Crescent NV — M&A Activity 2018

Apr 27, 2018

OPTION NV FAIRNESS OPINION

ZAVENTEM, MARCH 30, 2018 BDO CORPORATE FINANCE • BRUNO DUBOIS CONFIDENTIAL

To the attention of Mr. Edwin Bex, CFO

Option NV Gaston Geenslaan 14, 3001 Leuven, Belgium

Dear Mr. Bex,

Subject: Fairness opinion re equity value of Option NV

We enclose our Fairness Opinion report on the equity value of Option NV as at 31 December 2017 in accordance with the terms of the engagement letter dated 13 October 2017. This memorandum is confidential to the management or shareholders of Option NV. Our field work started on 21 November 2017 and was completed by 30 March 2018 and we have not updated our work since that date.

Yours faithfully,

Bruno Dubois Partner, BDO Corporate Finance

To navigate this memo on-screen

From this Contents page, click on the title of the section.

From any page, click on the BDO logo to return to this Contents page.

Section	Sub-section	Page(s)
Abbreviations used		4
Mission overview		5-6
Scope of work		7-8
Sources of information		9
Company overview		10
Financial overview	Unaudited consolidated balance sheet	11
	Unaudited consolidated income statement	12
	Financial outlook	13
DCF Approach	Before any debt restructuring	14
	After contemplated debt & capital restructuring	15
	WACC Calculation	16-17
	Other assumptions	18-19
Multiple approach	EV/EBITDA	20
	EV/SALES	21
	Peer Group multiples	22
Conclusion of value		23

ABBREVIATIONS USED

•	BDO	BDO	Corporate Finance (Belgium)
---	-----	-----	-----------------------------	--	--

• CAPM Capital Asset Pricing Model
• DCF Discounted Cash-Flow
• E Earnings
• EBIT Earnings Before Interest and Taxes
• EBITDA Earnings Before Interest, Taxes, Depreciation and Amortization
• EUR Euro
• EV Enterprise Value
• FTE Full Time Equivalent
• K Thousand (e.g. KEUR: Thousand Euros)
• M Million (e.g. MEUR: Million Euros)
• P Price
• S Sales
• SFP Small Firm Premium
• WACC Weighted Average Cost of Capital

MISSION OVERVIEW

• Mission realized by BDO Corporate Finance Belgium (hereafter « BDO ») for the management of Option NV, in accordance with the terms of our engagement letter dated 13 October 2017
• Valuation of 100% of the equity of Option NV (here after «Option», as at 31 December 2017:
• Value: estimation of a market price at a particular time based on internal and external business information
• Price: amount resulting from a negotiation between a buyer and a seller during a business transaction
• Fairness opinion report prepared for the management of Option NV in the context of a merger with Crescent NV (no other use allowed without the prior consent in writing of BDO). You informed us that the merger is contemplated in the context of a financial rescue operation for Option NV as Option has no viable future on a stand alone basis and that the further support of the major shareholders is made conditional upon the contemplated transaction.
• « Going concern » value (assuming business continuity and not, for example, a situation of liquidation or takeover) and « stand-alone » assumption (no consideration of potential synergies) but after due consideration that the company will benefit from the listing of the acquirer whereby the usual discount for lack of marketability of no listed shares is n this context neglected.

MISSION OVERVIEW (CONT'D)

• Principal steps of our valuation work:
• Discussions with management of Option NV
• Analysis of various corporate documents, including historical and prospective financial information with respect to the main subsidiaries of Crescent
• Research and analysis of relevant industry, economic and market data
• Application of the DCF and multiples methods to develop estimates of fair market value of Option
• Valuation work carried out in the period from 21 November 2017 to 30 March 2018 (memorandum not updated since that date) based on information and explanations made available to us during this period by the management of Option NV
• Amounts in EUR unless stated otherwise

SCOPE OF WORK

• Our work in connection with this assignment is of a different nature to that of an audit. Our valuation analysis and recommendations of value are based on historical and prospective information and financial data provided by the management of Option, discussions with the said management and publicly available information. We have not sought to verify the accuracy and completeness of the data or the information and explanations provided by the management o Option. Furthermore, we understand that any prospective information provided is based on expectations of competitive and economic environments as they may impact the future operations, and the management of Option have consistently applied key assumptions during the estimation period and not omitted any factors that may be relevant. In addition, the management understand that any such omissions or misstatements may materially affect our views on valuation.
• This Report was prepared on the specific instructions of the management of Option NV, solely for the purpose described before, and should not be relied upon for any other purpose. It should not be quoted, referred to or shown to any other parties, without our prior consent in writing. BDO assumes no responsibility whatsoever in respect of or arising out of or in connection with the contents of this Report to parties other than the Management. If others choose to rely in any way on the contents of this Report, they do so entirely at their own risk.
• Our valuation work was carried out in the period from 21 November 2017 to 30 March 2018 and our Report reflects the information and explanations made available to us during this period by the management of Option. We have not updated our work since that date. In these circumstances, we may not be aware of all facts or information that you may regard as relevant.

