Q-Free ASA — M&A Activity 2014

Jul 17, 2014

Q-Free acquires Open Roads Consulting – Extended stock exchange notification

This enclosure contains additional information about Q-Free's acquisition of Open Roads Consulting, in accordance with Section 3.4 of Continuing Obligations for companies listed on Oslo Stock Exchange.

According to the signed Share Purchase Agreement (SPA), Q-Free has agreed to acquire 100 percent of the shares in Open Roads Consulting Inc. in the US. The company is owned 40 percent by the Founder and President Barbara Skiffington, 25 percent by Founder Stephen Beckwith, 25 percent by Founder Susan Beckwith and 10 percent by Founder and VP ISS Division Joseph Cardyn. Q-Free expects the transaction to be closed within the end of the third quarter 2014.

The consideration is based on an estimated sales price of USD 7.25 million net of cash and debt, and no shares will be issued as part of the consideration. The range of the total consideration is USD 6.2- 12.5 million.

The initial consideration is approximately USD 6.2 million. According to the SPA, the seller is entitled to further compensation of up to USD 6.3 million, subject to the financial performance of Open Roads Consulting in two years from closing of the transaction including part of 2014, 2015 and part of 2016. The consideration is based on an estimated earn-out element of USD 2.5 million.

The activities of Open Roads Consulting will be consolidated into the accounts of Q-Free with effect from closing, expected to be during the third quarter 2014.

USD 1000	2011	2012	2013
Revenues	13 028	13 463	12 871
GP	6 974	6 948	6 769
Operating expenses	4 966	5 894	5 912
EBITDA	2 008	1 054	857
EBIT	1 815	831	558
EBIT-margin	15.4 %	7.8 %	6.6 %
Profit before tax	1 808	833	579
Net profit	1 808	833	579
Total assets:	5 722	6 222	7 310
Equity	4 866	3 816	4 174
Equity ratio	85.0 %	61.3%	57.1%
Net cash (debt)	992	-184	-1 438

On an audited basis, the main results from the acquired operations in Open Roads Consulting are as follows:

Note: In 2013, 58 percent of the revenues derived from Transportation and 42 percent from Security. The split is expected to change going forward.

Measured in NOK, Open Roads' revenues amounted to approximately NOK 80 million in 2013, compared to Q-Free's reported revenues of NOK 606 million.

As seen in the above table, book equity of the acquired assets amounted to USD 4.2 million and the excess value of NOK 24.0 million (USD 4.0 million) is allocated with NOK 7.2 million to Technology, NOK 5.5 million to Order backlog, NOK 5.7 million to Customer Relationships and NOK 5.6 million to goodwill .

The headquarters of Open Roads Consulting is in Chesapeake, Virginia, USA. The company operates mission critical traffic deployments and video based surveillance of critical assets in 30 states in the US out of the headquarters and the satellite office in Austin, Texas. Open Roads Consulting has 74 employees, whereof is 10 working in corporate/management, 40 in the Intelligent Transportation Systems Division and 24 in the Integrated Security Systems Division.

The company's Founder and President Barbara Skiffington leads a management team of four people; Shelly McKean (Corporate Controller/Director), Bruce Kenney III (VP ITS Division), Joseph Cardyn (VP ISS Division) and Ann Mitcham (HR Director).

The Board of Directors of Open Roads Consulting Inc. consists of Barbara Skiffington, Joseph Cardyn and Susan Beckwith at the time of the transaction.

Barbara Skiffington will continue as President of Open Roads Consulting and Joseph Cardyn will continue as VP ISS Division of Open Roads Consulting, as a part of Q-Free, on salary and terms normal for the industry. Skiffington and Cardyn are committed to continue for two years in the company after closing.

The transaction triggers no other agreements to the benefit of members of the managements or Boards in either Q-Free or Open Roads Consulting.

Strategically, the acquisition supports Q-Free's ambition to strengthen its position within the Advanced Traffic Management Systems (ATMS) market, as a complement to its main business in the Road User Charging (RUC) market. Going forward, the company expects the disciplines to merge into a larger Intelligent Transport Systems (ITS) market, where Q-Free ambition is to build a position as one of the leading players.

Q-Free acquired the US based parking guidance company TCS International in 2012, and followed-up with the acquisition of the Serbian traffic management company ELCOM and a strategic 10 percent investment in Intelight in the US in 2013. The acquisition of Open Roads Consulting is the third acquisition in 2014, following the inclusion of TDC Systems in the UK and Traffic Design in Slovenia into the Q-Free portfolio earlier this year.

Approximately 6 percent of Q-Free's revenues was generated within the ATMS market in 2013, and the inclusion of Open Roads Consulting's revenues will significantly increase the relative importance of the ATMS activities within Q-Free.

Q-Free expects to continue to expand its ATMS business, both through further acquisitions and through development of its current businesses within the area.