming general meeting, Mr Henry will be invited to apply for 1,000,000 performance rights pursuant to the LTIP and such rights are to vest upon the Company achieving $9,000,000 in revenue for the financial year ending 30 June 2021 provided that Mr Henry remains employed or has otherwise reached an alternative agreement with the Company by that date.

Under the terms of Mr Henry’s employment contract, either party is entitled to terminate Mr Henry’s employment by giving three (3) months’ written notice. The Company may, at its election, make a payment in lieu of that notice based on Mr Henry’s base remuneration package. The employment contract contains intellectual property clauses which assign all existing and future intellectual property rights of the employee to PKS as well as containing a 24-month post employment restraint governing non-competition within designated restraint areas and 12 month non-solicitation of customer and employee clauses.

Paul O’Connor

Mr O’Connor will sign a new employment contract which will take effect from the date of completion of the Acquisition. Mr O’Connor’s base remuneration package will be $250,000 p.a. (inclusive of mandatory superannuation contributions) and he may be entitled to an annual bonus equal to 50% (gross) of base salary at the discretion of the Board based on achieving key performance indicators agreed between the Board and Mr O’Connor each financial year.

Mr O’Connor is also eligible to participate in the LTIP. Subject to receiving Shareholder approval at the Company’s upcoming general meeting, Mr O’Connor will be invited to apply for 1,000,000 performance rights pursuant to the LTIP and such rights are to vest upon the Company achieving $9,000,000 in revenue for the financial year ending 30 June 2021 provided that Mr O’Conner remains employed or has otherwise reached an alternative agreement with the Company by that date.

Under the terms of Mr O’Connor’s employment contract, either party is entitled to terminate Mr O’Connor’s employment by giving three (3) months’ written notice. The Company may, at its election, make a payment in lieu of that notice based on Mr O’Connor’s base remuneration package. The employment contract contains intellectual property clauses which assign all existing and future intellectual property rights of the employee to PKS as well as containing a 24 month post-employment restraint governing noncompetition within designated restraint areas and 12 month non-solicitation of customer and employee clauses.

Michael Pollitt

Mr Pollitt will sign a new employment contract which will take effect from the date of completion of the Acquisition. Mr Pollitt’s base remuneration package will be $250,000 p.a. (inclusive of mandatory superannuation contributions) and he may be entitled to an annual bonus equal to 50% (gross) of base salary at the discretion of the Board based on achieving key performance indicators agreed between the Board and Mr Pollitt each financial year.

Mr Pollitt is also eligible to participate in the LTIP. Subject to receiving Shareholder approval at the Company’s upcoming general meeting, Mr Pollitt will be invited to apply for 2,00,000 performance rights pursuant to the LTIP and such rights are to vest upon the Company achieving $9,000,000 in revenue for the financial year ending 30 June 2021 provided that Mr Pollitt remains employed or has otherwise

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reached an alternative agreement with the Company by that date.

Under the terms of Mr Pollitt’s employment contract, either party is entitled to terminate Mr Pollitt’s employment by giving three (3) months’ written notice. The Company may, at its election, make a payment in lieu of that notice based on Mr Pollitt’s base remuneration package. The employment contract contains intellectual property clauses which assign all existing and future intellectual property rights of the employee to PKS as well as containing a 24 month post employment restraint governing non-competition within designated restraint areas and 12 month non-solicitation of customer and employee clauses.

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