SCOPE OF WORK (CONT'D)

• This Report was prepared on the basis of the sources of information listed in the following section. BDO has relied upon written representation provided by the management of Option that the facts stated in this Report, so far as they are aware of, are accurate in all material respects and that they are not aware of any material matters relevant to our terms of reference which have been excluded.

SOURCES OF INFORMATION

• Principal sources of information :
• Public information available on the company
• [Unaudited] 'Option Report Full Year 2017 Results'
• The February 2018version od a 3 years' business plan [OPTION Budget18 V 20181902]
• Detail of the contemplated capital restructuring (Contribution of Crescent NV shares and debt conversions)
• Discussions with the management of Option NV
• Information accepted as proper representations Option' s operations, without investigating the accuracy or completeness of the data provided to us.

COMPANY OVERVIEW

• Otion NV is a publicly quoted technology company, headquartered in Leuven, Belgium. Option originally specializes in the design, development, production and commercialization of broadband wireless technology devices. After years of significant financial difficulties, the company shifted its focus to wireless solutions enabling Machine to Machine (M2M) communication. The company is presently pursuing a drastic restructuring plan with the view of allowing a complete turn-around. Within the framework of this turn-around, a merger with Crescent NV is contemplated along with a further reduction of the company indebtedness through conversions of old bonds and other bridge loans.
• The contemplated restructuring measures were considered as essential to the survival of the company.

FINANCIAL OVERVIEW

UNAUDITED CONSOLIDATED BALANCE SHEET AS OF 31/12/2017

	Dec 31, 2017	Dec 31, 2016
Assets
Intangible assets	86	427
Property, plant and equipment	23	20
Other financial assets	1	137
Other non current assets	45	9
Total non-current assets	155	593
Inventories	432	619
Trade and other receivables	780	1.103
Cash and cash equivalents	480	774
receivable Income tax	15	19
Total current assets	1.707	2.515
Total assets	1.862	3.108
Liabilities and shareholers' value
Equity	-13.957	-35.098
Financial debt	7.438	27.076
Provisions	138	-
Total liabilities non-current	7.576	27.076
Financial debt	1.784	1.984
Trade and other payables	5.174	7.481
Provisions	191	422
Taxes payable	1.094	1.243
Total liabilities current	8.243	11.130
Total liabilities and shareholders'	value 1.862	3.108

FINANCIAL OVERVIEW

UNAUDITED CONSOLIDATED INCOME STATEMENT

5.246 Revenue Product 5.246 revenue Cost of products sold -2.546 Gross Margin 2.700 Research and development -1.866 Sales , marketing & reoyalty -690 expenses General and administrative -2.079 expenses	4.210 4.210 -2.297 1.913 -2 673 -1.394 -3.435 -7.502
Total Operating -4.635 expenses
Profit/ (loss from operations) -1.935	-5.589
Deprexciation, amortization and impairment losses 499	1.315
EBITDA -1.436	-4.274
Result from operations -1.935	-5.589
Finance -298 costs	-3 013
Finance income 1.274	340
result Finance 976 net	-2.673
Profit/(loss) before income -959 tax	-8.262
Income benefits / (expenses) tax -	1
Net result of the period -959	-8.261
Result of the discontinued operations -	340
result of the period attributable the owners of the -959 Net to company	-7.921

