The Company also announces a placing of 3,282,634 new ordinary shares of 10 pence each in the Company (“Ordinary Shares”, “Placing Shares”) to raise approximately £3.32 million at 101 pence per Placing Share (the “Placing Price”) to fund the upfront cash consideration of the Acquisition (the “Placing”).

Background to the Acquisition

Prime Analytics provides real-time software solutions to professional derivatives traders, risk managers and the broader futures industry. Based in Chicago, USA, Prime Analytics’ customers include established proprietary traders, four of the world’s largest Futures Commission Merchants and commercial energy companies.

Prime Analytics offers software products to customers under the brand-name ProOpticus. The product is used by 13 institutional customers to manage the risk of their multi-asset class portfolios as well as supporting professional proprietary traders to actively trade derivative options.

As at 30 June 2018, Prime Analytics was generating USD$2.6m annualised recurring revenue. For the full financial year to 31 December 2017, it achieved revenue of USD$2.5m and a loss before tax of USD$0.3m.

Executive Managing Director, John P Kelley, spent over 20 years as a government bond options broker and subsequently founded Prime Analytics in 1994. John will remain with the Group to help integrate the product and the team within KRM22’s framework.

The Acquisition is consistent with KRM22’s strategy and investing policy and its objective to invest in technology and software businesses with a focus on risk management in the capital markets.

The Acquisition will mark KRM22’s entry into Market Risk, one of five risk domains targeted for investment: Market, Regulatory, Operational, Technology and Enterprise.

KRM22 already has a presence in Regulatory Risk through its investment in Irisium Ltd in June 2018.

The Company remains in discussions with numerous other investment targets in-line with its investment policy.

Acquisition Consideration

The maximum consideration pursuant to the Acquisition is $7.5 million. The initial consideration is $4.5 million (subject to (a) reduction by the amount of any outstanding indebtedness and transaction expenses of Prime Analytics at closing and (b) increase by the amount of cash and cash equivalents held by Prime Analytics at closing), $3.5 million payable in cash and $1.0 million through the issue of 773,515 new Ordinary Shares at the Placing Price (the “Consideration Shares”).

There is also a maximum additional deferred consideration of $3.0 million which is payable in two tranches of $1.5 million and subject to earn-out conditions based on the financial performance of Prime Analytics for the years ended 31 December 2019 and 31 December 2020. The first earn-out of $1.5m will be payable if Prime Analytics achieves $3.0m revenue in the year ended 31 December 2019 and the second earn-out of $1.5m will be payable if Prime Analytics achieves $3.3m revenue in the year ended 31 December 2020. Lower earn-out amounts may be payable in the event that the revenue targets described above are not achieved. The $3.0m deferred consideration can be settled in cash and/or shares (at the prevailing market rate) at the sole discretion of the Company.

The Prime Analytics vendors ("Vendors") will, following the issue of the Consideration Shares, hold an aggregate of 773,515 Ordinary Shares (representing approximately 4.72 per cent. of the enlarged issued share capital upon Admission (as defined below)). The Vendors have undertaken, save in limited circumstances, not to dispose of any of its interests in Ordinary Shares (including Ordinary Shares that they may acquire) at any time prior to the first 6 months of Admission. In addition, in order to ensure an orderly market in the Ordinary Shares, the Vendors have further undertaken that for a further period of 6 months thereafter they will not (subject to certain limited exceptions) deal or otherwise dispose of any such interests other than through finnCap (or such other broker appointed by the Company from time to time). Any further deferred consideration satisfied through the issue of Ordinary Shares, will also be subject to a 6-month orderly market undertaking.

The Acquisition is to be effected by way of a merger of Prime Analytics and KRM22 Prime Merger Sub LLC, a wholly owned indirect subsidiary of the Company, pursuant to the Illinois Limited Liability Company Act (the "ILLCA") and the Delaware Limited Liability Company Act (the "DLLCA"). The Company intends to file:

a certificate of merger (the "Certificate of Merger") with the Secretary of State of the State of Delaware, in accordance with the relevant provisions of the DLLCA; and
articles of merger (the "Articles of Merger") with the Secretary of State of the State of Illinois in accordance with the relevant provisions of the ILLCA.
The Acquisition will become effective at such time as the Certificate of Merger has been duly receipted by the Secretary of State of the State of Delaware, which is expected to take place during the course of today. Investors should note that the Acquisition will not have become effective unless and until such time as the Certificate of Merger has been duly receipted.

