Sigma Acquires Cypoint - Strategic acquisition enhances Sigma’s offering and earnings

8/16/2010 2:30 AM EST

Strategic Acquisition
Cypoint is a good fit with Sigma’s strategy of increasing its share of commitment projects. Sigma perceives that Cypoint’s level of technology and its capacity to tailor solutions combined with systems management offers good development potential. Accordingly, the acquisition reinforces Sigma’s offering, while Cypoint’s earnings generation, combined with cost and revenue synergies, means Sigma’s earnings per share increasing.

“Cypoint is a well-managed company, which has impressed us with its level of technology and the continuity of its customer relationships. The company is well advanced in its business concept, in mobile services for example,” commented Sigma’s CEO, Håkan Karlsson.

Peter Bornvik, Cypoint’s CEO and one of its principal owners, responded: “Sigma is a very positive environment for continued growth. We have a shared view of corporate culture, market progress and positioning. This merger with Sigma means that we will be advancing our positioning together.”

Cypoint
Cypoint was founded in 1996 and offers functional commitments, consulting services, sourcing and systems management services. The company has some 100 employees at offices in Stockholm, Umeå and Gothenburg. Cypoint has been recognized with several sector awards, and has achieved high sales and earnings growth through recent years. Cypoint’s two co-founders and principal owners Peter Bornvik and Johan Edgren, currently the company’ CEO and CTO respectively, will retain their positions and play an active role in Sigma’s business development.

Increased Earnings per Share for Sigma
Sigma has acquired all the shares of Cypoint Group AB as of 13 August. The purchase price is SEK 175 m gross. Cypoint has cash reserves or some SEK 49 m, and accordingly, on a debt-free basis, Sigma is paying SEK 126 m (Enterprise Value).

Cypoint’s net sales were SEK 93 m in 2009 with operating earnings of SEK 19.5 m, applying Sigma’s accounting principles.

Significant cost synergies arise through cooperation between Sigma and Cypoint outsourcing operations. From 2011 onwards, the estimated annualized cost synergies are SEK 7 m and revenue synergies at least SEK 1 m.

If Cypoint had been consolidated on a pro forma basis in 2009, Sigma’s earnings per share including the aforementioned synergies would have increased by SEK 0.19 per share totaling to SEK 0.59 per share. If Cypoint had been consolidated on a pro forma basis in first half ear 2010, Sigma’s earnings per share including the aforementioned synergies would have increased by SEK 0.08 per share totaling to SEK 0.29 per share.*) **)

Sigma’s goodwill increases by SEK 110 m preliminarily. Cypoint is being consolidated into Sigma from August 2010 onwards.

*) Assuming the two convertible notes redeemed and no conversion.

**) If conversion of the convertible note issued to staff was made, the increase of earnings per share would have been SEK 0.17 for 2009 and for first half year 2010 still SEK 0.08.

Payment of Purchase Price
The majority of the SEK 175 m purchase price will be paid in cash as follows:

• SEK 95 m was paid cash on 13 August. Through Cypoint having a cash position of SEK 49 m, then due to payment of the SEK 95 m, the Sigma group’s interest-bearing debt would increase by SEK 46 m after the acquisition. Sigma has arranged a four-year SEK 30 m bank loan.
• SEK 20 m will be paid in cash in November 2010. As stated in a dedicated press release today, Sigma’s Board has decided to propose a convertible note of SEK 20 m to the staff of Sigma and Cypoint in Sweden to an EGM (Extraordinary General Meeting). Shareholders representing 60% of the votes of Sigma have undertaken to support this proposal at the EGM.
  This convertible note is fully guaranteed by Christian W Jansson, principal owner of KappAhl. The convertible note will have customary market terms and conditions.
• SEK 20 m will be paid in cash in January 2011.
• SEK 40 m will be paid through two convertible notes subscribed by the sellers of Cypoint. As stated in a dedicated press release today, Sigma’s Board has decided to propose two convertible notes of SEK 20 m each be issued to the sellers of Cypoint. Shareholders corresponding to 42% of the votes of Sigma have undertaken to support this proposal at the EGM.

Sigma intends to redeem convertible note 1, with 3.5% interest, on 6-7 July 2011, providing holders of convertible notes have not converted the note to Sigma shares at a price of SEK 10.00 on 4-5 July 2011 (the closing price on 13 August was SEK 4.85). If the note still exists on 8 July 2011, the interest rate increases to 20% simultaneous with holders of convertible notes being entitled to convert the note at a price of SEK 2.50 until the loan matures on 30 September 2011.

Convertible note 2 has the same terms as convertible note 1, apart from a one-year delay, i.e. it matures on 30 September 2012. Upon conversion at a price of SEK 10.00, the notes create total dilution of 4.4%. At a price of SEK 2.50, total dilution is 15.6%.

Press conference
A press conference and conference call will be held today, Monday 16 August at 11 a.m. at the Grand Hotel in Stockholm. Sigma’s CEO Håkan Karlsson, CFO Lars Sundqvist and Cypoint’s CEO Peter Bornvik will be present. Location: the “New York” facility.

Participants that are unable to attend can call in on +46 (0)8 505 59853. The conference will be held in Swedish language.

A webcast will be uploaded to Sigma’s website to enable subsequent viewing of the presentation.

For more information, please contact:
Håkan Karlsson, CEO, Sigma AB (publ), +46 (0)70 379 2000  

Lars Sundqvist, CFO, Sigma AB (publ), +46 (0)70 379 2202,  

Peter Bornvik, CEO, Cypoint Group AB, +46 (0)70 896 6767,  

Sigma regards this press release as price sensitive information for Sigma shares. The release was published at 8:30 a.m. on 16 August 2010.