FINANCIAL OVERVIEW FINANCIAL OUTLOOK

	Actual		Business plan
For the year ended 31 December	2017	2018	2019	2020
Revenue	5.246	5.862	6.579	7.400
Product revenue	5.246	5.862	6.579	7.400
Cost of products sold	-2.546	-2.897	-3.338	-3.845
Gross Margin	2.700	2.965	3.241	3.555
Operating expenses	-4.635	-3.219	-2.819	-2.822
Profit/ (loss from operations)	-1.935	-254	422	733
Depreciation, amortization and impairment losses	499	91	5	5
EBITDA	-1.436	-163	427	738
Result from operations	-1.935	-254	422	733
financial results Net	976	-68	-77	-46
Non-recurring expenses	-	-218	-	-
Profit before tax	-959	-540	345	687
Income tax	-	-	-	-
before Profit tax	-959	-540	345	687
Capex		-	-	-
Change in working capital needs		-295	-143	-164

• Figures were extracted from business plans prepared by the management of Option
• No Capex as development costs are not capitalized
• Perpetuity is based upon 2020 + 2% LTGR and EBITDA of the latest period (rounded).
• No Income tax as huge tax recoverable losses available (in excess of 130 MEUR)
• Assumptions for change in working capital were derived from discussions with the management (2 months of sales on average)

DCF Approach – Result –

Before any debt restructuring

			WACC
	18160	9,0%	10,0%	11,0%	12,0%	13,0%	14,0%	15,0%
	3,0%	24.483	22.127	20.277	18.769	17.505	16.422	15.477
	2,5%	23.680	21.556	19.856	18.449	17.255	16.223	15.317
growth Long term rate	2,0%	22.992	21.057	19.481	18.160	17.028	16.041	15.169
	1,5%	22.396	20.618	19.147	17.900	16.821	15.874	15.032
	1,0%	21.875	20.227	18.846	17.663	16.632	15.720	14.906

Enterprise value 18.160

480	Cash
-500	Convertible debt
-678	Other financial debt
-6.260	Bridge loans
-1.784	Current installments LT Debt
-325	RV bridge loans
-138	Provision
-70	Interests payable
-2.433	Arrears
-218	Termination indemnity (March 2018)
6.234	Equity value 31-12-2017

• The contemplated debt restructuring plan is now finalized and will result in the conversion/contribution of most of the financial debts and accrued interest thereon.

DCF Approach – Result –

After contemplated debt & capital restructuring

value Enterprise	18 160	Commited conversion	Additional brigde committed for conversion	18 160
Cash	480		1 683	2 163
Convertible debt	-500	500		-
Other financial debt	-678	678		-
Bridge loans	-6 260	6 260		-
Current installments LT Debt	-1 784	1 784		-
bridge loans RV	-325	325		-
Provision	-138			-138
Interests payable	-70	70		-
Arrears	-2 433			-2 433
indemnity (March Termination 2018)	-218			-218
value Equity 31-12-2017	6 234	9 617	1 683	17 534

The additional conversion is due to additional bridge financing during the first quarter 2018. From the total contribution of 11.300 KEUR, 9,617 KEUR (committed conversion) is included in the balance sheet as of December 31, 2017.

DCF Approach – WACC calculation

Tax rate	30%	E/D ratio
Riskfree Rate	1 72% ,	Olo 30 years
Market premium	13% 7 ,	DegroofPetercam 12/2017
Beta unlevered	74 5% ,	Zenitel regional unlevered 5 years' horizon peers
levered Beta	83 0% ,
Small Firm Premium	6%	Ibbotson approach lowest market => 6 3% companies note: cap ,
COE	13 6% ,	86%
Gross of Debt cost	9% 4 ,	20 B+ rated Corporate Bonds composite year european
Net of (30%) tax	3 4% ,
(D/D+E) Gearing	16%	14%
WACC	12 0% ,
Growth LT rate	2%

