Prepress

Kofax to Sell Its Hardware Business

Monday 17. January 2011 - Company to Record an Exceptional Charge to Optimize Its Software Business in EMEA

Kofax plc (LSE: KFX), the leading provider of document driven business process automation solutions, today announces it has entered into a definitive agreement to sell its hardware business to Hannover Finanz, a private equity firm headquartered in Germany, and to members of the business unit’s management team. The transaction is expected to yield at least $20 million of net after tax cash proceeds to Kofax and close during March of 2011.
Kofax also announces its intention to record an exceptional charge of up to $2.6 million during the half year ended December 31, 2010 to restructure and optimize its software business in Europe, the Middle East and Africa (EMEA). This is where the hardware business is located and operates, and this restructuring is only now possible with the anticipated disposal. The company expects this reorganization to lead to approximately 20 redundancies and result in annual cost savings of at least $2.5 million in its fiscal year 2012 and thereafter.
Reynolds C. Bish, Chief Executive Officer of Kofax, said: “We’re very pleased to have effected this disposal in a manner that provides for the continuity of management, employees and key supplier and reseller relationships. We sincerely look forward to working with all of these parties as the business will continue to be an important value added distributor of our Kofax VRS and Kofax Express software products in EMEA.”
He continued: “The proceeds from this transaction and the planned restructuring will better position us to focus on and further grow our software business revenues and earnings both organically and via our acquisition strategy. This is particularly timely as we recently concluded a successful half year that is materially better than the expectations previously conveyed in our Interim Management Statement dated November 4, 2010. We look forward to announcing these results on February 7.”
Joachim Froning, Senior Vice President of Hardware Distribution Sales at Kofax and the anticipated Chief Executive Officer of Dicom International AG – the new hardware business entity, said, “The hardware business management team and our employees are very excited about this transaction. It will allow us to better focus our efforts on growing the business and improving its operations, especially with Hannover Finanz – a well established and respected investment firm – as our primary shareholder and financial partner. We’ve chosen to use the Dicom brand and corporate name to build upon the legacy strength of this business and want to assure all of our valued resellers and suppliers that it will be ‘business as usual’ between now and the closing of this transaction in March and thereafter as we move forward together.”
Hardware Business Disposal
Kofax’s hardware business is a leading value added distributor of imaging and archival storage products and provider of related maintenance and support services to resellers in more than 40 countries throughout EMEA. The business is a critically important partner both to its supplier base of pre-eminent digital scanner and storage manufacturers and its customer base of more than 3,000 resellers. It employs approximately 200 personnel in 19 locations throughout EMEA. Its unaudited revenues were $128.5 million, its earnings before interest, taxes and amortization (EBITA) was $2.3 million, its gross assets were $55.3 million and its net assets were $15.3 million as of and for the fiscal year ended June 30, 2010 – the date of Kofax’s most recently published financial statements. These amounts include $1.9 million of revenues and $0.5 million of EBITA the hardware business would have recognized had it been an independent entity distributing Kofax software products in EMEA during that period.
Under the terms of the definitive agreement, Hannover Finanz will pay gross consideration of $23.2 million to acquire certain legal entities, the Dicom brand and name and the assets and liabilities of the hardware business other than those that must remain with Kofax – such as taxes payable – and assume the employment of personnel in the hardware business. Of the $23.2 million, $15.0 million will be paid at closing, $5.3 million will be paid one year from closing, with $2.0 million thereof subject to certain indemnification terms and conditions, and the remaining $2.9 million, including interest thereon at the rate of five percent per annum, will be paid 18 months from closing, with the payment of all amounts deferred beyond closing adequately secured.
In addition, Kofax will lend $0.5 million at closing to Joachim Froning and two other members of the business unit’s management team to partially finance the cost of their minority equity purchases in the new hardware business entity. These loans will be in the form of full recourse promissory notes paid over a four year period, together with interest thereon at the rate of five percent per annum, or in full upon the earlier disposal of said equity.
Finally, Stefan Gaiser, Kofax’s Chief Financial Officer and an executive Director of Kofax until June of 2010 and an employee of the company through December 31, 2010 has, beginning in January of 2011, started providing consulting services to Hannover Finanz in connection with the transaction. He is expected to serve as a non executive Director and Chairman of the Board of the new hardware business entity and at or after the closing purchase a minority equity interest therein.
Kofax has also entered into a transition services agreement with Hannover Finanz to provide and over time transfer certain back office functions, information management systems and infrastructure and facilities to the new hardware business entity for a period of up to 12 months following the closing. The related revenues and expenses are dependent upon the extent and duration of the services actually provided, which cannot be determined at this time.
After taking both the definitive and transition services agreements into account, Kofax expects this transaction to yield at least $20 million of net after tax cash proceeds to the company. This is a Class 2 transaction as defined by the Listing Rules of the UK Listing Authority and the approval of the company’s shareholders is therefore not required. The transaction is expected to close during March of 2011, subject to usual and customary closing conditions.
As a result of this transaction, Kofax intends to account for the hardware business as a discontinued operation beginning July 1, 2010. The company will provide details of the anticipated financial accounting treatment of the disposal when it announces its interim results for the half year ended December 31, 2010 on February 7, 2011.
Kofax was advised in this transaction by DC Advisory Partners.
Exceptional Charge to Optimize the Software Business
Part of Kofax’s strategy is to continually optimize its performance. With the disposal of the hardware business the company is now in a position to restructure and optimize its software business in EMEA. As a result, Kofax today announces its intention to record an exceptional charge of up to $2.6 million during the half year ended December 31, 2010 to:
Consolidate its finance, accounting and other back office operations currently residing in 10 locations throughout EMEA into a single shared services center in Rotkreuz, Switzerland and
Write off the cost of onerous lease obligations for unused office space throughout EMEA.
These changes will all better position Kofax to focus on and further grow its software business revenues and earnings both organically and via its acquisition strategy. In addition, the move to a single shared services center should improve the timeliness and quality of the company’s internal and external reporting and thereby allow it to better manage the business.
The company expects this restructuring to lead to approximately 20 redundancies and result in annual cost savings of at least $2.5 million in its fiscal year 2012 and thereafter.