READCLOUD LIMITED — M&A Activity 2018

Nov 14, 2018

ASX Announcement 15 November 2018

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ACN 136 815 891 ABN 44 136 815 891

Level 1, 426 Glen Huntly Road, Elsternwick, Victoria, 3185

Contact:

Phone: +61 3 9692 7222 Email: contact@readcloud.com

Board of Directors:

Paul Collins, Non- Exec Chairman Lars Lindstrom, Managing Director Darren Hunter, Executive Director Guy Mendelson, Non-Exec Director

Company Secretary:

Melanie Leydin

Securities on Issue:

RCL: 87,500,000 ordinary shares RCLO: 15,000,000 options

Website:

https://www.readcloud.com/

Acquisition of Australian Institute of Education & Training

The Directors of ReadCloud Limited (“ReadCloud” or “the Company”; ASX: RCL, RCLO) are pleased to announce the acquisition of Australian Institute of Education & Training (“AIET”) for up to $2.95 million, to be satisfied via a combination of cash and RCL shares.

AIET is a leading Registered Training Organisation (“RTO”) that specialises in providing nationally accredited Vocational Education and Training (“VET”) to secondary schools throughout Australia. In 2018, AIET provided its programs to over 90 schools and 4,000+ students. AIET derives 100% of its revenue from schools, with no direct government funding. For school year 2019, AIET will offer its course materials in digital form for all of its schools on the ReadCloud platform, which will more than double ReadCloud’s school relationships.

AIET approached ReadCloud after an extensive search to find technology to protect its intellectual property, reduce printing costs and enhance its course delivery. AIET creates and delivers proprietary course content for 34 VET courses including Certificate II, Certificate III and Diploma courses currently delivered in a physical form. The encryption and delivery of content via the ReadCloud platform will enable AIET to significantly reduce its printing and postage costs. In addition, VET courses are significantly enhanced by video content, which can be embedded within course materials in the ReadCloud digital platform.

There were 242,000 school students taking VET courses in 2017[1] implying that nearly 1 in 2 senior students in years 11 and 12 are studying VET courses.

The transaction offers substantial cross-selling opportunities for selling AIET products into ReadCloud’s existing schools and selling ReadCloud into AIET schools as there is currently no overlap of schools. AIET achieved over 60% revenue growth in FY18 and was profitable. Immediate cost savings will be achieved through digital delivery of AIET’s course materials and from shared services. The acquisition is expected to be earnings accretive for ReadCloud in FY19.

1 National Centre for Vocational Education Research – VET in Schools 2017 report

ReadCloud Limited

ReadCloud has signed a Share and Unit Purchase Agreement for the acquisition of 100% of the issued shares of Australian Institute of Education and Training Pty Ltd (holder of a Registered Training Organisation Licence) and 100% of the issued units of the Australian Institute of Education & Training Unit Trust (the operator of AIET’s business). The Share and Unit Purchase Agreement is subject to the satisfaction of customary conditions for completion, which are expected to be satisfied in the coming weeks.

The acquisition consideration will be satisfied by existing cash and the issue of RCL shares to the vendor, with consideration to be paid in up to three tranches comprising:

• $350,000 cash and 250,000 RCL shares payable / to be issued on completion, with the assumption of $50,000 in liabilities;

• up to $50,000 in cash and up to 1,000,000 RCL shares payable / to be issued on a sliding scale based on AIET achieving up to $900,000 in revenue for FY19; and

• up to $410,000 in cash and up to $1.64 million in RCL shares payable / to be issued on a sliding scale on AIET achieving from $200,000 and up to $600,000 in EBIT for FY19.

Shares issued as deferred consideration relating to the EBIT hurdle will be issued at the greater of $0.40 per share and the VWAP of RCL shares traded on ASX in the 30 days prior to the date of their issue. All RCL shares issued as consideration for the acquisition will be subject to voluntary escrow, with 50% escrowed for 12 months from the date of issue and 50% escrowed for 24 months from the date of issue.

The total acquisition cost is less than 4.5 times FY19 EBIT at the maximum acquisition price.

From completion, AIET’s Chief Executive Officer Nic Mardling (the vendor) will head up ReadCloud’s VET in schools business. Nic has owned and operated Registered Training Operations for over 20 years and comes with invaluable sector experience.

Further information on the AIET acquisition, together with a ReadCloud business update, is contained in the accompanying presentation.

-Ends-

CONTACTS:

Investors & Media:

Luke Murphy, Chief Financial Officer +61 409 933 924

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ReadCloud Limited

About ReadCloud Limited (“ReadCloud”)

ReadCloud is a leading provider of software solutions, including eBooks, to schools within Australia. ReadCloud’s proprietary eBook reader delivers digital content to students and teachers with extensive functionality, including the ability to make commentary in, and import third party content into eBooks.

Students and teachers can share notes, questions, videos and weblinks directly inside the eBooks turning the eBook into a place for discussion, collaboration and social learning, substantially improving learning outcomes. ReadCloud sources content for its solutions from multiple publishers so that together with its reseller Channel Partners, ReadCloud is able to deliver the Australian school curriculum in digital form in all States, on one platform.

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