Tax rate considered is the rate applicable for financial year 2018

DCF Approach – WACC calculation Gearing & Beta benchmark

Created : 04 Dec 2017

Betas for Zenitel NV

					Levered	Beta		Unlevered	Beta	In	local cur
Company	EfCode	Country	Reference Index	1-Year	3-Year	5-Year	1-Year	3-Year	5-Year	Debt	Market cap	D/(D+E)	E/(D+E)
Zenitel NV	30029EB	BEL	BEL 20	0,18	0,25	0,20	0,28	0,40	0,31	2.395	44.876	5,1%	94,9%
Peer Median				0,61	0,78	0,78	0,62	0,65	0,75
LM Ericsson Telefon AB	01439SS	SWE	OMXS30	1,88	0,99	1,02	2,01	1,06	1,09	31.043	173.262	15,2%	84,8%
Grupo Ezentis SA	20124EE	ESP	IBEX 35	1,08	1,29	1,23	0,75	0,89	0,85	118.245	153.174	43,6%	56,4%
Nokia Oyj	90006SF	FIN	OMXH25	1,67	1,23	1,50	1,97	1,46	1,77	3.845	23.651	14,0%	86,0%
Ascom Holding AG	30008ES	CHE	SMI	0,60	0,78	0,81	0,62	0,80	0,83	25.100	843.695	2,9%	97,1%
NextGenTel Holding ASA	30301SN	NOR	OBX	0,09	0,22		0,06	0,15		237.343	444.399	34,8%	65,2%
Telefonica Deutschland Holding	40700ED	DEU	DAX 30	0,73	0,81	0,71	0,61	0,67	0,59	2.259	11.690	16,2%	83,8%
Millicom International Cellula	30041EB	LUX	OMXS30	0,61	0,86	0,89	1,96	N/M	N/M	35.439	54.989	39,2%	60,8%
Bredband2 i Skandinavien AB	30454SS	SWE	OMXS30	0,29	0,20	0,15	0,31	0,21	0,16	5.998	713.690	0,8%	99,2%
Option NV	30109EB	BEL	BEL 20	N/M	-0,35	-0,13	-0,22	-0,13	-0,05	8.250	16.981	32,7%	67,3%
RTX A/S	30230SD	DNK	OMXC20	0,58	0,82	0,72	0,64	0,91	0,80	-	1.359.116	0,0%	100,0%
Doro AB	30234SS	SWE	OMXS30	0,01	0,71	0,78	0,01	0,63	0,69	-	1.076.113	0,0%	100,0%
Iliad SA	30867EF	FRA	CAC 40	0,80	0,58	0,48	0,73	0,53	0,44	1.923	11.519	14,3%	85,7%
IndigoVision Group plc	31866EX	GBR	BATS UK 100	-0,08	0,27	0,20	0,00	0,01	0,01		9	0,0%	100,0%
ADVA AG Optical Networking	30318ED	DEU	DAX 30	1,85	0,94	0,89	2,06	1,04	0,98	50	293	14,6%	85,4%
Manx Telecom Plc	40287EX	GBR	BATS UK 100	-0,20	-0,05		-0,17	-0,04		69	222	23,8%	76,2%
									Median			14,4%	85,6%

Copyright © 2017 - Infront Analytics - All Rights Reserved Gearing 16,9%

DCF Approach – Other assumptions 1/2

• EBITDA figures of from the business plans 2018-2020 as prepared by the management
• We added the following assumptions:
• 1. Working capital assumptions: 2 months of sales
• 1. Capex: no capex! No R&D capitalized nor any CAPEX in tangible assets

DCF Approach – Other assumptions 2/2

• Terminal value:
• 1. EBITDA for perpetuity purpose based on latest year performance (rounded)
• 1. Depreciation equal to the CAPEX : 0
• 1. No income tax applied to projected EBIT as extremely high value of tax losses. Well applied for the perpetuity as a deferred tax in include in the residual value
• Residual tax recoverable losses after explicit period (in excess of 130 MEUR) has been capitalized as deferred tax asset and incorporated in the terminal value. As a matter of precaution, we suggest to consider a deferred tax asset on a maximum of 50% of the tax recoverable losses after explicit period. Considering the probable tax rate (25%) at the 2020 horizon, an amount of 16.3 MEUR is included in the terminal value.

Multiple approach – EV/EBITDA

	REBITDA	multiples	Discount	EV	•			2017 REBITDA not considered as negative or close to nil (no
2016	-	13 08 ,	0%		precise calculation available at this stage)
2017	-	9 34 ,	0%	-
2018	655	8 22 ,	0%	5 388		Additional brigde
2019	908	07 7 ,	0%	6 417	Commited	committed for
2020	1 255	5 29 ,	0%	6 636	conversion	conversion
		Average EV		4 610			4 610
		Cash		480		683 1	2 163
	Convertible	debt		-500	500		-
	Other	financial debt		-678	678		-
		Bridge loans		-6 260	6 260		-
	Current installments	LT Debt		-1 784	1 784		-
	RV	bridge loans		-325	325		-
		Provision		-138			-138
	Interests	payable		-70	70
		Arrears		-2 433			-2 433
Termination	indemnity	(March 2018)		-218			-218
	Deferred	tax asset		9 750			9 750
	Equity value	31-12-2017		2 434	9 617	1 683	13 734

