Acquisition

RNS Number : 4529F

Pinnacle Telecom Group PLC

13 January 2010

Pinnacle Telecom Group plc ("Pinnacle" or "the Company")

Acquisition of Solwise Telephony Limited ("Solwise") and its wholly owned subsidiary, Sipswitch Limited ("Sipswitch" or "the Subsidiary")

Pinnacle Telecom Group plc, the provider of integrated telecommunication solutions and services, is pleased to announce that it has acquired the entire issued share capital of Solwise and its wholly owned subsidiary Sipswitch, for a maximum all share consideration of up to £500,000. The transaction is based in part on an earn-out, and is summarised as follows:

1. At completion, the issue of 31,746,843 ordinary shares in the Company ("the Initial Consideration Shares") at 0.57 pence
per share being the mid-market closing price on 11th January 2010, representing an Initial Consideration of £180,957.

          2.     At completion, the issue of 4,203,157 ordinary shares in the Company ("the Loan Shares") at 0.57 pence per share in
                  connection with loans owed by Solwise to certain vendors, amounting to £23,958 in aggregate, which have been assigned
                  from Solwise to the Company and capitalised through the issue to the lenders of ordinary shares in the capital of the
                  Company.

          3.     A deferred consideration ("the Deferred Consideration") calculated in accordance with earn out provisions contained in
                  the acquisition agreement, which allows the vendors additional consideration based on earnings before interest and
                  taxation ("EBIT") for the years ending 30th September 2010 ("2010") and 30th September 2011 ("2011"). For 2010,
                  additional consideration of £15,000 will be payable in ordinary shares for every £10,000 of EBIT above £40,000. For
                  2011, additional consideration of £15,000 will be payable in ordinary shares for every £10,000 of EBIT above £60,000.

          4.     Additional consideration shall not exceed such number of Deferred Consideration shares as shall have an aggregate
                  maximum value of £295,085 over the two year period, measured and issued annually. In order to achieve the maximum
                  earn-out over the two year period, EBIT would need to exceed £236,723.

          5.     The Deferred Consideration shares are represented by a price per share equal to the middle market closing price for an
                  ordinary share in the Company on the day of the announcements of the preliminary results for the year ending
                  30th September 2010 and for the year ending 30th September 2011 with the relevant shares, based on target EBIT in each
                  year, credited as fully paid and ranking pari passu with the ordinary shares in existence at completion of the acquisition.

          6.     No shares issued pursuant to the Initial Consideration may be sold before the preliminary results for the year ended
                  30th September 2009 are announced. Subject to certain defined circumstances, no more than 50% of any of the Initial
                  Consideration Shares and Loan Shares issued to the sellers may be sold within 20 months of those shares being issued to
                  the seller, without the prior consent of Pinnacle. Subject to certain defined circumstances, any shares issued pursuant to
                  the Deferred Consideration may not be sold within 20 months of those shares being issued to the seller, without the prior
                  consent of Pinnacle.

The transaction is conditional only upon the admission of the Initial Consideration Shares and the Loan Shares to trading on AIM, becoming effective in accordance with the AIM Rules, which it is anticipated will occur at 8.00 am on 15th January 2010. Following admission of the new shares, Pinnacle will have 1,738,857,630 shares in issue.

Solwise (www.solwisetelephony.co.uk) is based in Hinckley, Leicestershire, and provides solution driven telecommunications services to the SME market, including carrier pre-selection, line rental, broadband and other bespoke services. Solwise has approximately 600 active business customers with a significant amount of its income and gross margin coming from monthly recurring business. The acquisition of Solwise will create cross-selling opportunities into the current Pinnacle SME customer base and in return will enhance the Solwise customer proposition.

Solwise is also an Internet Service Provider (ISP), and has a data centre in Brighton with connectivity into Telehouse North in London. It is envisaged that this will bring Pinnacle additional benefits and cost savings, once the data centre in Brighton is connected to the Pinnacle ISP and data centre in Paisley.

Sipswitch has developed its own voice over IP ("VoIP") platform, and the acquisition includes the ownership of the intellectual property which has been created by the development of the Sipswitch VoIP platform. VoIP, (or hosted telephony), is rapidly becoming the technology of choice for the development of new applications in the telecommunications space, and in the opinion of the Directors, this acquisition is timely and gives the group access to additional and enhanced features not yet developed within the Pinnacle VoIP platform, thereby saving future development costs and enhancing the services and functionality available to customers.

Based on its unaudited management accounts, for the 17 month period ended 30th September 2009, Solwise had a turnover of £1,026,178 (12 months to 30th April 2008: £587,593), operating profit of £18,062 (12 months to 30th April 2008: £90,560) and retained profit of £9,633 (12 months to 30th April 2008: £7,740). At 30th September 2009, Solwise had net assets of £23,464 (30th April 2008: £13,831). The unaudited management accounts do not consolidate Solwise and Sipswitch as, at the time, Sipswitch was not a subsidiary.

Based on its unaudited management accounts, for the 17 month period ended 30th September 2009, Sipswitch had a turnover of £15,081 (12 months to 30th April 2008: £1,240), operating profit of £4,128 (12 months to 30th April 2008, loss: £3,842) and retained profit of £3,969 (12 months to 30th April 2008, loss: £3,842). At 30th September 2009, Sipswitch had net assets of £194 (30th April 2008, net liabilities: £3,775). At 30th September 2009, £151,856 had been capitalised as research and development costs in connection with the creation of certain IPR in the VoIP platform, funded by Solwise which had £152,055 owed to it at 30th September 2009.

Commenting today Alan J Bonner, Chief Executive of the Company, said:

"I am delighted that we have completed the all share acquisition of Solwise Telephony and Sipswitch. This is the second all share acquisition we have completed in the past seven months, which I believe once again confirms the vendors' confidence in Pinnacle. The businesses have offices in Leicestershire and Brighton, which helps to further expand our operations outside of Scotland. Solwise brings to Pinnacle an excellent team of people and its business is highly complementary to Pinnacle, giving us an additional 600 business customers, to which we can cross-sell Pinnacle services that are currently unavailable to Solwise, such as business mobile bundles and, through Sipswitch, ownership of a range of next generation IP solutions.

The Sipswitch VoIP platform gives us all the functionality we require to market a carrier grade, next generation hosted telephony platform, providing us rapid deployment, without the considerable cost of further developing new features into the existing Pinnacle VoIP platform. It is the intention of the Company to migrate the Pinnacle VoIP customers onto the Sipswitch platform over time. This will give our customers a rich feature set, which, through an intuitive web interface, allows customers to control inbound and outbound call routing, audio conferences, call recording and voicemail management.

We are looking forward to working with the Solwise team, all of whom are staying with Solwise post completion. Introducing earn out provisions through to 30th September 2011 will ensure that the team work diligently to build the business over time, and I am delighted that they have shown their faith in Pinnacle by accepting their total consideration in shares at the mid-market price, without discount.

Cross-selling multiple services to our customers is a key feature of our strategy which will be enhanced by this acquisition. We intend to build on our strategy of expanding the Company through bolt-on, well priced, opportunities; thereby enhancing our services, particularly through the deployment of new generation IP based solutions, as well as strengthening our organic growth capabilities."

It is the intention of the Company that its preliminary results for the year ended 30th September 2009 will be issued before the end of February 2010, and, in due course, full details will be made available on the Company's new website at www.pinnacletelecomgroup.co.uk

13th January 2010

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