Highlights of the Placing

In accordance with the terms of a placing agreement entered into between the Company and finnCap, the Company has, via finnCap as placing agent, conducted a placing to raise approximately £3.32 million by way of the issue of 3,282,634 Placing Shares at the Placing Price of 101 pence per Placing Share with certain existing and new institutional and other investors. Of these other investors, staff members of the Company have subscribed for approximately £170,000 pursuant to the Placing.

The Placing Agreement is conditional, inter alia, upon:

the performance by the Company of its obligations under the Placing Agreement insofar as the same fall to be performed or satisfied on or prior to Admission;
the acquisition agreement between the Company and the Vendors not having been terminated or materially amended or varied and having become unconditional in all respects;
Admission having occurred by 8.00 a.m. on the Admission date (as defined below); and
satisfaction or, where appropriate, the waiver of certain other conditions set out in the Placing Agreement.
The net funds of the Placing will be used to fund the initial cash consideration of the Acquisition. The Placing Price represents a discount of approximately 32.7 per cent. to the closing mid-market price of the Ordinary Shares on 24 September 2018 (being the last practicable dealing day prior to the date of this announcement).

The Placing Shares will represent approximately 24.7 per cent. of the ordinary share capital as enlarged by the Acquisition and Placing, and will, on Admission, rank pari passu in all other respects with the Company’s existing Ordinary Shares.

The Placing Shares are being issued pursuant to the authorities granted to the Directors at the time of the IPO of KRM22 in April 2018 according to the Company’s articles of association and as such, the issuance of the Placing Shares is not subject to shareholder approval.

Director Participation and Related Party Transaction

Keith Todd, Executive Chairman and CEO of the Company has subscribed for 48,000 Placing Shares at the Placing Price. Following this subscription, Keith Todd will hold 1,588,000 Ordinary Shares in the Company, representing approximately 9.70 per cent. of the enlarged issued share capital on Admission.

Keith Todd is considered a "related party" as defined under the AIM Rules due to his Board position. Keith Todd’s participation in the Placing constitutes a related party transaction for the purposes of Rule 13 of the AIM Rules.

In addition, Canaccord Genuity (“Canaccord”), has subscribed for an aggregate of 624,256 Placing Shares at the Placing Price through Canaccord Genuity and Canaccord Wealth. Following this subscription, Canaccord will in aggregate hold 2,443,644 Ordinary Shares in the Company (including its shares held by Hargreave Hale AIM VCT), representing approximately 14.92 per cent. of the enlarged issued share capital on Admission.

Canaccord is considered a "related party" as defined under the AIM Rules as a result of its substantial shareholding in the Company. Canaccord’s participation in the Placing constitutes a related party transaction for the purposes of Rule 13 of the AIM Rules.

The Independent Directors (being the Directors of the Board, other than Keith Todd) consider, having consulted with the Company's nominated adviser for the purposes of the AIM Rules, finnCap, that the terms of Keith Todd and Canaccord’s subscription for shares fair and reasonable insofar as the Company's shareholders are concerned.

Application for Admission

Application has been made for the Placing Shares and the Consideration Shares to be admitted to trading on AIM. Admission is expected to become effective on or around 26 September 2018 (“Admission”). Following Admission, KRM22 will have 16,376,388 Ordinary shares in issue. All Ordinary Shares have equal voting rights and none of the Ordinary Shares are held in treasury. The total number of voting rights in the Company immediately following Admission will therefore be 16,376,388.

Keith Todd CBE, Executive Chairman and Chief Executive Officer of KRM22 plc commented:

“This acquisition is a further, strategic step toward the development of the new generation Global Risk Platform we are focused on developing. The addition of Prime Analytics to our existing operations will bring new software, new talent and a wealth of new tier one customers to the Group.

Where our acquisition of Irisium marked our first step into the domain of Regulatory Risk, Prime Analytics marks our entry into the domain of Market Risk. Within just five months of our IPO we will have a clear presence in two of the five key risk domains targeted for investment.

We will also have built – in that same short timeframe and from a standing start – a c. £3m recurring revenue business. We believe this is a very strong foundation to continue building upon.”