Multiple approach – EV/SALES

	Sales	multiples	Discount	EV
2016	-	0 83 ,	0%
2017	246 5	0 80 ,	0%	197 4
2018	7 016	0 80 ,	0%	5 613		Additional brigde
2019	7 873	0 81 ,	0%	6 377	Commited	committed for
2020	8 855	0 84 ,	0%	7 438	conversion	conversion
		Average EV		906 5
		Cash		480		1 683
	Convertible	debt		-500	500
	Other	financial debt		-678	678
		Bridge loans		-6 260	6 260
	Current installments	LT Debt		-1 784	1 784
	RV	bridge loans		-325	325
		Provision		-138
	Interests	payable		-70	70
		Arrears		-2 433
Termination	indemnity	(March 2018)		-218
	Deferred	tax asset		9 750
	value Equity	30-9-2017		3 730	9 617	1 683

Market multiple Approach – Assumptions

• Equity value is calculated considering the committed debt conversion and including 2018 additional bridge financing
• Residual tax recoverable losses ( +/- 130 MEUR) has been capitalized as deferred tax asset and added to the enterprise value as non operating asset. As a matter of prudence, we considered a deferred tax asset on a maximum of 30% of the tax recoverable losses. Considering the probable tax rate (25%) at the 2020 horizon, the deferred tax asset recognized amounts to 9,8 MEUR.

Multiple approach – Peer Group Multiples

Created : 28 Nov 2017 Forecast Multiples for Option NV

		Market Cap	E.V	/ Sales EV Net				/ EV EBITDA
Company	EfCode	Current (in millions EUR)		2017 (e)	2018 (e)	2019 (e)	2020 (e)	2017 (e)	2018 (e)	2019 (e)	2020 (e)
Option NV	30109EB	1 5	4 4	4,86	3,65	N/A	N/A	N/M	28,81	N/A	N/A
Peer Median		228	245	0,80	0,80	0,81	0,84	9,34	8,22	7,07	5,29
Nokia Oyj	90006SF	24.052	19.634	0,86	0,89	0,86	0,85	6,55	6,64	5,84	4,54
Doro AB	30234SS	113	131	0,65	0,60	0,57	N/A	7,33	5,16	5,42	N/A
LM Ericsson Telefon AB	01439SS	17.921	15.536	0,77	0,80	0,81	0,82	N/M	9,77	7,07	6,03
Ascom Holding AG	30008ES	677	655	2,45	2,33	2,19	2,01	17,06	14,48	12,32	10,48
Grupo Ezentis SA	20124EE	149	251	0,62	0,57	0,54	N/A	6,61	5,70	5,21	N/A
RTX A/S	30230SD	199	172	2,95	2,68	2,44	N/A	17,57	15,33	13,48	N/A
Telit Communications S.p.A.	32816EX	228	245	0,75	0,66	0,63	0,61	6,63	4,70	4,15	3,57
plc Spirent Communications	01562EX	696	605	1,58	1,51	1,41	1,33	9,96	8,77	7,98	7,84
HF Company SA	30567EF	3 0	1 2	0,27	0,25	0,22	0,17	235,73	4,73	3,47	2,00
HMS Networks AB	30682SS	610	652	5,42	4,78	4,24	N/A	23,37	20,58	17,82	N/A
Parrot SA	40036EF	257	7 0	0,44	0,38	0,33	N/A	N/M	N/M	7,50	N/A
Technologies plc Amino	32544EX	154	146	1,64	1,57	1,40	N/A	8,96	8,44	7,21	N/A
Bredband2 i Skandinavien AB	30454SS	7 4	6 7	1,27	1,09	0,95	N/A	10,29	8,00	6,29	N/A
CS Communication & Systemes SA	90134EF	109	148	0,80	0,76	0,73	N/A	9,34	9,04	8,79	N/A
ADVA AG Optical Networking	30318ED	286	260	0,50	0,46	0,44	N/A	5,27	4,24	3,88	N/A

Copyright © 2017 - Infront Analytics - All Rights Reserved Historical fundamental data provided by WVB, Inc Earnings estimates data provided by FactSet

CONCLUSION OF VALUE

• Fair market value for 100% of the equity of Option NV estimated at 16 MEUR as of the Valuation Date after due consideration for the contemplated capital restructuring (debt conversions)

DCF	17 534	50%
EV/EBITDA	13 734	25%
EV/Sales	15 030	25%
Weighted average	958 15